Rep. Jay Hoffman

Filed: 5/30/2018





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2    AMENDMENT NO. ______. Amend Senate Bill 1737 by replacing
3everything after the enacting clause with the following:
4    "Section 1. Short title. This Act may be cited as the
5Short-Term, Limited-Duration Health Insurance Coverage Act.
6    Section 5. Definitions. In this Act:
7    "Department" means the Department of Insurance.
8    "Health insurance coverage" has the meaning given to that
9term in the Illinois Health Insurance Portability and
10Accountability Act.
11    "Health insurance issuer" has the meaning given to that
12term in the Illinois Health Insurance Portability and
13Accountability Act.
14    "Fraud" means an intentional misrepresentation of a
15material fact in connection with the coverage.
16    "Short-term, limited-duration health insurance coverage"



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1means health insurance coverage provided pursuant to a policy
2with an issuer, regardless of the situs of the delivery of the
3policy, that is less than 365 days after the effective date of
4the policy.
5    Section 10. Application; scope; duration of coverage.
6    (a) This Act applies to health insurance issuers that offer
7short-term, limited-duration health insurance coverage to
8individuals in this State and to short-term, limited-duration
9health insurance coverage that is delivered or issued for
10delivery in this State, including coverage issued outside of
11this State that covers individuals in this State.
12    (b) A short-term, limited-duration health insurance
13coverage policy may not be issued or delivered to any person
14residing in this State unless the policy, when delivered or
15issued for delivery in this State, complies with the provisions
16of this Act.
17    (c) Any short-term, limited-duration health insurance
18coverage policy that is delivered or issued for delivery in
19this State must have an expiration date in the policy that is
20less than 181 days after the effective date and shall not be
21renewable or extendable within a period of 365 days after the
22individual's coverage under the policy ends, either at the
23option of the issuer or the individual. Renewal of a
24short-term, limited-duration health insurance coverage policy
25includes the issuance of a new short-term, limited-duration



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1health insurance policy by an issuer to a policyholder within
260 days after the expiration of a policy previously issued by
3the issuer to the policyholder.
4    (d) Any short-term, limited-duration health insurance
5coverage policy that is delivered or issued for delivery in
6this State may not be rescinded before the expiration date in
7the policy, except in cases of nonpayment of premiums, fraud,
8or as provided in subsection (e).
9    (e) Any short-term, limited-duration health insurance
10coverage policy that is delivered or issued for delivery in
11this State shall contain an option for an individual to cancel
12coverage after any 30-day interval during the term of the plan.
13    Section 15. Disclosure requirements.
14    (a) A health insurance issuer that offers short-term,
15limited-duration health insurance coverage to be delivered or
16issued for delivery in this State shall, in addition to all
17other documents required, including, but not limited to, the
18policy, the certificate, the membership booklet, and a
19description of appeal and external review rights, deliver an
20outline of coverage to an applicant for or an enrollee in
21short-term, limited-duration health insurance coverage
22delivered or issued for delivery in this State.
23    (b) Any short-term, limited-duration health insurance
24coverage policy that is delivered or issued for delivery in the
25State shall display prominently in the policy, any application,



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1sales, and marketing materials provided in connection with
2enrollment in such coverage, and the outline of coverage for
3such coverage, in at least 14-point, bold type, the following:
19    (c) Any individual selling a short-term, limited-duration
20health insurance coverage policy in this State in face-to-face
21or telephonic sales interactions must read out loud the
22disclosure in subsection (b) to a prospective purchaser. An
23entity selling a short-term, limited-duration health insurance
24coverage policy in Illinois must display the disclosure in
25subsection (b) on the webpage where a prospective purchaser
26would purchase coverage.



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1    (d) Nothing in this Section precludes an insurer from
2providing disclosures in addition to those required in
3subsections (b) and (c). Nothing in this Section precludes an
4insurer from providing disclosures intended to clarify those
5required in subsections (b) and (c) if approved by the
7    Section 20. Filing and approval.
8    (a) Coverage subject to this Act may not be delivered or
9issued for delivery in this State unless the policy evidencing
10such coverage has been filed with and been approved by the
12    (b) A health insurance issuer who intends to deliver or
13issue for delivery a short-term, limited-duration health
14insurance coverage policy in this State shall file with the
16        (1) all paperwork required for individual health
17    insurance coverage pursuant to 50 Ill. Adm. Code 916; and
18        (2) all sales and marketing materials provided in
19    connection with enrollment in such coverage for
20    informational purposes.
21    (c) The Department shall adopt any rules necessary to carry
22out the provisions of this Act.
23    Section 90. The Illinois Insurance Code is amended by
24adding Article IIB and Sections 123C-23, 123C-24, 123C-25,



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1123C-26, 123C-27, 123C-28, and 462a and by changing Sections
2121-2.08, 123C-1, 123C-2, 123C-3, 123C-9, 123C-11, 123C-12,
3123C-13, 123C-16, 123C-17, 123C-19, 156, 173.1, 456, 457, and
4458 as follows:
5    (215 ILCS 5/Art. IIB heading new)

7    (215 ILCS 5/35B-1 new)
8    Sec. 35B-1. Short title. This Article may be cited as the
9Domestic Stock Company Division Law.
10    (215 ILCS 5/35B-5 new)
11    Sec. 35B-5. Purpose. The purpose of this Article is to
12stimulate economic development in the State of Illinois by
13creating and sustaining employment opportunities and
14increasing and sustaining taxable revenue, through improving
15the competitive position of domestic stock companies,
16maintaining the competitiveness of this State as a state of
17domicile for domestic stock companies, and enhancing the
18desirability of this State as a jurisdiction of domicile for
19newly incorporating and existing foreign stock companies.
20    (215 ILCS 5/35B-10 new)
21    Sec. 35B-10. Definitions. As used in this Article:
22    "Assets" means all assets or property, whether real,



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1personal or mixed, tangible or intangible, and any right or
2interest therein, including all rights under contracts and
3other agreements.
4    "Capital" means the capital stock component of statutory
5surplus, as defined in the National Association of Insurance
6Commissioners Accounting Practices and Procedures Manual,
7version effective January 1, 2001, and subsequent revisions.
8    "Divide" or "division" means the act by operation of law by
9which a domestic stock company divides into 2 or more resulting
10companies in accordance with a plan of division and this
12    "Dividing company" means a domestic stock company that
13approves a plan of division pursuant to Section 35B-20;
14    "Domestic stock company" means a domestic stock company
15transacting or being organized to transact any of the kinds of
16insurance business enumerated in Section 4.
17    "Liability" means a liability or obligation of any kind,
18character, or description, whether known or unknown, absolute
19or contingent, accrued or unaccrued, disputed or undisputed,
20liquidated or unliquidated, secured or unsecured, joint or
21several, due or to become due, determined, determinable, or
23    "New company" means a domestic stock company that is
24created by a division occurring on or after the effective date
25of this amendatory Act of the 100th General Assembly.
26    "Plan of division" means a plan of division approved by a



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1dividing company in accordance Section 35B-20.
2    "Policy liability" means a liability as defined in this
3Section arising out of or related to an insurance policy,
4contract of insurance, or reinsurance agreement.
5    "Recorder" means the office of the recorder of the county
6where the principal office of a domestic stock company is
8    "Resulting company" means a domestic stock company created
9by a division or a dividing company that survives a division.
10    "Shareholder" means the person in whose name shares are
11registered in the records of a corporation or the beneficial
12owner of shares to the extent of the rights granted by a
13nominee certificate on file with a corporation.
14    "Sign" or "signature" includes a manual, facsimile, or
15conformed or electronic signature.
16    "Surplus" means total statutory surplus less capital,
17calculated in accordance with the National Association of
18Insurance Commissioners Accounting Practices and Procedures
19Manual, version effective January 1, 2001, and subsequent
21    "Transfer" includes an assignment, assumption, conveyance,
22sale, lease, encumbrance, including a mortgage or security
23interest, gift, or transfer by operation of law.
24    (215 ILCS 5/35B-15 new)
25    Sec. 35B-15. Plan of division.



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1    (a) A domestic stock company may, in accordance with the
2requirements of this Article, divide into 2 or more resulting
3companies pursuant to a plan of division.
4    (b) Each plan of division shall include:
5        (1) the name of the domestic stock company seeking to
6    divide;
7        (2) the name of each resulting company that will be
8    created by the proposed division;
9        (3) for each new company that will be created by the
10    proposed division, a copy of its:
11            (A) proposed articles of incorporation;
12            (B) proposed bylaws; and
13            (C) the kinds of insurance business enumerated in
14        Section 4 that the new company would be authorized to
15        conduct;
16        (4) the manner of allocating between or among the
17    resulting companies:
18            (A) the assets of the domestic stock company that
19        will not be owned by all of the resulting companies as
20        tenants in common pursuant to Section 35B-35; and
21            (B) the liabilities of the domestic stock company,
22        including policy liabilities, to which not all of the
23        resulting companies will become jointly and severally
24        liable pursuant to paragraph (3) of subsection (a) of
25        Section 35B-40;
26        (5) the manner of distributing shares in the new



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1    companies to the dividing company or its shareholders;
2        (6) a reasonable description of the liabilities,
3    including policy liabilities, and items of capital,
4    surplus, or other assets, in each case, that the domestic
5    stock company proposes to allocate to each resulting
6    company, including specifying the reinsurance contract,
7    reinsurance coverage obligations, and related claims that
8    are applicable to those policies;
9        (7) all terms and conditions required by the laws of
10    this State or the articles of incorporation and bylaws of
11    the domestic stock company;
12        (8) evidence demonstrating that the interest of all
13    classes of policyholders of the dividing company will be
14    properly protected; and
15        (9) all other terms and conditions of the division.
16    Nothing in this subsection (b) shall expand or reduce the
17allocation and assignment of reinsurance as stated in the
18reinsurance contract.
19    (c) If the domestic stock company survives the division,
20the plan of division shall include, in addition to the
21information required by subsection (b):
22        (1) all proposed amendments to the dividing company's
23    articles of incorporation and bylaws, if any;
24        (2) if the dividing company desires to cancel some, but
25    less than all, shares in the dividing company, the manner
26    in which it will cancel such shares; and



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1        (3) if the dividing company desires to convert some,
2    but less than all, shares in the dividing company into
3    shares, securities, obligations, money, other property,
4    rights to acquire shares or securities, or any combination
5    thereof, a statement disclosing the manner in which it will
6    convert the shares.
7    (d) If the domestic stock company does not survive the
8proposed division, the plan of division shall contain, in
9addition to the information required by subsection (b), the
10manner in which the dividing company will cancel or convert
11shares in the dividing company into shares, securities,
12obligations, money, other property, rights to acquire shares or
13securities, or any combination thereof.
14    (e) Terms of a plan of division may be made dependent on
15facts objectively ascertainable outside of the plan of
17    (f) A dividing company may amend a plan of division in
18accordance with any procedures set forth in the plan of
19division or, if no such procedures are set forth in the plan of
20division, in any manner determined by the board of directors of
21the dividing company, except that a shareholder that was
22entitled to vote on or consent to approval of the plan of
23division is entitled to vote on or consent to any amendment of
24the plan of division that will change:
25        (1) the amount or kind of shares, securities,
26    obligations, money, other property, rights to acquire



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1    shares or securities, or any combination thereof, to be
2    received by any of the shareholders of the dividing company
3    under the plan of division;
4        (2) the articles of incorporation or bylaws of any
5    resulting company that will be in effect when the division
6    becomes effective, except for changes that do not require
7    approval of the shareholders of the resulting company under
8    its articles of incorporation or bylaws; or
9        (3) any other terms or conditions of the plan of
10    division, if the change would adversely affect the
11    shareholders in any material respect.
12    (g) A dividing company may abandon a plan of division after
13it has approved the plan of division without any action by the
14shareholders and in accordance with any procedures set forth in
15the plan of division or, if no such procedures are set forth in
16the plan of division, in a manner determined by the board of
17directors of the dividing company.
18    (h) A dividing company may abandon a plan of division after
19it has filed a certificate of division with the recorder by
20filing with the recorder, with concurrent copy to the director,
21a certificate of abandonment signed by the dividing company.
22The certificate of abandonment shall be effective on the date
23it is filed with the recorder and the dividing company shall be
24deemed to have abandoned its plan of division on such date.
25    (i) A dividing company may not abandon or amend its plan of
26division once the division becomes effective.



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1    (215 ILCS 5/35B-20 new)
2    Sec. 35B-20. Requirements of a plan of division.
3    (a) A domestic stock company shall not file a plan of
4division with the Director unless the plan of division has been
5approved in accordance with:
6        (1) any applicable provisions of its articles of
7    incorporation and bylaws; and
8        (2) all laws of this State governing the internal
9    affairs of a domestic stock company that provide for
10    approval of a merger.
11    (b) If any provision of the articles of incorporation or
12bylaws of a domestic stock company requires that a specific
13number or percentage of board of directors or shareholders
14approve the proposal or adoption of a plan of merger, or
15imposes other special procedures for the proposal or adoption
16of a plan of merger, such domestic stock company shall adhere
17to such provision in proposing or adopting a plan of division.
18If any provision of the articles of incorporation or bylaws of
19a domestic stock company is amended, such amendment shall
20thereafter apply to a division only in accordance with its
21express terms.
22    (215 ILCS 5/35B-25 new)
23    Sec. 35B-25. Plan of division approval.
24    (a) A division shall not become effective until it is



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1approved by the Director after reasonable notice and a public
2hearing, if the notice and hearing are deemed by the Director
3to be in the public interest. The Director shall hold a public
4hearing if one is requested by the dividing company. A hearing
5conducted under this Section shall be conducted in accordance
6with Article 10 of the Illinois Administrative Procedure Act.
7    (b) The Director shall approve a plan of division unless
8the Director finds that:
9        (1) the interest of any class of policyholder or
10    shareholder of the dividing company will not be properly
11    protected;
12        (2) each new company created by the proposed division,
13    except a new company that is a nonsurviving party to a
14    merger pursuant to subsection (b) of Section 156, would be
15    ineligible to receive a license to do insurance business in
16    this State pursuant to Section 5;
17        (3) the proposed division violates a provision of the
18    Uniform Fraudulent Transfer Act;
19        (4) the division is being made for purposes of
20    hindering, delaying, or defrauding any policyholders or
21    other creditors of the dividing company;
22        (5) one or more resulting companies will not be solvent
23    upon the consummation of the division; or
24        (6) the remaining assets of one or more resulting
25    companies will be, upon consummation of a division,
26    unreasonably small in relation to the business and



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1    transactions in which the resulting company was engaged or
2    is about to engage.
3    (c) In determining whether the standards set forth in
4paragraph (3) of subsection (b) have been satisfied, the
5Director shall only apply the Uniform Fraudulent Transfer Act
6to a dividing company in its capacity as a resulting company
7and shall not apply the Uniform Fraudulent Transfer Act to any
8dividing company that is not proposed to survive the division.
9    (d) In determining whether the standards set forth in
10paragraphs (3), (4), (5), and (6) of subsection (b) have been
11satisfied, the Director may consider all proposed assets of the
12resulting company, including, without limitation, reinsurance
13agreements, parental guarantees, support or keep well
14agreements, or capital maintenance or contingent capital
15agreements, in each case, regardless of whether the same would
16qualify as an admitted asset as defined in Section 3.1.
17    (e) In determining whether the standards set forth in
18paragraph (3) of subsection (b) have been satisfied, with
19respect to each resulting company, the Director shall, in
20applying the Uniform Fraudulent Transfer Act, treat:
21        (1) the resulting company as a debtor;
22        (2) liabilities allocated to the resulting company as
23    obligations incurred by a debtor;
24        (3) the resulting company as not having received
25    reasonably equivalent value in exchange for incurring the
26    obligations; and



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1        (4) assets allocated to the resulting company as
2    remaining property.
3    (f) All information, documents, materials, and copies
4thereof submitted to, obtained by, or disclosed to the Director
5in connection with a plan of division or in contemplation
6thereof, including any information, documents, materials, or
7copies provided by or on behalf of a domestic stock company in
8advance of its adoption or submission of a plan of division,
9shall be confidential and shall be subject to the same
10protection and treatment in accordance with Section 131.14d as
11documents and reports disclosed to or filed with the Director
12pursuant to Section 131.14b until such time, if any, as a
13notice of the hearing contemplated by subsection (a) is issued.
14    (g) From and after the issuance of a notice of the hearing
15contemplated by subsection (a), all business, financial, and
16actuarial information that the domestic stock company requests
17confidential treatment, other than the plan of division, shall
18continue to be confidential and shall not be available for
19public inspection and shall be subject to the same protection
20and treatment in accordance with Section 131.14d as documents
21and reports disclosed to or filed with the Director pursuant to
22Section 131.14b.
23    (h) All expenses incurred by the Director in connection
24with proceedings under this Section, including expenses for the
25services of any attorneys, actuaries, accountants, and other
26experts as may be reasonably necessary to assist the Director



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1in reviewing the proposed division, shall be paid by the
2dividing company filing the plan of division. A dividing
3company may allocate expenses described in this subsection in a
4plan of division in the same manner as any other liability.
5    (i) If the Director approves a plan of division, the
6Director shall issue an order that shall be accompanied by
7findings of fact and conclusions of law.
8    (j) The conditions in this Section for freeing one or more
9of the resulting companies from the liabilities of the dividing
10company and for allocating some or all of the liabilities of
11the dividing company shall be conclusively deemed to have been
12satisfied if the plan of division has been approved by the
13Director in a final order that is not subject to further
15    (215 ILCS 5/35B-30 new)
16    Sec. 35B-30. Certificate of division.
17    (a) After a plan of division has been adopted and approved,
18an officer or duly authorized representative of the dividing
19company shall sign a certificate of division.
20    (b) The certificate of division shall set forth:
21        (1) the name of the dividing company;
22        (2) a statement disclosing whether the dividing
23    company will survive the division;
24        (3) the name of each new company that will be created
25    by the division;



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1        (4) the kinds of insurance business enumerated in
2    Section 4 that the new company will be authorized to
3    conduct;
4        (5) the date that the division is to be effective,
5    which shall not be more than 90 days after the dividing
6    company has filed the certificate of division with the
7    recorder, with a concurrent copy to the Director;
8        (6) a statement that the division was approved by the
9    Director in accordance with Section 35B-25;
10        (6) a statement that the dividing company provided, no
11    later than 10 business days after the dividing company
12    filed the plan of division with the Director, reasonable
13    notice to each reinsurer that is party to a reinsurance
14    contract that is applicable to the policies included in the
15    plan of division;
16        (7) if the dividing company will survive the division,
17    an amendment to its articles of incorporation or bylaws
18    approved as part of the plan of division;
19        (8) for each new company created by the division, its
20    articles of incorporation and bylaws, provided that the
21    articles of incorporation and bylaws need not state the
22    name or address of an incorporator; and
23        (9) a reasonable description of the capital, surplus,
24    other assets and liabilities, including policy
25    liabilities, of the dividing company that are to be
26    allocated to each resulting company.



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1    (c) The articles of incorporation and bylaws of each new
2company must satisfy the requirements of the laws of this
3State, provided that the documents need not be signed or
4include a provision that need not be included in a restatement
5of the document.
6    (d) A certificate of division is effective when filed with
7the recorder, with a concurrent copy to the Director, as
8provided in this Section or on another date specified in the
9plan of division, whichever is later, provided that a
10certificate of division shall become effective not more than 90
11days after it is filed with the recorder. A division is
12effective when the relevant certificate of division is
14    (215 ILCS 5/35B-35 new)
15    Sec. 35B-35. Effects of division.
16    (a) When a division becomes effective pursuant to Section
18        (1) if the dividing company has survived the division:
19            (A) it continues to exist;
20            (B) its articles of incorporation shall be
21        amended, if necessary, as provided in the plan of
22        division; and
23            (C) its bylaws shall be amended, if necessary, as
24        provided in the plan of division;
25        (2) if the dividing company has not survived the



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1    division, its separate existence ceases to exist;
2        (3) each new company:
3            (A) comes into existence;
4            (B) shall hold any capital, surplus, and other
5        assets allocated to such new company by the plan of
6        division as a successor to the dividing company,
7        automatically, by operation of law and not by transfer,
8        whether directly or indirectly; and
9            (C) its articles of incorporation, if any, and
10        bylaws, if any, shall be effective;
11        (4) capital, surplus, and other assets of the dividing
12    company:
13            (A) that is allocated by the plan of division
14        either:
15                (i) vests in the applicable new company as
16            provided in the plan of division; or
17                (ii) remains vested in the dividing company as
18            provided in the plan of division;
19            (B) that is not allocated by the plan of division
20        either:
21                (i) remains vested in the dividing company, if
22            the dividing company survives the division; or
23                (ii) is allocated to and vests equally in the
24            resulting companies as tenants in common, if the
25            dividing company does not survive the division; or
26            (C) otherwise vests as provided in this subsection



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1        without transfer, reversion, or impairment;
2        (5) a resulting company to which a cause of action is
3    allocated as provided in paragraph (4) of this subsection
4    (a) may be substituted or added in any pending action or
5    proceeding to which the dividing company is a party when
6    the division becomes effective;
7        (6) the liabilities, including policy liabilities, of
8    the dividing company are allocated between or among the
9    resulting companies as provided in Section 35B-40 and each
10    resulting company to which liabilities are allocated is
11    liable only for those liabilities, including policy
12    liabilities, so allocated as successors to the dividing
13    company, automatically, by operation of law, and not by
14    transfer (or, for the avoidance of doubt, assumption),
15    whether directly or indirectly; and
16        (7) the shares in the dividing company that are to be
17    converted or canceled in the division are converted or
18    canceled, and the shareholders of those shares are entitled
19    only to the rights provided to them under the plan of
20    division and any appraisal rights that they may have
21    pursuant to Section 35B-45.
22    (b) Except as provided in the articles of incorporation or
23bylaws of the dividing company, the division does not give rise
24to any rights that a shareholder, director of a domestic stock
25company, or third party would have upon a dissolution,
26liquidation, or winding up of the dividing company.



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1    (c) The allocation to a new company of capital, surplus, or
2other assets that is collateral covered by an effective
3financing statement shall not be effective until a new
4financing statement naming the new company as a debtor is
5effective under the Uniform Commercial Code.
6    (d) Unless otherwise provided in the plan of division, the
7shares in and any securities of each new company shall be
8distributed to:
9        (1) the dividing company, if it survives the division;
10    or
11        (2) shareholders of the dividing company that do not
12    assert any appraisal rights that they may have pursuant to
13    Section 35B-45, pro rata.
14    (215 ILCS 5/35B-40 new)
15    Sec. 35B-40. Resulting company liabilities.
16    (a) Except as otherwise expressly provided in this Section,
17when a division becomes effective, each resulting company is
18responsible, automatically, by operation of law, for:
19        (1) individually, the liabilities, including policy
20    liabilities, that the resulting company issues,
21    undertakes, or incurs in its own name after the division;
22        (2) individually, the liabilities, including policy
23    liabilities, of the dividing company that are allocated to
24    or remain the liability of the resulting company to the
25    extent specified in the plan of division; and



10000SB1737ham001- 23 -LRB100 06758 SMS 41158 a

1        (3) jointly and severally with the other resulting
2    companies, the liabilities, including policy liabilities,
3    of the dividing company that are not allocated by the plan
4    of division.
5    (b) Except as otherwise expressly provided in this Section,
6when a division becomes effective, no resulting company is
7responsible for or shall have any liability or obligation in
8respect of:
9        (1) any liabilities, including policy liabilities,
10    that another resulting company issues, undertakes, or
11    incurs in its own name after the division; or
12        (2) any liabilities, including policy liabilities, of
13    the dividing company that are allocated to or remain the
14    liability of another resulting company in accordance with
15    the plan of division.
16    (c) If a provision of a debt security, note, or similar
17evidence of indebtedness for money borrowed, whether secured or
18unsecured, indenture or other contract relating to
19indebtedness, or a provision of any other type of contract
20other than an insurance policy, annuity, or reinsurance
21agreement, that was issued, incurred, or executed by the
22domestic stock company before requires the consent of the
23obligee to a merger of the dividing company or treats the
24merger as a default, that provision applies to a division of
25the dividing company as if the division was a merger.
26    (d) If a division breaches a contractual obligation of the



10000SB1737ham001- 24 -LRB100 06758 SMS 41158 a

1dividing company at the time the division becomes effective,
2all of the resulting companies are liable, jointly and
3severally, for the contractual breach, but the validity and
4effectiveness of the division, including, without limitation,
5the allocation of liabilities in accordance with the plan of
6division, shall not be affected by the contractual breach.
7    (e) A direct or indirect allocation of capital, surplus,
8assets, or liabilities, including policy liabilities, in a
9division shall occur automatically, by operation of law, and
10shall not be treated as a distribution or transfer for any
11purpose with respect to either the dividing company or any of
12the resulting companies.
13    (f) Liens, security interests, and other charges on the
14capital, surplus, or other assets of the dividing company are
15not impaired by the division, notwithstanding any otherwise
16enforceable allocation of liabilities, including policy
17liabilities, of the dividing company.
18    (g) If the dividing company is bound by a security
19agreement governed by Article 9 of the Uniform Commercial Code
20as enacted in this State or in any other jurisdiction, and the
21security agreement provides that the security interest
22attaches to after-acquired collateral, each resulting company
23is bound by the security agreement.
24    (h) An allocation of a policy or other liability does not:
25        (1) except as provided in the plan of division and
26    specifically approved by the Director, affect the rights



10000SB1737ham001- 25 -LRB100 06758 SMS 41158 a

1    that a policyholder or creditor has under other law in
2    respect of the policy or other liability, except that those
3    rights are available only against a resulting company
4    responsible for the policy or liability under this Section;
5    or
6        (2) release or reduce the obligation of a reinsurer,
7    surety, or guarantor of the policy or liability.
8    (215 ILCS 5/35B-45 new)
9    Sec. 35B-45. Shareholder rights. If the dividing company
10does not survive the division, an objecting shareholder of a
11dividing company is entitled to appraisal rights and to obtain
12payment of the fair value of that shareholder's shares, in the
13same manner and to the extent provided for pursuant to Section
15    (215 ILCS 5/35B-50 new)
16    Sec. 35B-50. Rules. The Director may adopt such rules as
17are necessary or appropriate to carry out this Article.
18    (215 ILCS 5/121-2.08)  (from Ch. 73, par. 733-2.08)
19    Sec. 121-2.08. Transactions in this State involving
20contracts of insurance independently procured directly from an
21unauthorized insurer by industrial insureds.
22    (a) As used in this Section:
23    "Exempt commercial purchaser" means exempt commercial



10000SB1737ham001- 26 -LRB100 06758 SMS 41158 a

1purchaser as the term is defined in subsection (1) of Section
2445 of this Code.
3    "Home state" means home state as the term is defined in
4subsection (1) of Section 445 of this Code.
5    "Industrial insured" means an insured:
6        (i) that procures the insurance of any risk or risks of
7    the kinds specified in Classes 2 and 3 of Section 4 of this
8    Code by use of the services of a full-time employee who is
9    a qualified risk manager or the services of a regularly and
10    continuously retained consultant who is a qualified risk
11    manager;
12        (ii) that procures the insurance directly from an
13    unauthorized insurer without the services of an
14    intermediary insurance producer; and
15        (iii) that is an exempt commercial purchaser whose home
16    state is Illinois.
17    "Insurance producer" means insurance producer as the term
18is defined in Section 500-10 of this Code.
19    "Qualified risk manager" means qualified risk manager as
20the term is defined in subsection (1) of Section 445 of this
22    "Safety-Net Hospital" means an Illinois hospital that
23qualifies as a Safety-Net Hospital under Section 5-5e.1 of the
24Illinois Public Aid Code.
25    "Unauthorized insurer" means unauthorized insurer as the
26term is defined in subsection (1) of Section 445 of this Code.



10000SB1737ham001- 27 -LRB100 06758 SMS 41158 a

1    (b) For contracts of insurance effective January 1, 2015 or
2later, within 90 days after the effective date of each contract
3of insurance issued under this Section, the insured shall file
4a report with the Director by submitting the report to the
5Surplus Line Association of Illinois in writing or in a
6computer readable format and provide information as designated
7by the Surplus Line Association of Illinois. The information in
8the report shall be substantially similar to that required for
9surplus line submissions as described in subsection (5) of
10Section 445 of this Code. Where applicable, the report shall
11satisfy, with respect to the subject insurance, the reporting
12requirement of Section 12 of the Fire Investigation Act.
13    (c) For contracts of insurance effective January 1, 2015
14through December 31, 2017 or later, within 30 days after filing
15the report, the insured shall pay to the Director for the use
16and benefit of the State a sum equal to the gross premium of
17the contract of insurance multiplied by the surplus line tax
18rate, as described in paragraph (3) of subsection (a) of
19Section 445 of this Code, and shall pay the fire marshal tax
20that would otherwise be due annually in March for insurance
21subject to tax under Section 12 of the Fire Investigation Act.
22For contracts of insurance effective January 1, 2018 or later,
23within 30 days after filing the report, the insured shall pay
24to the Director for the use and benefit of the State a sum
25equal to 0.5% of the gross premium of the contract of
26insurance, and shall pay the fire marshal tax that would



10000SB1737ham001- 28 -LRB100 06758 SMS 41158 a

1otherwise be due annually in March for insurance subject to tax
2under Section 12 of the Fire Investigation Act. For contracts
3of insurance effective January 1, 2015 or later, within 30 days
4after filing the report, the insured shall pay to the Surplus
5Line Association of Illinois a countersigning fee that shall be
6assessed at the same rate charged to members pursuant to
7subsection (4) of Section 445.1 of this Code.
8    (d) For contracts of insurance effective January 1, 2015 or
9later, the insured shall withhold the amount of the taxes and
10countersignature fee from the amount of premium charged by and
11otherwise payable to the insurer for the insurance. If the
12insured fails to withhold the tax and countersignature fee from
13the premium, then the insured shall be liable for the amounts
14thereof and shall pay the amounts as prescribed in subsection
15(c) of this Section.
16    (e) Contracts of insurance with an industrial insured that
17qualifies as a Safety-Net Hospital are not subject to
18subsections (b) through (d) of this Section.
19(Source: P.A. 100-535, eff. 9-22-17.)
20    (215 ILCS 5/123C-1)  (from Ch. 73, par. 735C-1)
21    (Section scheduled to be repealed on January 1, 2027)
22    Sec. 123C-1. Definitions. As used in this Article:
23    A. "Affiliate" or "Affiliated company" includes a parent
24entity that controls a captive insurance company and:
25        (1) is an affiliate of another entity if the entity



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1    directly or indirectly, through one or more
2    intermediaries, controls, is controlled by, or is under
3    common control with the other entity.
4        (2) is an affiliate of another entity if the entity is
5    an affiliate of and is controlled by the other entity
6    directly or indirectly through one or more intermediaries.
7A subsidiary or holding company of an entity is an affiliate of
8that entity. shall have the meaning set forth in subsection (a)
9of Section 131.1 (and, for purposes of such definition, the
10definitions of "control" and "person", as set forth in
11subsections (b) and (e) of Section 131.1, respectively, shall
12be applicable).
13    B. "Association" means any entity meeting the requirements
14set forth in either of the following paragraphs (1), (2) or
16        (1) any organized association of individuals, legal
17    representatives, corporations (whether for profit or not
18    for profit), partnerships, trusts, associations, units of
19    government or other organizations, or any combination of
20    the foregoing, that has been in continuous existence for at
21    least one year, the member organizations of which
22    collectively:
23            (a) own, control, or hold with power to vote
24        (directly or indirectly) all of the outstanding voting
25        securities of an association captive insurance company
26        incorporated as a stock insurer; or



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1            (b) have complete voting control (directly or
2        indirectly) over an association captive insurance
3        company organized as a mutual insurer;
4        (2) any organized association of individuals, legal
5    representatives, corporations (whether for profit or not
6    for profit), partnerships, trusts, associations, units of
7    government or other organizations, or any combination of
8    the foregoing:
9            (a) whose member organizations are engaged in
10        businesses or activities similar or related with
11        respect to the liability of which such members are
12        exposed by virtue of any related, similar, or common
13        business, trade, product, services, premises, or
14        operations; and
15            (b) whose member organizations:
16                (i) directly or indirectly own or control, and
17            hold with power to vote, at least 80% of all of the
18            outstanding voting securities of an association
19            captive insurance company incorporated as a stock
20            insurer; or
21                (ii) directly or indirectly have at least 80%
22            of the voting control over an association captive
23            insurance company organized as a mutual insurer;
24            or
25        (3) any risk retention group, as defined in subsection
26    (11) of Section 123B-2, domiciled in this State and



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1    organized under this Article; however, beginning 6 months
2    after the effective date of this amendatory Act of 1995, a
3    risk retention group shall no longer qualify as an
4    association under this Article.
5    Provided, however, that with respect to each of the
6associations described in paragraphs (1), (2) and (3) above, no
7member organization may (i) own, control, or hold with power to
8vote in excess of 25% of the voting securities of an
9association captive insurance company incorporated as a stock
10insurer, or (ii) have more than 25% of the voting control of an
11association captive insurance company organized as a mutual
13    C. "Association captive insurance company" means any
14company that insures risks of (i) the member organizations of
15an association, and (ii) their affiliated companies.
16    D. "Captive insurance company" means any pure captive
17insurance company, association captive insurance company or
18industrial insured captive insurance company organized under
19the provisions of this Article.
20    E. "Director" means the Director of the Department of
22    F. "Industrial insured" means an insured which (together
23with its affiliates) at the time of its initial procurement of
24insurance from an industrial insured captive insurance
26        (1) has available to it advice with respect to the



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1    purchase of insurance through the use of the services of a
2    full-time employee acting as an insurance manager or buyer
3    or the services of a regularly and continuously retained
4    qualified insurance consultant; and
5        (2) pays aggregate annual premiums in excess of
6        $100,000 for insurance on all risks except for life,
7        accident and health; and
8        (3) either (i) has at least 25 full-time employees, or
9    (ii) has gross assets in excess of $3,000,000, or (iii) has
10    annual gross revenues in excess of $5,000,000.
11    G. "Industrial insured captive insurance company" means
12any company that insures risks of industrial insureds that are
13members of the industrial insured group, and their affiliated
15    H. "Industrial insured group" means any group of industrial
16insureds that collectively:
17        (1) directly or indirectly (including ownership or
18    control through a company which is wholly owned by such
19    group of industrial insureds) own or control, and hold with
20    power to vote, all of the outstanding voting securities of
21    an industrial insured captive insurance company
22    incorporated as a stock insurer; or
23        (2) directly or indirectly (including control through
24    a company which is wholly owned by such group of industrial
25    insureds) have complete voting control over an industrial
26    insured captive insurance company organized as a mutual



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1    insurer; provided, however, that no member organization
2    may (i) own, control, or hold with power to vote in excess
3    of 25% of the voting securities of an industrial insured
4    captive insurance company incorporated as a stock insurer,
5    or (ii) have more than 25% of the voting control of an
6    industrial insured captive insurance company organized as
7    a mutual insurer.
8    I. "Member organization" means any individual, legal
9representative, corporation (whether for profit or not for
10profit), partnership, association, unit of government, trust
11or other organization that belongs to an association or an
12industrial insured group.
13    J. "Parent" means a corporation, partnership, individual
14or other legal entity that directly or indirectly owns,
15controls, or holds with power to vote more than 50% of the
16outstanding voting securities of a company.
17    K. "Personal risk liability" means liability to other
18persons for (i) damage because of injury to any person, (ii)
19damage to property, or (iii) other loss or damage, in each case
20resulting from any personal, familial, or household
21responsibilities or activities, but does not include legal
22liability for damages (including costs of defense, legal costs
23and fees, and other claims expenses) because of injuries to
24other persons, damage to their property, or other damage or
25loss to such other persons resulting from or arising out of:
26        (i) any business (whether for profit or not for



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1    profit), trade, product, services (including professional
2    services), premises, or operations; or
3        (ii) any activity of any state or local government, or
4    any agency or political subdivision thereof.
5    L. "Pure captive insurance company" means any company that
6insures only risks of its parent or affiliated companies or
8    M. "Unit of government" includes any state, regional or
9local government, or any agency or political subdivision
10thereof, or any district, authority, public educational
11institution or school district, public corporation or other
12unit of government in this State or any similar unit of
13government in any other state.
14    N. "Control" means the power to direct, or cause the
15direction of, the management and policies of an entity, other
16than the power that results from an official position with or
17corporate office held in the entity. The power may be possessed
18directly or indirectly by any means, including through the
19ownership of voting securities or by contract, other than a
20commercial contract for goods or non-management services.
21    O. "Qualified independent actuary" means a person that is
23        (1) a member in good standing with the Casualty
24    Actuarial Society; or
25        (2) a member in good standing with the American Academy
26    of Actuaries who has been approved as qualified for signing



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1    casualty loss reserve opinions by the Casualty Practice
2    Council of the American Academy of Actuaries.
3    P. "Controlled unaffiliated business" means an entity:
4        (1) that is not an affiliate;
5        (2) that has an existing contractual relationship with
6    an affiliate under which the affiliate bears a potential
7    financial loss; and
8        (3) whose risks are managed by a captive insurance
9    company under Section 123C-24 of this Code.
10    Q. "Operational risk" means any potential financial loss of
11an affiliate, except for a loss arising from an insurance
12policy issued by a captive or insurance affiliate.
13    R. "Captive management company" means an entity providing
14administrative services to a captive insurance company.
15    S. "Safety-Net Hospital" means an Illinois hospital that
16qualifies as a Safety-Net Hospital under Section 5-5e.1 of the
17Illinois Public Aid Code.
18(Source: P.A. 89-97, eff. 7-7-95; 90-794, eff. 8-14-98.)
19    (215 ILCS 5/123C-2)  (from Ch. 73, par. 735C-2)
20    (Section scheduled to be repealed on January 1, 2027)
21    Sec. 123C-2. Authority of captives; restrictions.
22    A. Except as provided by this Section, a captive insurance
23company may write any type of insurance, but may only insure
24the operational risks of the company's affiliates and risks of
25a controlled unaffiliated business. Any captive insurance



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1company, when permitted by its articles of association or
2charter, may apply to the Director for a certificate of
3authority to transact any and all insurance in classes 2 and 3
4of Section 4 of this Code, except that:
5        (1) no pure captive insurance company may insure any
6    risks other than those of its parent and affiliated
7    companies;
8        (2) no association captive insurance company may
9    insure any risks other than those of the member
10    organizations of its association, and their affiliated
11    companies;
12        (3) no industrial insured captive insurance company
13    may insure any risks other than those of the members of the
14    industrial insured group, and their affiliated companies;
15    and
16        (4) no captive insurance company may provide:
17            (i) personal motor vehicle coverage or homeowner's
18        insurance coverage or any component thereof, or
19            (ii) personal coverage for personal risk
20        liability, or
21            (iii) coverage for an employer's liability to its
22        employees other than legal liability under the federal
23        Employers' Liability Act (45 U.S.C. 51 et seq.),
24        provided, however, this exclusion does not preclude
25        reinsurance of such employer's liability, or
26            (iv) accident and health insurance as provided in



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1        clause (a) of Class 2 of Section 4, provided, however,
2        this exclusion does not preclude stop-loss insurance
3        or reinsurance of a single employer self-funded
4        employee disability benefit plan or an employee
5        welfare plan as described in 29 U.S.C. 1001 et seq.
6    A-5. A captive insurance company may not issue:
7        (1) life insurance;
8        (2) annuities;
9        (3) accident and health insurance for the company's
10    parent and affiliates, except to insure employee benefits
11    that are subject to the federal Employee Retirement Income
12    Security Act of 1974;
13        (4) title insurance;
14        (5) mortgage guaranty insurance;
15        (6) financial guaranty insurance;
16        (7) residential property insurance;
17        (8) personal automobile insurance; or
18        (9) workers' compensation insurance.
19    A-10. A captive insurance company may not issue a type of
20insurance, including automobile liability insurance, that is
21required under the laws of this State or a political
22subdivision of this State as a prerequisite for obtaining a
23license or permit if the law requires that the liability
24insurance be issued by an insurer authorized to engage in the
25business of insurance in this State.
26    A-15. A captive insurance company is authorized to issue a



10000SB1737ham001- 38 -LRB100 06758 SMS 41158 a

1contractual reimbursement policy to:
2        (1) an affiliated certified self-insurer authorized
3    under the Workers' Compensation Act or a similar affiliated
4    entity expressly authorized by analogous laws of another
5    state; or
6        (2) an affiliate that is insured by a workers'
7    compensation insurance policy with a negotiated deductible
8    endorsement.
9    B. No captive insurance company shall do any insurance
10business in this State unless:
11        (1) it first obtains from the Director a certificate of
12    authority authorizing it to do such insurance business in
13    this State; and
14        (2) it appoints a resident registered agent to accept
15    service of process and to otherwise act on its behalf in
16    this State.
17    C. No captive insurance company shall adopt a name that is
18the same as, deceptively similar to, or likely to be confused
19with or mistaken for, any other existing business name
20registered in this State.
21    D. Each captive insurance company, or the organizations
22providing the principal administrative or management services
23to such captive insurance company, shall maintain a place of
24business in this State.
25(Source: P.A. 91-357, eff. 7-29-99.)



10000SB1737ham001- 39 -LRB100 06758 SMS 41158 a

1    (215 ILCS 5/123C-3)  (from Ch. 73, par. 735C-3)
2    (Section scheduled to be repealed on January 1, 2027)
3    Sec. 123C-3. Minimum capital and surplus.
4    A. The Department may not issue a certificate of authority
5to a captive insurance company unless the company possesses and
6maintains unencumbered capital and surplus in an amount
7determined by the Director after considering:
8        (1) the amount of premium written by the captive
9    insurance company;
10        (2) the characteristics of the assets held by the
11    captive insurance company;
12        (3) the terms of reinsurance arrangements entered into
13    by the captive insurance company;
14        (4) the type of business covered in policies issued by
15    the captive insurance company;
16        (5) the underwriting practices and procedures of the
17    captive insurance company; and
18        (6) any other criteria that has an impact on the
19    operations of the captive insurance company determined to
20    be significant by the Director. No pure captive insurance
21    company, association captive insurance company
22    incorporated as a stock insurer, or industrial insured
23    captive insurance company incorporated as a stock insurer
24    shall be issued a certificate of authority unless it shall
25    possess and thereafter maintain unimpaired paid-in capital
26    of not less than the minimum capital requirement applicable



10000SB1737ham001- 40 -LRB100 06758 SMS 41158 a

1    to the class or classes and clause or clauses of Section 4
2    describing the kind or kinds of insurance which such
3    captive insurance company is authorized to write, as set
4    forth in subsection (1) of Section 13.
5    B. The amount of capital and surplus determined by the
6Director under subsection A of this Section may not be less
7than $250,000 for a pure captive insurance company, $500,000
8for an industrial insured captive insurance company, and
9$750,000 for an association captive insurance company. Such
10capital may be in the form of (1) all cash or cash equivalents;
11or (2) cash or cash equivalents representing at least 20% of
12the requisite capital, together with an irrevocable letter of
13credit for the remainder of the requisite capital, which letter
14of credit must (a) be approved by the Director, (b) be issued
15or unconditionally confirmed by (i) a bank chartered by this
16State, (ii) a member bank of the Federal Reserve System or
17(iii) a United States office of a foreign banking corporation
18that is: (A) licensed under the laws of the United States or
19any state thereof, (B) regulated, supervised and examined by
20United States federal or state authorities having regulatory
21authority over banks and trust companies, and (C) designated by
22the Securities Valuation Office of the National Association of
23Insurance Commissioners as meeting its credit standards for
24issuing or confirming letters of credit or, in the event that
25the Director elects to establish credit standards by rule, in
26compliance with rules promulgated by the Director establishing



10000SB1737ham001- 41 -LRB100 06758 SMS 41158 a

1reasonable standards of safety and soundness substantially
2equivalent to those of the Securities Valuation Office of the
3National Association of Insurance Commissioners, and (c)
4satisfy the requirements of Section 123C-19; or (3) cash or
5cash equivalents representing at least 33% of the requisite
6capital, together with irrevocable contractual obligations of
7the member organizations of the captive insurance company for
8the payment of the remainder of the requisite capital in no
9more than 3 equal installments in each of the 3 calendar years
10following the date of the grant of the certificate of authority
11to the captive insurance company, which irrevocable
12contractual obligations shall by contract be subject to
13acceleration (in a manner acceptable to the Director) by the
14Company at the direction of the Director and shall be secured
15by a letter of credit or other form of guarantee or security
16acceptable to the Director.
17    C. The capital and surplus required by subsection A of this
18Section must be in the form of:
19        (1) United States currency;
20        (2) an irrevocable letter of credit, in a form approved
21    by the Director and not secured by a guarantee from an
22    affiliate, naming the Director as beneficiary for the
23    security of the captive insurance company's policyholders
24    and issued by a bank approved by the Director;
25        (3) bonds of this State; or
26        (4) bonds or other evidences of indebtedness of the



10000SB1737ham001- 42 -LRB100 06758 SMS 41158 a

1    United States, the principal and interest of which are
2    guaranteed by the United States.
3(Source: P.A. 86-632.)
4    (215 ILCS 5/123C-9)  (from Ch. 73, par. 735C-9)
5    (Section scheduled to be repealed on January 1, 2027)
6    Sec. 123C-9. Reports, statements and mandatory reserves.
7    A. Captive insurance companies shall not be required to
8make any annual report except as provided in this Article.
9    B. (1) On or before Prior to March 1 of each year, each
10captive insurance company shall submit to the Director a report
11of its financial condition, verified by oath of 2 of its
12executive officers and including (i) a balance sheet reporting
13assets, liabilities, capital and surplus, (ii) a statement of
14gain or loss from operations, (iii) a statement of changes in
15financial position, (iv) a statement of changes in capital and
16surplus, and (v) in the case of industrial insured captive
17insurance companies, an analysis of loss reserve development,
18information on risks ceded and assumed under reinsurance
19agreements, on forms prescribed by the Director, and a schedule
20of its invested assets on forms prescribed by the Director, and
21(vi) a statement of actuarial opinion by a qualified
22independent actuary concerning the reasonableness of the
23captive insurance company's loss and loss adjustment expense
24reserves in such form and of such content as specified in the
25National Association of Insurance Commissioners Annual



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1Statement Instructions: Property and Casualty.
2    (2) In addition, prior to March 1 of each year, each
3association captive insurance company shall submit to the
4Director such additional data or information, which the
5Director may from time to time require, on a form specified by
6the Director.
7    (3) On or before June 1 of each year, each captive
8insurance company shall submit to the Director a report of its
9financial condition at last year's end with an independent
10certified public accountant's opinion of the company's
11financial condition. Prior to June 1 of each year, each
12association and industrial insured captive insurance company
13shall submit to the Director a report of its financial
14condition, certified by a recognized firm of independent public
15accountants acceptable to the Director and including the items
16referred to in items (i), (ii), (iii) and (iv) of paragraph (1)
17of this subsection B.
18    (4) Unless the Director permits otherwise, the reports of
19financial condition referred to in paragraphs (1) and (3) of
20this subsection B are to be prepared in accordance with the
21Accounting Practices and Procedures Manual adopted by the
22National Association of Insurance Commissioners. The Director
23shall have authority to extend the time for filing any report
24or statement by any company for reasons which he considers good
25and sufficient.
26    C. In addition, any captive insurance company may be



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1required by the Director, when he considers such action to be
2necessary and appropriate for the protection of policyholders,
3creditors, shareholders or claimants, to file, within 60 days
4after mailing to the company of a notice that such is required,
5a supplemental summary statement as of the last day of any
6calendar month occurring during the 100 days next preceding the
7mailing of such notice designated by him on forms prescribed
8and furnished by the Director. No company shall be required to
9file more than 4 supplemental summary statements during any
10consecutive 12 month period.
11    D. Every captive insurance company shall, at all times,
12maintain reserves in an amount estimated in the aggregate to
13provide for the payment of all losses and claims incurred,
14whether reported or unreported, which are unpaid and for which
15such company may be liable, and to provide for the expenses of
16adjustment or settlement of such losses and claims. The
17aggregate reserves shall be reduced by reinsurance ceded which
18meets the requirements of Section 123C-13. For the purpose of
19such reserves, the company shall keep a complete and itemized
20record showing all losses and claims on which it has received
21notice, including all notices received by it of the occurrence
22of any event which may result in a loss. Such record shall be
23opened in chronological receipt order, with each notice of loss
24or claim identified by appropriate number or coding.
25    E. Every captive insurance company shall maintain an
26unearned premium reserve on all policies in force which reserve



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1shall be charged as a liability. The portions of the gross
2premiums in force, after deducting reinsurance qualifying
3under Section 123C-13, which shall be held as a premium
4reserve, shall never be less in the aggregate than the
5company's actual liability to all its insureds for the return
6of gross unearned premiums. In the calculation of the company's
7actual liability to all its insureds, the reserve shall be
8computed pursuant to the method commonly referred to as the
9monthly pro rata method; provided, however, that the Director
10may require that such reserve shall be equal to the unearned
11portions of the gross premiums in force, after deducting
12reinsurance qualifying under Section 123C-13, in which case the
13reserve shall be computed on each respective risk from the date
14of the issuance of the policy.
15    E-5. A captive insurance company may make a written
16application to the Director for filing its annual report
17required under this Section on a fiscal year's end. If an
18alternative filing date is granted, the company shall file:
19        (1) the annual report, including a statement of
20    actuarial opinion by a qualified independent actuary
21    concerning the reasonableness of the captive insurance
22    company's loss and loss adjustment expense reserves in such
23    form and of such content as specified in the National
24    Association of Insurance Commissioners Annual Statement
25    Instructions: Property and Casualty, no later than the 60th
26    day after the date of the company's fiscal year's end;



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1        (2) the report of its financial condition at last
2    year's end with an independent certified public
3    accountant's opinion of the company's financial condition;
4    and
5        (3) its balance sheet, income statement, and statement
6    of cash flows, verified by 2 of its executive officers,
7    before March 1 of each year to provide sufficient detail to
8    support a premium tax return.
9    F. The reports required by this Section shall be prepared
10and filed on a calendar year basis.
11    G. Notwithstanding the requirements of this Section, a
12captive insurance company may prepare and issue financial
13statements prepared in accordance with generally accepted
14accounting principles.
15(Source: P.A. 85-131; 86-1155; 86-1156.)
16    (215 ILCS 5/123C-11)  (from Ch. 73, par. 735C-11)
17    (Section scheduled to be repealed on January 1, 2027)
18    Sec. 123C-11. Grounds and procedures for suspension or
19revocation of certificate of authority.
20    A. The certificate of authority of a captive insurance
21company to do an insurance business in this State may be
22suspended or revoked by the Director for any of the following
24        (1) insolvency or impairment of required capital or
25    surplus to policy holders;



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1        (2) failure to meet the requirements of Sections 123C-3
2    or 123C-4;
3        (3) refusal or failure to submit an annual report, as
4    required by Section 123C-9, or any other report or
5    statement required by law or by lawful order of the
6    Director;
7        (4) failure to comply with the provisions of its own
8    charter or bylaws (or, in the case of an industrial insured
9    captive, with the provisions of the investment policy set
10    forth in its plan of operation as approved from time to
11    time by the Director);
12        (5) failure to submit to examination or any legal
13    obligation relative thereto, as required by Section
14    123C-10;
15        (6) refusal or failure to pay expenses, and charges,
16    and taxes as required by Sections 408, 409, 123C-10, and
17    123C-17;
18        (7) use of methods that, although not otherwise
19    specifically prohibited by law, nevertheless render its
20    operation detrimental or its condition unsound with
21    respect to the public or to its policyholders; or
22        (8) failure otherwise to comply with the laws of this
23    State.
24    B. If the Director finds, upon examination, hearing, or
25other evidence, that any captive insurance company has
26committed any of the acts specified in subsection A, he may



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1suspend or revoke such certificate of authority if he deems it
2in the best interest of the public and the policyholders of
3such captive insurance company, notwithstanding any other
4provision of this Article.
5    C. The provisions of Articles XIII and XIII 1/2 shall apply
6to and govern the conservation, rehabilitation, liquidation
7and dissolution of captive insurance companies.
8(Source: P.A. 85-131.)
9    (215 ILCS 5/123C-12)  (from Ch. 73, par. 735C-12)
10    (Section scheduled to be repealed on January 1, 2027)
11    Sec. 123C-12. Legal investments.
12    A. The provisions of Article VIII and of Sections 131.2 and
13131.3 shall apply to association captive insurance companies.
14    B. No pure captive insurance company or industrial insured
15captive insurance company shall be subject to any restrictions
16on allowable investments whatever, including those limitations
17contained in Articles VIII and VIII 1/2; provided, however,
18that the Director may prohibit or limit any investment or type
19of investment that threatens the solvency or liquidity of any
20such company; and provided further that an industrial insured
21captive insurance company must adhere to the investment policy
22set forth in its plan of operation as approved from time to
23time by the Director.
24    C. A captive insurance company may make loans to its
25affiliates with the prior approval of the Director. Each loan



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1must be evidenced by a note approved by the Director. A captive
2insurance company may not make a loan of the minimum capital
3and surplus funds required by this Article.
4    D. The Director may prohibit or limit an investment that
5threatens the solvency or liquidity of a captive insurance
7(Source: P.A. 85-131.)
8    (215 ILCS 5/123C-13)  (from Ch. 73, par. 735C-13)
9    (Section scheduled to be repealed on January 1, 2027)
10    Sec. 123C-13. Reinsurance.
11    A. Any captive insurance company may provide reinsurance on
12risks ceded by any other insurer; provided, however, that the
13risks so assumed are the same as the captive insurance company
14could legally insure on a direct basis.
15    The provisions of Section 174.1 shall not apply to any
16captive insurance company providing reinsurance.
17    B. Subject to the provisions of Article XI, any captive
18insurance company may cede, and may take credit for in the
19establishment of reserves, all or any part of its risks.
20Furthermore, in addition to Section 173.1, any pure or
21industrial insured captive insurance company may take credit,
22as either an asset or a deduction from liability, for
23reinsurance so ceded to the extent:
24        (1) The reinsurer satisfies all of the following (a)
25    through (g):



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1            (a) the principal business of the reinsurer (other
2        than investments in subsidiaries and other investment
3        activities) is to accept reinsurance from captive
4        insurance companies organized under Article VIIC, of
5        which the company accepting the reinsurance directly
6        or indirectly owns, controls, or holds with power to
7        vote more than 80% of the outstanding voting securities
8        if organized as a stock company or more than 80% of the
9        voting control if organized as a mutual company and to
10        provide insurance related services;
11            (b) is licensed to transact insurance or
12        reinsurance in its jurisdiction of domicile;
13            (c) submits to this State's authority to examine
14        its books and records and agrees to pay the cost
15        thereof;
16            (d) files annually with the Director a copy of its
17        most recent audited financial statements;
18            (e) maintains a surplus as regards policyholders
19        in an amount that is not less than $20,000,000;
20            (f) files with the Department the following:
21                (i) evidence of its submission to the
22            jurisdiction of any court of competent
23            jurisdiction in any state of the United States and
24            its agreement to comply with all requirements
25            necessary to give the court jurisdiction and to
26            abide by the final decision of the court or of any



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1            appellate court in the event of an appeal; and
2                (ii) an instrument designating the Director or
3            a designated attorney as its true and lawful
4            attorney upon whom may be served any lawful process
5            in any action, suit, or proceeding instituted by or
6            on behalf of the ceding company;
7            (g) has not been the subject of an order of the
8        Director entered after notice and hearing prohibiting
9        the reinsurer from utilizing this paragraph (1); or
10        (2) the taking of credit by the captive insurance
11    company has otherwise received the prior approval of the
12    Director.
13    C. A captive insurance company shall provide notice to the
14Director of a reinsurance agreement to which the company
15becomes a party not later than the 30th day after the date of
16the execution of the agreement.
17    D. A captive insurance company shall provide notice of a
18termination of a previously filed reinsurance agreement to the
19Director not later than the 30th day after the date of
21    E. Notwithstanding Section 123C-15 of this Code, a captive
22insurance company, with the Director's approval, may accept
23risks from and cede risks to or take credit for reserves on
24risks ceded to:
25        (1) a captive reinsurance pool composed only of other
26    captive insurance companies holding a certificate of



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1    authority under this Article or a similar law of another
2    jurisdiction; or
3        (2) an affiliated captive insurance company holding a
4    certificate of authority under this Article or a similar
5    law of another jurisdiction.
6(Source: P.A. 87-108.)
7    (215 ILCS 5/123C-16)  (from Ch. 73, par. 735C-16)
8    (Section scheduled to be repealed on January 1, 2027)
9    Sec. 123C-16. Tax.
10    A. Every captive insurance company organized under the
11provisions of this Article and doing business in this State
12shall, for the privilege of doing business in this State, pay
13to the Director for the State treasury the State tax imposed
14under Section 409 to the same extent and in the same manner as
15a domestic insurance company using a tax form prescribed by the
16Director on or before March 15 of each year.
17    B. Domestic captive insurance companies shall be insurance
18companies subject to the rules now provided for such companies
19under the Illinois Income Tax Act.
20    C. A domestic captive insurance company that has engaged
21one or more administrative or management service organizations
22in order to comply with subsection D of Section 123C-2 shall be
23deemed to meet the requirements of Section 409(4)(a) through
24(d) provided that the company and such organizations when
25viewed collectively as a group:



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1        (a) maintain a place of business in this State; and
2        (b) maintain in this State personnel knowledgeable of
3    and responsible for the company's operations, books,
4    records, administration and annual statement; and
5        (c) conduct in this State substantially all of the
6    company's underwriting, policy issuing and servicing
7    operations relating to the company's policyholders and
8    certificate holders; and
9        (d) comply with the provisions of Section 133(2) with
10    respect to such domestic captive insurance company's
11    books, records, documents, accounts, vouchers and
12    securities.
13(Source: P.A. 86-632; 86-634.)
14    (215 ILCS 5/123C-17)  (from Ch. 73, par. 735C-17)
15    (Section scheduled to be repealed on January 1, 2027)
16    Sec. 123C-17. Fees.
17    A. The Director shall charge, collect, and give proper
18acquittances for the payment of the following fees and charges
19with respect to a captive insurance company:
20        1. For filing all documents submitted for the
21    incorporation or organization or certification of a
22    captive insurance company, $2,000 $7,000.
23        2. For filing requests for approval of changes in the
24    elements of a plan of operations, $200.
25    B. Except as otherwise provided in subsection A of this



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1Section and in Section 123C-10, the provisions of Section 408
2shall apply to captive insurance companies.
3    C. Any funds collected from captive insurance companies
4pursuant to this Section shall be treated in the manner
5provided in subsection (11) of Section 408.
6(Source: P.A. 93-32, eff. 7-1-03.)
7    (215 ILCS 5/123C-19)  (from Ch. 73, par. 735C-19)
8    (Section scheduled to be repealed on January 1, 2027)
9    Sec. 123C-19. Letters of credit.
10    A. Any letter of credit used to meet the requirements set
11forth in Sections 123C-3 and 123C-4:
12        (1) (blank); may not be used to provide more than 80%
13    of the amount required in Section 123C-3 and may not be
14    used to provide more than 80% of the amount required in
15    Section 123C-4;
16        (2) may not be allowed to expire without the prior
17    written approval of the Director and shall provide for 30
18    days' advance written notice to the Director of the
19    proposed expiration of the letter of credit; and
20        (3) must be provided pursuant to arrangements,
21    acceptable to the Director, wherein all funds obtained by
22    the company under the letter of credit are free of claims
23    of any party which may arise on account of the company's
24    resort to the letter of credit.
25    B. If letters of credit are used to provide surplus in



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1excess of the amounts required in Section 123C-4:
2        (1) the aggregate amount of all such letters of credit
3    shall not exceed the policyholder surplus of the company;
4        (2) without the prior written approval of the Director,
5    no such letter of credit may be allowed to expire, in any
6    period of 12 consecutive months ending on the date of such
7    expiration, in an amount greater than the greater of (a)
8    10% of the company's surplus as regards policyholders as of
9    the 31st day of December next preceding, or (b) the net
10    income of the company for the 12 month period ending the
11    31st 31st day of December next preceding. For purposes of
12    this Section, net income includes net realized capital
13    gains in an amount not to exceed 20% of net unrealized
14    capital gains; and
15        (3) each such letter of credit shall provide for 30
16    days' advance written notice to the Director of the
17    proposed expiration of the letter of credit.
18    C. (Blank). The Director may require any company to draw
19upon its letters of credit, in amounts determined by the
20Director, if the Director determines that such action is
21necessary for the protection of the interests of policyholders.
22    D. (Blank). Any company including amounts supported by
23letters of credit in its capital or surplus shall, prior to the
24time any person becomes a policyholder, notify such person of
25the amounts supported by letters of credit and included in the
26company's capital or surplus.



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1(Source: P.A. 85-131.)
2    (215 ILCS 5/123C-23 new)
3    Sec. 123C-23. Approval of captive reinsurance pools.
4Before determining whether to approve a captive insurance
5company's participation in a captive reinsurance pool under
6Section 123C-13 of this Code, the Director may:
7        (1) require the captive insurance company provide to
8    the Director evidence that the captive reinsurance pool:
9            (a) is composed only of other captive insurance
10        companies holding a certificate of authority under
11        this Article or a similar law of another jurisdiction;
12        and
13            (b) will be able to meet the pool's financial
14        obligations; and
15        (2) impose any other limitation or requirement on the
16    captive insurance company that is necessary and proper to
17    provide adequate security for the captive insurance
18    company.
19    (215 ILCS 5/123C-24 new)
20    Sec. 123C-24. Standards for risk management of controlled
21unaffiliated business. The Director may adopt rules
22establishing standards to ensure that an affiliated company is
23able to exercise control of the risk management function of any
24controlled unaffiliated business to be insured by the captive



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1insurance company.
2    (215 ILCS 5/123C-25 new)
3    Sec. 123C-25. Captive managers. Before providing captive
4management services to a licensed captive insurance company, a
5captive management company shall register with the Director by
6providing the information required on a form adopted by the
8    (215 ILCS 5/123C-26 new)
9    Sec. 123C-26. Dividends.
10    A. A captive insurance company shall notify the Director in
11writing when issuing policyholder dividends.
12    B. A captive insurance company, with the Director's
13approval, may issue dividends or distributions to the holders
14of an equity interest in the captive insurance company. The
15Director shall adopt rules to implement this subsection B.
16    (215 ILCS 5/123C-27 new)
17    Sec. 123C-27. Rulemaking authority. The Director may adopt
18reasonable rules as necessary to implement the purposes and
19provisions of this Article.
20    (215 ILCS 5/123C-28 new)
21    Sec. 123C-28. Confidentiality.
22    A. Any information filed by an applicant or captive



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1insurance company under this Article is confidential and
2privileged for all purposes, including for purposes of the
3Freedom of Information Act, a response to a subpoena, or
4evidence in a civil action. Except as provided by subsections B
5and C of this Section, the information may not be disclosed
6without the prior written consent of the applicant or captive
7insurance company to which the information pertains.
8    B. If the recipient of the information described by
9subsection A of this Section has the legal authority to
10maintain the confidential or privileged status of the
11information and verifies that authority in writing, the
12Director or his or her designee may disclose the information to
13any of the following entities functioning in an official
15        (1) a director of insurance or an insurance department
16    of another state;
17        (2) an authorized law enforcement official;
18        (3) a State's Attorney of this State;
19        (4) the Attorney General;
20        (5) a grand jury;
21        (6) the National Association of Insurance
22    Commissioners if the captive insurance company is
23    affiliated with an insurance company that is part of an
24    insurance holding company system as described in Article
25    VIII 1/2 of this Code;
26        (7) another state or federal regulator if the applicant



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1    or captive insurance company to which the information
2    relates operates in the entity's jurisdiction;
3        (8) an international insurance regulator or analogous
4    financial agency if the captive insurance company is
5    affiliated with an insurance company that is part of an
6    insurance holding company system as described in Article
7    VIII 1/2 of this Code and the holding company system
8    operates in the entity's jurisdiction; or
9        (9) members of a supervisory college described by
10    Section 131.20c of this Code, if the captive insurance
11    company is affiliated with an insurance company that is
12    part of an insurance holding company system as described in
13    Article VIII 1/2 of this Code.
14    C. The Director may use information described by subsection
15A of this Section in the furtherance of a legal or regulatory
16action relating to the administration of this Code.
17    (215 ILCS 5/156)  (from Ch. 73, par. 768)
18    Sec. 156. Merger and consolidation permitted.
19    (a) Upon complying with the provisions of this article, any
20domestic company, except a Lloyds, is hereby authorized and
21empowered to merge or consolidate with any domestic company or
22with any foreign or alien company, except a Lloyds if the
23surviving company meets the requirements for authorization to
24engage in the insurance business in this state and, if such
25merger or consolidation is authorized by the laws of the state



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1or country under which such foreign or alien company is
2incorporated or organized.
3    (b) The Director may permit the formation of a domestic
4stock company that is established for the sole purpose of
5merging or consolidating with an existing stock company
6simultaneously with the effectiveness of a division authorized
7by this Code. Upon request of the dividing company, the
8Director may waive the requirements of Section 131.8 of this
9Code. Each domestic stock company formed under this subsection
10shall be deemed to exist before a merger and division under
11this Section becomes effective, but solely for the purpose of
12being a party to such merger and division. The Director shall
13not require that such domestic stock company be licensed to
14transact insurance business in this state before such merger
15and division. All insurance policies, annuities, or
16reinsurance agreements allocated to such domestic stock
17company shall become the obligation of the domestic stock
18company that survives the merger simultaneously with the
19effectiveness of the merger and division. The plan of merger or
20consolidation shall be deemed to have been authorized and
21approved by such domestic stock company if the dividing company
22authorized and approved such plan. The certificate of merger
23shall state that it was approved by the domestic stock company
24formed under this subsection.
25(Source: Laws 1967, p. 1760.)



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1    (215 ILCS 5/173.1)  (from Ch. 73, par. 785.1)
2    Sec. 173.1. Credit allowed a domestic ceding insurer.
3    (1) Except as otherwise provided under Article VIII 1/2 of
4this Code and related provisions of the Illinois Administrative
5Code, credit for reinsurance shall be allowed a domestic ceding
6insurer as either an admitted asset or a deduction from
7liability on account of reinsurance ceded only when the
8reinsurer meets the requirements of paragraph (A) subsection
9(1)(A) or (B) or (B-5) or (C) or (C-5) or (D) of this
10subsection (1). Credit shall be allowed under paragraph (A),
11subsection (1)(A) or (B), or (B-5) of this subsection (1) only
12as respects cessions of those kinds or classes of business in
13which the assuming insurer is licensed or otherwise permitted
14to write or assume in its state of domicile, or in the case of a
15U.S. branch of an alien assuming insurer, in the state through
16which it is entered and licensed to transact insurance or
17reinsurance. Credit shall be allowed under paragraph (B-5) or
18(C) of this subsection (1) (C) of this Section only if the
19applicable requirements of paragraph (E) of this subsection (1)
20subsection (1)(E) have been satisfied.
21        (A) Credit shall be allowed when the reinsurance is
22    ceded to an assuming insurer that is authorized in this
23    State to transact the types of insurance ceded and has at
24    least $5,000,000 in capital and surplus.
25        (B) Credit shall be allowed when the reinsurance is
26    ceded to an assuming insurer that is accredited as a



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1    reinsurer in this State. An accredited reinsurer is one
2    that:
3            (1) files with the Director evidence of its
4        submission to this State's jurisdiction;
5            (2) submits to this State's authority to examine
6        its books and records;
7            (3) is licensed to transact insurance or
8        reinsurance in at least one state, or in the case of a
9        U.S. branch of an alien assuming insurer is entered
10        through and licensed to transact insurance or
11        reinsurance in at least one state;
12            (4) files annually with the Director a copy of its
13        annual statement filed with the insurance department
14        of its state of domicile and a copy of its most recent
15        audited financial statement; and
16            (5) maintains a surplus as regards policyholders
17        in an amount that is not less than $20,000,000 and
18        whose accreditation has been approved by the Director.
19        No credit shall be allowed a domestic ceding insurer,
20        if the assuming insurers' accreditation has been
21        revoked by the Director after notice and hearing.
22        (B-5)(1) Credit shall be allowed when the reinsurance
23    is ceded to an assuming insurer that is domiciled in, or in
24    the case of a U.S. branch of an alien assuming insurer is
25    entered through, a state that employs standards regarding
26    credit for reinsurance substantially similar to those



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1    applicable under this Code and the assuming insurer or U.S.
2    branch of an alien assuming insurer:
3            (a) maintains a surplus as regards policyholders
4        in an amount not less than $20,000,000; and
5            (b) submits to the authority of this State to
6        examine its books and records.
7        (2) The requirement of item (a) of subparagraph (1) of
8    paragraph (B-5) of this subsection (1) does not apply to
9    reinsurance ceded and assumed pursuant to pooling
10    arrangements among insurers in the same holding company
11    system.
12         (C)(1) Credit shall be allowed when the reinsurance is
13    ceded to an assuming insurer that maintains a trust fund in
14    a qualified United States financial institution, as
15    defined in paragraph (B) of subsection (3) of this Section
16    subsection 3(B), for the payment of the valid claims of its
17    United States policyholders and ceding insurers, their
18    assigns and successors in interest. The assuming insurer
19    shall report to the Director information substantially the
20    same as that required to be reported on the NAIC annual and
21    quarterly financial statement by authorized insurers and
22    any other financial information that the Director deems
23    necessary to determine the financial condition of the
24    assuming insurer and the sufficiency of the trust fund. The
25    assuming insurer shall provide or make the information
26    available to the ceding insurer. The assuming insurer may



10000SB1737ham001- 64 -LRB100 06758 SMS 41158 a

1    decline to release trade secrets or commercially sensitive
2    information that would qualify as exempt from disclosure
3    under the Freedom of Information Act. The Director shall
4    also make the information publicly available, subject only
5    to such reasonable objections as might be raised to a
6    request pursuant to the Freedom of Information Act, as
7    determined by the Director. The assuming insurer shall
8    submit to examination of its books and records by the
9    Director and bear the expense of examination.
10        (2)(a) Credit for reinsurance shall not be granted
11    under this subsection unless the form of the trust and any
12    amendments to the trust have been approved by:
13            (i) the regulatory official of the state where the
14        trust is domiciled; or
15            (ii) the regulatory official of another state who,
16        pursuant to the terms of the trust instrument, has
17        accepted principal regulatory oversight of the trust.
18        (b) The form of the trust and any trust amendments also
19    shall be filed with the regulatory official of every state
20    in which the ceding insurer beneficiaries of the trust are
21    domiciled. The trust instrument shall provide that
22    contested claims shall be valid and enforceable upon the
23    final order of any court of competent jurisdiction in the
24    United States. The trust shall vest legal title to its
25    assets in its trustees for the benefit of the assuming
26    insurer's United States policyholders and ceding insurees



10000SB1737ham001- 65 -LRB100 06758 SMS 41158 a

1    and their assigns and successors in interest. The trust and
2    the assuming insurer shall be subject to examination as
3    determined by the Director.
4        (c) The trust shall remain in effect for as long as the
5    assuming insurer has outstanding obligations due under the
6    reinsurance agreements subject to the trust. No later than
7    February 28 of each year the trustee of the trust shall
8    report to the Director in writing the balance of the trust
9    and a list of the trust's investments at the preceding
10    year-end and shall certify the date of termination of the
11    trust, if so planned, or certify that the trust will not
12    expire prior to the next following December 31.
13        No later than February 28 of each year, the assuming
14    insurer's chief executive officer or chief financial
15    officer shall certify to the Director that the trust fund
16    contains funds in an amount not less than the assuming
17    insurer's liabilities (as reported to the assuming insurer
18    by its cedent) attributable to reinsurance ceded by U.S.
19    ceding insurers, and in addition, a trusteed surplus of no
20    less than $20,000,000. In the event that item (a-5) of
21    subparagraph (3) of this paragraph (C) applies to the
22    trust, the assuming insurer's chief executive officer or
23    chief financial officer shall then certify to the Director
24    that the trust fund contains funds in an amount not less
25    than the assuming insurer's liabilities (as reported to the
26    assuming insurer by its cedent) attributable to



10000SB1737ham001- 66 -LRB100 06758 SMS 41158 a

1    reinsurance ceded by U.S. ceding insurers and, in addition,
2    a reduced trusteed surplus of not less than the amount that
3    has been authorized by the regulatory authority having
4    principal regulatory oversight of the trust.
5        (d) No later than February 28 of each year, an assuming
6    insurer that maintains a trust fund in accordance with this
7    paragraph (C) shall provide or make available, if requested
8    by a beneficiary under the trust fund, the following
9    information to the assuming insurer's U.S. ceding insurers
10    or their assigns and successors in interest:
11            (i) a copy of the form of the trust agreement and
12        any trust amendments to the trust agreement pertaining
13        to the trust fund;
14            (ii) a copy of the annual and quarterly financial
15        information, and its most recent audited financial
16        statement provided to the Director by the assuming
17        insurer, including any exhibits and schedules thereto;
18            (iii) any financial information provided to the
19        Director by the assuming insurer that the Director has
20        deemed necessary to determine the financial condition
21        of the assuming insurer and the sufficiency of the
22        trust fund;
23            (iv) a copy of any annual and quarterly financial
24        information provided to the Director by the trustee of
25        the trust fund maintained by the assuming insurer,
26        including any exhibits and schedules thereto;



10000SB1737ham001- 67 -LRB100 06758 SMS 41158 a

1            (v) a copy of the information required to be
2        reported by the trustee of the trust to the Director
3        under the provisions of this paragraph (C); and
4            (vi) a written certification that the trust fund
5        consists of funds in trust in an amount not less than
6        the assuming insurer's liabilities attributable to
7        reinsurance liabilities (as reported to the assuming
8        insurer by its cedent) attributable to reinsurance
9        ceded by U.S. ceding insurers and, in addition, a
10        trusteed surplus of not less than $20,000,000.
11        (3) The following requirements apply to the following
12    categories of assuming insurer:
13            (a) The trust fund for a single assuming insurer
14        shall consist of funds in trust in an amount not less
15        than the assuming insurer's liabilities attributable
16        to reinsurance ceded by U.S. ceding insurers, and in
17        addition, the assuming insurer shall maintain a
18        trusteed surplus of not less than $20,000,000, except
19        as provided in item (a-5) of this subparagraph (3).
20            (a-5) At any time after the assuming insurer has
21        permanently discontinued underwriting new business
22        secured by the trust for at least 3 full years, the
23        Director with principal regulatory oversight of the
24        trust may authorize a reduction in the required
25        trusteed surplus, but only after a finding, based on an
26        assessment of the risk, that the new required surplus



10000SB1737ham001- 68 -LRB100 06758 SMS 41158 a

1        level is adequate for the protection of U.S. ceding
2        insurers, policyholders, and claimants in light of
3        reasonably foreseeable adverse loss development. The
4        risk assessment may involve an actuarial review,
5        including an independent analysis of reserves and cash
6        flows, and shall consider all material risk factors,
7        including, when applicable, the lines of business
8        involved, the stability of the incurred loss
9        estimates, and the effect of the surplus requirements
10        on the assuming insurer's liquidity or solvency. The
11        minimum required trusteed surplus may not be reduced to
12        an amount less than 30% of the assuming insurer's
13        liabilities attributable to reinsurance ceded by U.S.
14        ceding insurers covered by the trust.
15            (b)(i) In the case of a group including
16        incorporated and individual unincorporated
17        underwriters:
18                (I) for reinsurance ceded under reinsurance
19            agreements with an inception, amendment, or
20            renewal date on or after January 1, 1993 August 1,
21            1995, the trust shall consist of a trusteed account
22            in an amount not less than the respective
23            underwriters' group's several liabilities
24            attributable to business ceded by U.S. domiciled
25            ceding insurers to any member of the group;
26                (II) for reinsurance ceded under reinsurance



10000SB1737ham001- 69 -LRB100 06758 SMS 41158 a

1            agreements with an inception date on or before
2            December 31, 1992 July 31, 1995 and not amended or
3            renewed after that date, notwithstanding the other
4            provisions of this Act, the trust shall consist of
5            a trusteed account in an amount not less than the
6            group's several insurance and reinsurance
7            liabilities attributable to business written in
8            the United States; and
9                (III) in addition to these trusts, the group
10            shall maintain in trust a trusteed surplus of which
11            not less than $100,000,000 shall be held jointly
12            for the benefit of the U.S. domiciled ceding
13            insurers of any member of the group for all years
14            of account.
15            (ii) The incorporated members of the group shall
16        not be engaged in any business other than underwriting
17        as a member of the group and shall be subject to the
18        same level of solvency regulation and control by the
19        group's domiciliary regulator as are the
20        unincorporated members.
21            (iii) Within 90 days after its financial
22        statements are due to be filed with the group's
23        domiciliary regulator, the group shall provide to the
24        Director an annual certification by the group's
25        domiciliary regulator of the solvency of each
26        underwriter member, or if a certification is



10000SB1737ham001- 70 -LRB100 06758 SMS 41158 a

1        unavailable, financial statements prepared by
2        independent public accountants of each underwriter
3        member of the group.
4            (c) In the case of a group of incorporated insurers
5        under common administration, the group shall:
6                (i) have continuously transacted an insurance
7            business outside the United States for at least 3
8            years immediately before making application for
9            accreditation;
10                (ii) maintain aggregate policyholders' surplus
11            of not less than $10,000,000,000;
12                (iii) maintain a trust in an amount not less
13            than the group's several liabilities attributable
14            to business ceded by United States domiciled
15            ceding insurers to any member of the group pursuant
16            to reinsurance contracts issued in the name of the
17            group;
18                (iv) in addition, maintain a joint trusteed
19            surplus of which not less than $100,000,000 shall
20            be held jointly for the benefit of the United
21            States ceding insurers of any member of the group
22            as additional security for these liabilities; and
23                (v) within 90 days after its financial
24            statements are due to be filed with the group's
25            domiciliary regulator, make available to the
26            Director an annual certification of each



10000SB1737ham001- 71 -LRB100 06758 SMS 41158 a

1            underwriter member's solvency by the member's
2            domiciliary regulator and financial statements of
3            each underwriter member of the group prepared by
4            its independent public accountant.
5        (C-5) Credit shall be allowed when the reinsurance is
6    ceded to an assuming insurer that has been certified by the
7    Director as a reinsurer in this State and secures its
8    obligations in accordance with the requirements of this
9    paragraph (C-5).
10            (1) In order to be eligible for certification, the
11        assuming insurer shall meet the following
12        requirements:
13                (a) the assuming insurer must be domiciled and
14            licensed to transact insurance or reinsurance in a
15            qualified jurisdiction, as determined by the
16            Director pursuant to subparagraph (3) of this
17            paragraph (C-5);
18                (b) the assuming insurer must maintain minimum
19            capital and surplus, or its equivalent, in an
20            amount not less than $250,000,000 or such greater
21            amount as determined by the Director pursuant to
22            regulation; this requirement may also be satisfied
23            by an association, including incorporated and
24            individual unincorporated underwriters, having
25            minimum capital and surplus equivalents (net of
26            liabilities) of at least $250,000,000 and a



10000SB1737ham001- 72 -LRB100 06758 SMS 41158 a

1            central fund containing a balance of at least
2            $250,000,000;
3                (c) the assuming insurer must maintain
4            financial strength ratings from 2 or more rating
5            agencies deemed acceptable by the Director; these
6            ratings shall be based on interactive
7            communication between the rating agency and the
8            assuming insurer and shall not be based solely on
9            publicly available information; each certified
10            reinsurer shall be rated on a legal entity basis,
11            with due consideration being given to the group
12            rating where appropriate, except that an
13            association, including incorporated and individual
14            unincorporated underwriters, that has been
15            approved to do business as a single certified
16            reinsurer may be evaluated on the basis of its
17            group rating; these financial strength ratings
18            shall be one factor used by the Director in
19            determining the rating that is assigned to the
20            assuming insurer; acceptable rating agencies
21            include the following:
22                    (i) Standard & Poor's;
23                    (ii) Moody's Investors Service;
24                    (iii) Fitch Ratings;
25                    (iv) A.M. Best Company; or
26                    (v) any other nationally recognized



10000SB1737ham001- 73 -LRB100 06758 SMS 41158 a

1                statistical rating organization;
2                (d) the assuming insurer must agree to submit
3            to the jurisdiction of this State, appoint the
4            Director as its agent for service of process in
5            this State, and agree to provide security for 100%
6            of the assuming insurer's liabilities attributable
7            to reinsurance ceded by U.S. ceding insurers if it
8            resists enforcement of a final U.S. judgment; and
9                (e) the assuming insurer must agree to meet
10            applicable information filing requirements as
11            determined by the Director, both with respect to an
12            initial application for certification and on an
13            ongoing basis.
14            (2) An association, including incorporated and
15        individual unincorporated underwriters, may be a
16        certified reinsurer. In order to be eligible for
17        certification, in addition to satisfying the
18        requirements of subparagraph (1) of this paragraph
19        (C-5):
20                (a) the association shall satisfy its minimum
21            capital and surplus requirements through the
22            capital and surplus equivalents (net of
23            liabilities) of the association and its members,
24            which shall include a joint central fund that may
25            be applied to any unsatisfied obligation of the
26            association or any of its members, in the amounts



10000SB1737ham001- 74 -LRB100 06758 SMS 41158 a

1            specified in item (b) of subparagraph (1) of this
2            paragraph (C-5);
3                (b) the incorporated members of the
4            association shall not be engaged in any business
5            other than underwriting as a member of the
6            association and shall be subject to the same level
7            of regulation and solvency control by the
8            association's domiciliary regulator as are the
9            unincorporated members; and
10                (c) within 90 days after its financial
11            statements are due to be filed with the
12            association's domiciliary regulator, the
13            association shall provide to the Director an
14            annual certification by the association's
15            domiciliary regulator of the solvency of each
16            underwriter member; or if a certification is
17            unavailable, financial statements, prepared by
18            independent public accountants, of each
19            underwriter member of the association.
20            (3) The Director shall create and publish a list of
21        qualified jurisdictions, under which an assuming
22        insurer licensed and domiciled in such jurisdiction is
23        eligible to be considered for certification by the
24        Director as a certified reinsurer.
25                (a) In order to determine whether the
26            domiciliary jurisdiction of a non-U.S. assuming



10000SB1737ham001- 75 -LRB100 06758 SMS 41158 a

1            insurer is eligible to be recognized as a qualified
2            jurisdiction, the Director shall evaluate the
3            appropriateness and effectiveness of the
4            reinsurance supervisory system of the
5            jurisdiction, both initially and on an ongoing
6            basis, and consider the rights, benefits, and
7            extent of reciprocal recognition afforded by the
8            non-U.S. jurisdiction to reinsurers licensed and
9            domiciled in the U.S. A qualified jurisdiction
10            must agree in writing to share information and
11            cooperate with the Director with respect to all
12            certified reinsurers domiciled within that
13            jurisdiction. A jurisdiction may not be recognized
14            as a qualified jurisdiction if the Director has
15            determined that the jurisdiction does not
16            adequately and promptly enforce final U.S.
17            judgments and arbitration awards. The costs and
18            expenses associated with the Director's review and
19            evaluation of the domiciliary jurisdictions of
20            non-U.S. assuming insurers shall be borne by the
21            certified reinsurer or reinsurers domiciled in
22            such jurisdiction.
23                (b) Additional factors to be considered in
24            determining whether to recognize a qualified
25            jurisdiction include, but are not limited to, the
26            following:



10000SB1737ham001- 76 -LRB100 06758 SMS 41158 a

1                    (i) the framework under which the assuming
2                insurer is regulated;
3                    (ii) the structure and authority of the
4                domiciliary regulator with regard to solvency
5                regulation requirements and financial
6                surveillance;
7                    (iii) the substance of financial and
8                operating standards for assuming insurers in
9                the domiciliary jurisdiction;
10                    (iv) the form and substance of financial
11                reports required to be filed or made publicly
12                available by reinsurers in the domiciliary
13                jurisdiction and the accounting principles
14                used;
15                    (v) the domiciliary regulator's
16                willingness to cooperate with U.S. regulators
17                in general and the Director in particular;
18                    (vi) the history of performance by
19                assuming insurers in the domiciliary
20                jurisdiction;
21                    (vii) any documented evidence of
22                substantial problems with the enforcement of
23                final U.S. judgments in the domiciliary
24                jurisdiction; and
25                    (viii) any relevant international
26                standards or guidance with respect to mutual



10000SB1737ham001- 77 -LRB100 06758 SMS 41158 a

1                recognition of reinsurance supervision adopted
2                by the International Association of Insurance
3                Supervisors or its successor organization.
4                (c) If, upon conducting an evaluation under
5            this paragraph with respect to the reinsurance
6            supervisory system of any non-U.S. assuming
7            insurer, the Director determines that the
8            jurisdiction qualifies to be recognized as a
9            qualified jurisdiction, the Director shall publish
10            notice and evidence of such recognition in an
11            appropriate manner. The Director may establish a
12            procedure to withdraw recognition of those
13            jurisdictions that are no longer qualified.
14                (d) The Director shall consider the list of
15            qualified jurisdictions through the NAIC committee
16            process in determining qualified jurisdictions. If
17            the Director approves a jurisdiction as qualified
18            that does not appear on the list of qualified
19            jurisdictions, then the Director shall provide
20            thoroughly documented justification in accordance
21            with criteria to be developed under regulations.
22                (e) U.S. jurisdictions that meet the
23            requirement for accreditation under the NAIC
24            financial standards and accreditation program
25            shall be recognized as qualified jurisdictions.
26                (f) If a certified reinsurer's domiciliary



10000SB1737ham001- 78 -LRB100 06758 SMS 41158 a

1            jurisdiction ceases to be a qualified
2            jurisdiction, then the Director may suspend the
3            reinsurer's certification indefinitely, in lieu of
4            revocation.
5            (4) If an applicant for certification has been
6        certified as a reinsurer in an NAIC accredited
7        jurisdiction, then the Director may defer to that
8        jurisdiction's certification and to the rating
9        assigned by that jurisdiction if the assuming insurer
10        submits a properly executed Form CR-1 and such
11        additional information as the Director requires. Such
12        assuming insurer shall be considered to be a certified
13        reinsurer in this State but only upon the Director's
14        assignment of an Illinois rating, which shall be made
15        based on the requirements of subparagraph (5) of this
16        paragraph (C-5). The following shall apply:
17                (a) Any change in the certified reinsurer's
18            status or rating in the other jurisdiction shall
19            apply automatically in Illinois as of the date it
20            takes effect in the other jurisdiction. The
21            certified reinsurer shall notify the Director of
22            any change in its status or rating within 10 days
23            after receiving notice of the change.
24                (b) The Director may withdraw recognition of
25            the other jurisdiction's rating at any time and
26            assign a new rating in accordance with



10000SB1737ham001- 79 -LRB100 06758 SMS 41158 a

1            subparagraph (5) of this paragraph (C-5).
2                (c) The Director may withdraw recognition of
3            the other jurisdiction's certification at any time
4            with written notice to the certified reinsurer.
5            Unless the Director suspends or revokes the
6            certified reinsurer's certification in accordance
7            with item (c) of subparagraph (9) of this paragraph
8            (C-5), the certified reinsurer's certification
9            shall remain in good standing in Illinois for a
10            period of 3 months, which shall be extended if
11            additional time is necessary to consider the
12            assuming insurer's application for certification
13            in Illinois.
14            (5) The Director shall assign a rating to each
15        certified reinsurer pursuant to rules adopted by the
16        Department. Factors that shall be considered as part of
17        the evaluation process include the following:
18                (a) The certified reinsurer's financial
19            strength rating from an acceptable rating agency.
20            Financial strength ratings shall be classified
21            according to the following ratings categories:
22                    (i) Ratings Category "Secure - 1"
23                corresponds to the highest level of rating
24                given by a rating agency, including, but not
25                limited to, A.M. Best Company rating A++;
26                Standard & Poor's rating AAA; Moody's



10000SB1737ham001- 80 -LRB100 06758 SMS 41158 a

1                Investors Service rating Aaa; and Fitch
2                Ratings rating AAA.
3                    (ii) Ratings Category "Secure - 2"
4                corresponds to the second-highest level of
5                rating or group of ratings given by a rating
6                agency, including, but not limited to, A.M.
7                Best Company rating A+; Standard & Poor's
8                rating AA+, AA, or AA-; Moody's Investors
9                Service ratings Aa1, Aa2, or Aa3; and Fitch
10                Ratings ratings AA+, AA, or AA-.
11                    (iii) Ratings Category "Secure - 3"
12                corresponds to the third-highest level of
13                rating or group of ratings given by a rating
14                agency, including, but not limited to, A.M.
15                Best Company rating A; Standard & Poor's
16                ratings A+ or A; Moody's Investors Service
17                ratings A1 or A2; and Fitch Ratings ratings A+
18                or A.
19                    (iv) Ratings Category "Secure - 4"
20                corresponds to the fourth-highest level of
21                rating or group of ratings given by a rating
22                agency, including, but not limited to, A.M.
23                Best Company rating A-; Standard & Poor's
24                rating A-; Moody's Investors Service rating
25                A3; and Fitch Ratings rating A-.
26                    (v) Ratings Category "Secure - 5"



10000SB1737ham001- 81 -LRB100 06758 SMS 41158 a

1                corresponds to the fifth-highest level of
2                rating or group of ratings given by a rating
3                agency, including, but not limited to, A.M.
4                Best Company ratings B++ or B+; Standard &
5                Poor's ratings BBB+, BBB, or BBB-; Moody's
6                Investors Service ratings Baa1, Baa2, or Baa3;
7                and Fitch Ratings ratings BBB+, BBB, or BBB-.
8                    (vi) Ratings Category "Vulnerable - 6"
9                corresponds to a level of rating given by a
10                rating agency, other than those described in
11                subitems (i) through (v) of this item (a),
12                including, but not limited to, A.M. Best
13                Company rating B, B-, C++, C+, C, C-, D, E, or
14                F; Standard & Poor's ratings BB+, BB, BB-, B+,
15                B, B-, CCC, CC, C, D, or R; Moody's Investors
16                Service ratings Ba1, Ba2, Ba3, B1, B2, B3, Caa,
17                Ca, or C; and Fitch Ratings ratings BB+, BB,
18                BB-, B+, B, B-, CCC+, CCC, CCC-, or D.
19                A failure to obtain or maintain at least 2
20            financial strength ratings from acceptable rating
21            agencies shall result in loss of eligibility for
22            certification.
23                (b) The business practices of the certified
24            reinsurer in dealing with its ceding insurers,
25            including its record of compliance with
26            reinsurance contractual terms and obligations.



10000SB1737ham001- 82 -LRB100 06758 SMS 41158 a

1                (c) For certified reinsurers domiciled in the
2            U.S., a review of the most recent applicable NAIC
3            Annual Statement Blank, either Schedule F (for
4            property and casualty reinsurers) or Schedule S
5            (for life and health reinsurers).
6                (d) For certified reinsurers not domiciled in
7            the U.S., a review annually of Form CR-F (for
8            property and casualty reinsurers) or Form CR-S
9            (for life and health reinsurers).
10                (e) The reputation of the certified reinsurer
11            for prompt payment of claims under reinsurance
12            agreements, based on an analysis of ceding
13            insurers' Schedule F reporting of overdue
14            reinsurance recoverables, including the proportion
15            of obligations that are more than 90 days past due
16            or are in dispute, with specific attention given to
17            obligations payable to companies that are in
18            administrative supervision or receivership.
19                (f) Regulatory actions against the certified
20            reinsurer.
21                (g) The report of the independent auditor on
22            the financial statements of the insurance
23            enterprise, on the basis described in item (h) of
24            this subparagraph (5).
25                (h) For certified reinsurers not domiciled in
26            the U.S., audited financial statements (audited



10000SB1737ham001- 83 -LRB100 06758 SMS 41158 a

1            Generally Accepted Accounting Principles (U.S.
2            GAAP) basis statement if available, audited
3            International Financial Reporting Standards (IFRS)
4            basis statements are allowed but must include an
5            audited footnote reconciling equity and net income
6            to U.S. GAAP basis or, with the permission of the
7            Director, audited IFRS basis statements with
8            reconciliation to U.S. GAAP basis certified by an
9            officer of the company), regulatory filings, and
10            actuarial opinion (as filed with the non-U.S.
11            jurisdiction supervisor). Upon the initial
12            application for certification, the Director shall
13            consider the audited financial statements filed
14            with its non-U.S. jurisdiction supervisor for the
15            3 years immediately preceding the date of the
16            initial application for certification.
17                (i) The liquidation priority of obligations to
18            a ceding insurer in the certified reinsurer's
19            domiciliary jurisdiction in the context of an
20            insolvency proceeding.
21                (j) A certified reinsurer's participation in
22            any solvent scheme of arrangement, or similar
23            procedure, that involves U.S. ceding insurers. The
24            Director shall receive prior notice from a
25            certified reinsurer that proposes participation by
26            the certified reinsurer in a solvent scheme of



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1            arrangement.
2            The maximum rating that a certified reinsurer may
3        be assigned shall correspond to its financial strength
4        rating, which shall be determined according to
5        subitems (i) through (vi) of item (a) of this
6        subparagraph (5). The Director shall use the lowest
7        financial strength rating received from an acceptable
8        rating agency in establishing the maximum rating of a
9        certified reinsurer.
10            (6) Based on the analysis conducted under item (e)
11        of subparagraph (5) of this paragraph (C-5) of a
12        certified reinsurer's reputation for prompt payment of
13        claims, the Director may make appropriate adjustments
14        in the security the certified reinsurer is required to
15        post to protect its liabilities to U.S. ceding
16        insurers, provided that the Director shall, at a
17        minimum, increase the security the certified reinsurer
18        is required to post by one rating level under item (a)
19        of subparagraph (8) of this paragraph (C-5) if the
20        Director finds that:
21                (a) more than 15% of the certified reinsurer's
22            ceding insurance clients have overdue reinsurance
23            recoverables on paid losses of 90 days or more that
24            are not in dispute and that exceed $100,000 for
25            each cedent; or
26                (b) the aggregate amount of reinsurance



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1            recoverables on paid losses that are not in dispute
2            that are overdue by 90 days or more exceeds
3            $50,000,000.
4            (7) The Director shall post notice on the
5        Department's website promptly upon receipt of any
6        application for certification, including instructions
7        on how members of the public may respond to the
8        application. The Director may not take final action on
9        the application until at least 30 days after posting
10        the notice required by this subparagraph. The Director
11        shall publish a list of all certified reinsurers and
12        their ratings.
13            (8) A certified reinsurer shall secure obligations
14        assumed from U.S. ceding insurers under this
15        subsection (1) at a level consistent with its rating.
16                (a) The amount of security required in order
17            for full credit to be allowed shall correspond with
18            the applicable ratings category:
19                    Secure - 1: 0%.
20                    Secure - 2: 10%.
21                    Secure - 3: 20%.
22                    Secure - 4: 50%.
23                    Secure - 5: 75%.
24                    Vulnerable - 6: 100%.
25                (b) Nothing in this subparagraph (8) shall
26            prohibit the parties to a reinsurance agreement



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1            from agreeing to provisions establishing security
2            requirements that exceed the minimum security
3            requirements established for certified reinsurers
4            under this Section.
5                (c) In order for a domestic ceding insurer to
6            qualify for full financial statement credit for
7            reinsurance ceded to a certified reinsurer, the
8            certified reinsurer shall maintain security in a
9            form acceptable to the Director and consistent
10            with the provisions of subsection (2) of this
11            Section, or in a multibeneficiary trust in
12            accordance with paragraph (C) of this subsection
13            (1), except as otherwise provided in this
14            subparagraph (8).
15                (d) If a certified reinsurer maintains a trust
16            to fully secure its obligations subject to
17            paragraph (C) of this subsection (1), and chooses
18            to secure its obligations incurred as a certified
19            reinsurer in the form of a multibeneficiary trust,
20            then the certified reinsurer shall maintain
21            separate trust accounts for its obligations
22            incurred under reinsurance agreements issued or
23            renewed as a certified reinsurer with reduced
24            security as permitted by this subsection or
25            comparable laws of other U.S. jurisdictions and
26            for its obligations subject to paragraph (C) of



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1            this subsection (1). It shall be a condition to the
2            grant of certification under this paragraph (C-5)
3            that the certified reinsurer shall have bound
4            itself, by the language of the trust and agreement
5            with the Director with principal regulatory
6            oversight of each such trust account, to fund, upon
7            termination of any such trust account, out of the
8            remaining surplus of such trust any deficiency of
9            any other such trust account. The certified
10            reinsurer shall also provide or make available, if
11            requested by a beneficiary under a trust, all the
12            information that is required to be provided under
13            the requirements of item (d) of subparagraph (2) of
14            paragraph (C) of this subsection (1) to the
15            certified reinsurer's U.S. ceding insurers or
16            their assigns and successors in interest. The
17            assuming insurer may decline to release trade
18            secrets or commercially sensitive information that
19            would qualify as exempt from disclosure under the
20            Freedom of Information Act.
21                (e) The minimum trusteed surplus requirements
22            provided in paragraph (C) of this subsection (1)
23            are not applicable with respect to a
24            multibeneficiary trust maintained by a certified
25            reinsurer for the purpose of securing obligations
26            incurred under this subsection, except that such



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1            trust shall maintain a minimum trusteed surplus of
2            $10,000,000.
3                (f) With respect to obligations incurred by a
4            certified reinsurer under this subsection (1), if
5            the security is insufficient, then the Director
6            may reduce the allowable credit by an amount
7            proportionate to the deficiency and may impose
8            further reductions in allowable credit upon
9            finding that there is a material risk that the
10            certified reinsurer's obligations will not be paid
11            in full when due.
12            (9)(a) In the case of a downgrade by a rating
13        agency or other disqualifying circumstance, the
14        Director shall by written notice assign a new rating to
15        the certified reinsurer in accordance with the
16        requirements of subparagraph (5) of this paragraph
17        (C-5).
18            (b) If the rating of a certified reinsurer is
19        upgraded by the Director, then the certified reinsurer
20        may meet the security requirements applicable to its
21        new rating on a prospective basis, but the Director
22        shall require the certified reinsurer to post security
23        under the previously applicable security requirements
24        as to all contracts in force on or before the effective
25        date of the upgraded rating. If the rating of a
26        certified reinsurer is downgraded by the Director,



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1        then the Director shall require the certified
2        reinsurer to meet the security requirements applicable
3        to its new rating for all business it has assumed as a
4        certified reinsurer.
5            (c) The Director may suspend, revoke, or otherwise
6        modify a certified reinsurer's certification at any
7        time if the certified reinsurer fails to meet its
8        obligations or security requirements under this
9        Section or if other financial or operating results of
10        the certified reinsurer, or documented significant
11        delays in payment by the certified reinsurer, lead the
12        Director to reconsider the certified reinsurer's
13        ability or willingness to meet its contractual
14        obligations. In seeking to suspend, revoke, or
15        otherwise modify a certified reinsurer's
16        certification, the Director shall follow the
17        procedures provided in paragraph (G) of this
18        subsection (1).
19            (d) For purposes of this subsection (1), a
20        certified reinsurer whose certification has been
21        terminated for any reason shall be treated as a
22        certified reinsurer required to secure 100% of its
23        obligations.
24                (i) As used in this item (d), the term
25            "terminated" refers to revocation, suspension,
26            voluntary surrender and inactive status.



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1                (ii) If the Director continues to assign a
2            higher rating as permitted by other provisions of
3            this Section, then this requirement does not apply
4            to a certified reinsurer in inactive status or to a
5            reinsurer whose certification has been suspended.
6            (e) Upon revocation of the certification of a
7        certified reinsurer by the Director, the assuming
8        insurer shall be required to post security in
9        accordance with subsection (2) of this Section in order
10        for the ceding insurer to continue to take credit for
11        reinsurance ceded to the assuming insurer. If funds
12        continue to be held in trust, then the Director may
13        allow additional credit equal to the ceding insurer's
14        pro rata share of the funds, discounted to reflect the
15        risk of uncollectibility and anticipated expenses of
16        trust administration.
17            (f) Notwithstanding the change of a certified
18        reinsurer's rating or revocation of its certification,
19        a domestic insurer that has ceded reinsurance to that
20        certified reinsurer may not be denied credit for
21        reinsurance for a period of 3 months for all
22        reinsurance ceded to that certified reinsurer, unless
23        the reinsurance is found by the Director to be at high
24        risk of uncollectibility.
25            (10) A certified reinsurer that ceases to assume
26        new business in this State may request to maintain its



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1        certification in inactive status in order to continue
2        to qualify for a reduction in security for its in-force
3        business. An inactive certified reinsurer shall
4        continue to comply with all applicable requirements of
5        this subsection (1), and the Director shall assign a
6        rating that takes into account, if relevant, the
7        reasons why the reinsurer is not assuming new business.
8            (11) Credit for reinsurance under this paragraph
9        (C-5) shall apply only to reinsurance contracts
10        entered into or renewed on or after the effective date
11        of the certification of the assuming insurer.
12            (12) The Director shall comply with all reporting
13        and notification requirements that may be established
14        by the NAIC with respect to certified reinsurers and
15        qualified jurisdictions.
16        (D) Credit shall be allowed when the reinsurance is
17    ceded to an assuming insurer not meeting the requirements
18    of paragraph subsection (1) (A), (B), or (C) of this
19    subsection (1) but only with respect to the insurance of
20    risks located in jurisdictions where that reinsurance is
21    required by applicable law or regulation of that
22    jurisdiction.
23        (E) If the assuming insurer is not licensed to transact
24    insurance in this State or an accredited or certified
25    reinsurer in this State, the credit permitted by paragraphs
26    (B-5) and subsection (1) (C) of this subsection (1) shall



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1    not be allowed unless the assuming insurer agrees in the
2    reinsurance agreements:
3            (1) that in the event of the failure of the
4        assuming insurer to perform its obligations under the
5        terms of the reinsurance agreement, the assuming
6        insurer, at the request of the ceding insurer, shall
7        submit to the jurisdiction of any court of competent
8        jurisdiction in any state of the United States, will
9        comply with all requirements necessary to give the
10        court jurisdiction, and will abide by the final
11        decision of the court or of any appellate court in the
12        event of an appeal; and
13            (2) to designate the Director or a designated
14        attorney as its true and lawful attorney upon whom may
15        be served any lawful process in any action, suit, or
16        proceeding instituted by or on behalf of the ceding
17        company.
18        This provision is not intended to conflict with or
19    override the obligation of the parties to a reinsurance
20    agreement to arbitrate their disputes, if an obligation to
21    arbitrate is created in the agreement.
22        (F) If the assuming insurer does not meet the
23    requirements of paragraph (A) or (B) of this subsection (1)
24    (1)(A) or (B), the credit permitted by paragraph (C) of
25    this subsection (1) (1)(C) shall not be allowed unless the
26    assuming insurer agrees in the trust agreements to the



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1    following conditions:
2            (1) Notwithstanding any other provisions in the
3        trust instrument, if the trust fund is inadequate
4        because it contains an amount less than the amount
5        required by subparagraph (3) of paragraph (C)
6        subsection (C)(3) of this subsection (1) Section or if
7        the grantor of the trust has been declared insolvent or
8        placed into receivership, rehabilitation, liquidation,
9        or similar proceedings under the laws of its state or
10        country of domicile, the trustee shall comply with an
11        order of the state official with regulatory oversight
12        over the trust or with an order of a court of competent
13        jurisdiction directing the trustee to transfer to the
14        state official with regulatory oversight all of the
15        assets of the trust fund.
16            (2) The assets shall be distributed by and claims
17        shall be filed with and valued by the state official
18        with regulatory oversight in accordance with the laws
19        of the state in which the trust is domiciled that are
20        applicable to the liquidation of domestic insurance
21        companies.
22            (3) If the state official with regulatory
23        oversight determines that the assets of the trust fund
24        or any part thereof are not necessary to satisfy the
25        claims of the U.S. ceding insurers of the grantor of
26        the trust, the assets or part thereof shall be returned



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1        by the state official with regulatory oversight to the
2        trustee for distribution in accordance with the trust
3        agreement.
4            (4) The grantor shall waive any rights otherwise
5        available to it under U.S. law that are inconsistent
6        with the provision.
7        (G) If an accredited or certified reinsurer ceases to
8    meet the requirements for accreditation or certification,
9    then the Director may suspend or revoke the reinsurer's
10    accreditation or certification.
11            (1) The Director must give the reinsurer notice and
12        opportunity for hearing. The suspension or revocation
13        may not take effect until after the Director's order on
14        hearing, unless:
15                (a) the reinsurer waives its right to hearing;
16                (b) the Director's order is based on
17            regulatory action by the reinsurer's domiciliary
18            jurisdiction or the voluntary surrender or
19            termination of the reinsurer's eligibility to
20            transact insurance or reinsurance business in its
21            domiciliary jurisdiction or in the primary
22            certifying state of the reinsurer under
23            subparagraph (4) of paragraph (C-5) of this
24            subsection (1); or
25                (c) the Director finds that an emergency
26            requires immediate action and a court of competent



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1            jurisdiction has not stayed the Director's action.
2            (2) While a reinsurer's accreditation or
3        certification is suspended, no reinsurance contract
4        issued or renewed after the effective date of the
5        suspension qualifies for credit except to the extent
6        that the reinsurer's obligations under the contract
7        are secured in accordance with subsection (2) of this
8        Section. If a reinsurer's accreditation or
9        certification is revoked, no credit for reinsurance
10        may be granted after the effective date of the
11        revocation, except to the extent that the reinsurer's
12        obligations under the contract are secured in
13        accordance with subsection (2) of this Section.
14        (H) The following provisions shall apply concerning
15    concentration of risk:
16            (1) A ceding insurer shall take steps to manage its
17        reinsurance recoverable proportionate to its own book
18        of business. A domestic ceding insurer shall notify the
19        Director within 30 days after reinsurance recoverables
20        from any single assuming insurer, or group of
21        affiliated assuming insurers, exceeds 50% of the
22        domestic ceding insurer's last reported surplus to
23        policyholders, or after it is determined that
24        reinsurance recoverables from any single assuming
25        insurer, or group of affiliated assuming insurers, is
26        likely to exceed this limit. The notification shall



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1        demonstrate that the exposure is safely managed by the
2        domestic ceding insurer.
3            (2) A ceding insurer shall take steps to diversify
4        its reinsurance program. A domestic ceding insurer
5        shall notify the Director within 30 days after ceding
6        to any single assuming insurer, or group of affiliated
7        assuming insurers, more than 20% of the ceding
8        insurer's gross written premium in the prior calendar
9        year, or after it has determined that the reinsurance
10        ceded to any single assuming insurer, or group of
11        affiliated assuming insurers, is likely to exceed this
12        limit. The notification shall demonstrate that the
13        exposure is safely managed by the domestic ceding
14        insurer.
15    (2) Credit for the reinsurance ceded by a domestic insurer
16to an assuming insurer not meeting the requirements of
17subsection (1) of this Section shall be allowed in an amount
18not exceeding the assets or liabilities carried by the ceding
19insurer. The credit shall not exceed the amount of funds held
20by or held in trust for the ceding insurer under a reinsurance
21contract with the assuming insurer as security for the payment
22of obligations thereunder, if the security is held in the
23United States subject to withdrawal solely by, and under the
24exclusive control of, the ceding insurer; or, in the case of a
25trust, held in a qualified United States financial institution,
26as defined in paragraph (B) of subsection (3) of this Section



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1(3)(B). This security may be in the form of:
2        (A) Cash.
3        (B) Securities listed by the Securities Valuation
4    Office of the National Association of Insurance
5    Commissioners, including those deemed exempt from filing
6    as defined by the Purposes and Procedures Manual of the
7    Securities Valuation Office that conform to the
8    requirements of Article VIII of this Code that are not
9    issued by an affiliate of either the assuming or ceding
10    company.
11        (C) Clean, irrevocable, unconditional, letters of
12    credit issued or confirmed by a qualified United States
13    financial institution, as defined in paragraph (A) of
14    subsection (3) of this Section (3)(A). The letters of
15    credit shall be effective no later than December 31 of the
16    year for which filing is being made, and in the possession
17    of, or in trust for, the ceding company on or before the
18    filing date of its annual statement. Letters of credit
19    meeting applicable standards of issuer acceptability as of
20    the dates of their issuance (or confirmation) shall,
21    notwithstanding the issuing (or confirming) institution's
22    subsequent failure to meet applicable standards of issuer
23    acceptability, continue to be acceptable as security until
24    their expiration, extension, renewal, modification, or
25    amendment, whichever first occurs.
26        (D) Any other form of security acceptable to the



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1    Director.
2    (3)(A) For purposes of paragraph (C) of subsection (2) of
3this Section subsection 2(C), a "qualified United States
4financial institution" means an institution that:
5        (1) is organized or, in the case of a U.S. office of a
6    foreign banking organization, licensed under the laws of
7    the United States or any state thereof;
8        (2) is regulated, supervised, and examined by U.S.
9    federal or state authorities having regulatory authority
10    over banks and trust companies;
11        (3) has been designated by either the Director or the
12    Securities Valuation Office of the National Association of
13    Insurance Commissioners as meeting such standards of
14    financial condition and standing as are considered
15    necessary and appropriate to regulate the quality of
16    financial institutions whose letters of credit will be
17    acceptable to the Director; and
18        (4) is not affiliated with the assuming company.
19    (B) A "qualified United States financial institution"
20means, for purposes of those provisions of this law specifying
21those institutions that are eligible to act as a fiduciary of a
22trust, an institution that:
23        (1) is organized or, in the case of the U.S. branch or
24    agency office of a foreign banking organization, licensed
25    under the laws of the United States or any state thereof
26    and has been granted authority to operate with fiduciary



10000SB1737ham001- 99 -LRB100 06758 SMS 41158 a

1    powers;
2        (2) is regulated, supervised, and examined by federal
3    or state authorities having regulatory authority over
4    banks and trust companies; and
5        (3) is not affiliated with the assuming company,
6    however, if the subject of the reinsurance contract is
7    insurance written pursuant to Section 155.51 of this Code,
8    the financial institution may be affiliated with the
9    assuming company with the prior approval of the Director.
10    (C) Except as set forth in subparagraph (11) of paragraph
11(C-5) of subsection (1) of this Section as to cessions by
12certified reinsurers, this amendatory Act of the 100th General
13Assembly shall apply to all cessions after the effective date
14of this amendatory Act of the 100th General Assembly under
15reinsurance agreements that have an inception, anniversary, or
16renewal date not less than 6 months after the effective date of
17this amendatory Act of the 100th General Assembly.
18    (D) The Department shall adopt rules implementing the
19provisions of this Article.
20(Source: P.A. 90-381, eff. 8-14-97.)
21    (215 ILCS 5/456)  (from Ch. 73, par. 1065.3)
22    Sec. 456. Making of rates. (1) All rates shall be made in
23accordance with the following provisions:
24    (a) Due consideration shall be given to past and
25prospective loss experience within and outside this state, to



10000SB1737ham001- 100 -LRB100 06758 SMS 41158 a

1catastrophe hazards, if any, to a reasonable margin for profit
2and contingencies, to dividends, savings or unabsorbed premium
3deposits allowed or returned by companies to their
4policyholders, members or subscribers, to past and prospective
5expenses both countrywide and those specially applicable to
6this state, to underwriting practice and judgment and to all
7other relevant factors within and outside this state;
8    (b) The systems of expense provisions included in the rates
9for use by any company or group of companies may differ from
10those of other companies or groups of companies to reflect the
11requirements of the operating methods of any such company or
12group with respect to any kind of insurance, or with respect to
13any subdivision or combination thereof for which subdivision or
14combination separate expense provisions are applicable;
15    (c) Risks may be grouped by classifications for the
16establishment of rates and minimum premiums. Classification
17rates may be modified to produce rates for individual risks in
18accordance with rating plans which measure variation in hazards
19or expense provisions, or both. Such rating plans may measure
20any differences among risks that have a probable effect upon
21losses or expenses;
22    (d) Rates shall not be excessive, inadequate or unfairly
24    A rate in a competitive market is not excessive. A rate in
25a noncompetitive market is excessive if it is likely to produce
26a long run profit that is unreasonably high for the insurance



10000SB1737ham001- 101 -LRB100 06758 SMS 41158 a

1provided or if expenses are unreasonably high in relation to
2the services rendered.
3    A rate is not inadequate unless such rate is clearly
4insufficient to sustain projected losses and expenses in the
5class of business to which it applies and the use of such rate
6has or, if continued, will have the effect of substantially
7lessening competition or the tendency to create monopoly in any
9    Unfair discrimination exists if, after allowing for
10practical limitations, price differentials fail to reflect
11equitably the differences in expected losses and expenses. A
12rate is not unfairly discriminatory because different premiums
13result for policyholders with like exposures but different
14expenses, or like expenses but different loss exposures, so
15long as the rate reflects the differences with reasonable
17    (e) The rating plan shall contain a mandatory offer of a
18deductible applicable only to the medical benefit under the
19Workers' Compensation Act. Such deductible offer shall be in a
20minimum amount of at least $1,000 per accident.
21    (f) Any rating plan or program shall include a rule
22permitting 2 or more employers with similar risk
23characteristics, who participate in a loss prevention program
24or safety group, to pool their premium and loss experience in
25determining their rate or premium for such participation in the



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1    (2) Except to the extent necessary to meet the provisions
2of subdivision (d) of subsection (1) of this Section,
3uniformity among companies in any matters within the scope of
4this Section is neither required nor prohibited.
5(Source: P.A. 82-939.)
6    (215 ILCS 5/457)  (from Ch. 73, par. 1065.4)
7    Sec. 457. Rate filings. (1) Every Beginning January 1,
81983, every company shall prefile file with the Director every
9manual of classifications, every manual of rules and rates,
10every rating plan and every modification of the foregoing which
11it intends to use. Such filings shall be made at least not
12later than 30 days before after they become effective. A
13company may satisfy its obligation to make such filings by
14adopting the filing of a licensed rating organization of which
15it is a member or subscriber, filed pursuant to subsection (2)
16of this Section, in total or, with the approval of the
17Director, by notifying the Director in what respects it intends
18to deviate from such filing. If a company intends to deviate
19from the filing of a licensed rating organization of which it
20is a member, the company shall provide the Director with
21supporting information that specifies the basis for the
22requested deviation and provides justification for the
23deviation. Any company adopting a pure premium filed by a
24rating organization pursuant to subsection (2) must file with
25the Director the modification factor it is using for expenses



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1and profit so that the final rates in use by such company can
2be determined.
3    (2) Each Beginning January 1, 1983, each licensed rating
4organization must prefile file with the Director every manual
5of classification, every manual of rules and advisory rates,
6every pure premium which has been fully adjusted and fully
7developed, every rating plan and every modification of any of
8the foregoing which it intends to recommend for use to its
9members and subscribers, at least not later than 30 days before
10after such manual, premium, plan or modification thereof takes
11effect. Every licensed rating organization shall also file with
12the Director the rate classification system, all rating rules,
13rating plans, policy forms, underwriting rules or similar
14materials, and each modification of any of the foregoing which
15it requires its members and subscribers to adhere to not later
16than 30 days before such filings or modifications thereof are
17to take effect. Every such filing shall state the proposed
18effective date thereof and shall indicate the character and
19extent of the coverage contemplated.
20    (3) A filing and any supporting information made pursuant
21to this Section shall be open to public inspection as soon as
22filed after the filing becomes effective.
23    (4) A filing shall not be effective nor used until approved
24by the Director. A filing shall be deemed approved and legally
25effective if the Director fails to disapprove within 30 days
26after the filing.



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1(Source: P.A. 82-939.)
2    (215 ILCS 5/458)  (from Ch. 73, par. 1065.5)
3    Sec. 458. Disapproval of filings. (1) If within 30 thirty
4days of any filing the Director finds that such filing does not
5meet the requirements of this Article, he shall send to the
6company or rating organization which made such filing a written
7notice of disapproval of such filing, specifying therein in
8what respects he finds that such filing fails to meet the
9requirements of this Article and stating when, within a
10reasonable period thereafter, such filing shall be deemed no
11longer effective. A company or rating organization whose filing
12has been disapproved shall be given a hearing upon a written
13request made within 30 days after the disapproval order. If the
14company or rating organization making the filing shall, prior
15to the expiration of the period prescribed in the notice,
16request a hearing, such filings shall be effective until the
17expiration of a reasonable period specified in any order
18entered thereon. If the rate resulting from such filing be
19unfairly discriminatory or materially inadequate, and the
20difference between such rate and the approved rate equals or
21exceeds the cost of making an adjustment, the Director shall in
22such notice or order direct an adjustment of the premium to be
23made with the policyholder either by refund or collection of
24additional premium. If the policyholder does not accept the
25increased rate, cancellation shall be made on a pro rata basis.



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1Any policy issued pursuant to this subsection shall contain a
2provision that the premium thereon shall be subject to
3adjustment upon the basis of the filing finally approved.
4    (2) If at any time subsequent to the applicable review
5period provided for in subsection (1) of this Section, the
6Director finds that a filing does not meet the requirements of
7this Article, he shall, after a hearing held upon not less than
8ten days written notice, specifying the matters to be
9considered at such hearing, to every company and rating
10organization which made such filing, issue an order specifying
11in what respects he finds that such filing fails to meet the
12requirements of this Article, and stating when, within a
13reasonable period thereafter, such filings shall be deemed no
14longer effective. Copies of said order shall be sent to every
15such company and rating organization. Said order shall not
16affect any contract or policy made or issued prior to the
17expiration of the period set forth in said order.
18    (3) Any person or organization aggrieved with respect to
19any filing which is in effect may make written application to
20the Director for a hearing thereon, provided, however, that the
21company or rating organization that made the filing shall not
22be authorized to proceed under this subsection. Such
23application shall specify the grounds to be relied upon by the
24applicant. If the Director shall find that the application is
25made in good faith, that the applicant would be so aggrieved if
26his grounds are established, and that such grounds otherwise



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1justify holding such a hearing, he shall, within thirty days
2after receipt of such application, hold a hearing upon not less
3than ten days written notice to the applicant and to every
4company and rating organization which made such filing.
5    If, after such hearing, the Director finds that the filing
6does not meet the requirements of this Article, he shall issue
7an order specifying in what respects he finds that such filing
8fails to meet the requirements of this Article, and stating
9when, within a reasonable period thereafter, such filing shall
10be deemed no longer effective. Copies of said order shall be
11sent to the applicant and to every such company and rating
12organization. Said order shall not affect any contract or
13policy made or issued prior to the expiration of the period set
14forth in said order.
15    (4) Whenever an insurer has no legally effective rates as a
16result of the Director's disapproval of rates or other act, the
17Director shall on request of the insurer specify interim rates
18for the insurer that are high enough to protect the interests
19of all parties and may order that a specified portion of the
20premiums be placed in an escrow account approved by him or her.
21When new rates become legally effective, the Director shall
22order the escrowed funds or any overcharge in the interim rates
23to be distributed appropriately, except that refunds to
24policyholders that are de minimis shall not be required.
25(Source: P.A. 82-939.)



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1    (215 ILCS 5/462a new)
2    Sec. 462a. Premium increase notice. A policy of workers'
3compensation insurance issued, delivered, amended, or renewed
4on or after January 1, 2019 shall remain in full force and
5effect subject to the same terms and conditions, loss cost
6multipliers, and classification of the employer with regard to
7the payment of dividends, unless written notice is mailed or
8delivered by the insurer to the employer, at the address shown
9on the policy, and to the employer's authorized agent or
10broker, indicating the insurer's intention to condition
11renewal upon issuance of a policy that supersedes the policy
12previously issued and that will result in a premium in excess
13of 5% above the rate recommendation filed with the Department,
14exclusive of any premium increase generated as a result of
15increased loss costs or increased exposure units or as a result
16of experience rating, contractor credit adjustment program,
17large deductible, retrospective rating, or audit. The notice
18shall be delivered at least 30 days in advance of the
19expiration date of the policy, and shall set forth: (1) the
20amount of the premium increase or, if the amount cannot
21reasonably be determined as of the time the notice is provided,
22a reasonable estimate of the premium increase based upon the
23information available to the insurer at that time; and (2) the
24reason for the increased premium in excess of the rate
25recommendation filed with the Department. Nothing in this
26Section requires the insurer to provide notice when the



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1employer, an agent or broker authorized by the employer, or
2another insurer of the employer has delivered written notice
3that the policy has been replaced or is no longer desired.
4    (215 ILCS 5/123C-4 rep.)
5    (215 ILCS 5/460 rep.)
6    Section 95. The Illinois Insurance Code is amended by
7repealing Sections 123C-4 and 460.
8    Section 99. Effective date. This Act takes effect upon
9becoming law, except that the provisions changing Sections 456,
10457, and 458 of the Illinois Insurance Code and the provisions
11repealing Section 460 of the Illinois Insurance Code take
12effect February 1, 2019.".