SB1737 EnrolledLRB100 06758 SMS 16799 b

1    AN ACT concerning regulation.
2    Be it enacted by the People of the State of Illinois,
3represented in the General Assembly:
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"
17means health insurance coverage provided pursuant to a policy
18with an issuer, regardless of the situs of the delivery of the
19policy, that is less than 365 days after the effective date of
20the policy.
21    Section 10. Application; scope; duration of coverage.
22    (a) This Act applies to health insurance issuers that offer



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1short-term, limited-duration health insurance coverage to
2individuals in this State and to short-term, limited-duration
3health insurance coverage that is delivered or issued for
4delivery in this State, including coverage issued outside of
5this State that covers individuals in this State.
6    (b) A short-term, limited-duration health insurance
7coverage policy may not be issued or delivered to any person
8residing in this State unless the policy, when delivered or
9issued for delivery in this State, complies with the provisions
10of this Act.
11    (c) Any short-term, limited-duration health insurance
12coverage policy that is delivered or issued for delivery in
13this State must have an expiration date in the policy that is
14less than 181 days after the effective date and shall not be
15renewable or extendable within a period of 365 days after the
16individual's coverage under the policy ends, either at the
17option of the issuer or the individual. Renewal of a
18short-term, limited-duration health insurance coverage policy
19includes the issuance of a new short-term, limited-duration
20health insurance policy by an issuer to a policyholder within
2160 days after the expiration of a policy previously issued by
22the issuer to the policyholder.
23    (d) Any short-term, limited-duration health insurance
24coverage policy that is delivered or issued for delivery in
25this State may not be rescinded before the expiration date in
26the policy, except in cases of nonpayment of premiums, fraud,



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1or as provided in subsection (e).
2    (e) Any short-term, limited-duration health insurance
3coverage policy that is delivered or issued for delivery in
4this State shall contain an option for an individual to cancel
5coverage after any 30-day interval during the term of the plan.
6    Section 15. Disclosure requirements.
7    (a) A health insurance issuer that offers short-term,
8limited-duration health insurance coverage to be delivered or
9issued for delivery in this State shall, in addition to all
10other documents required, including, but not limited to, the
11policy, the certificate, the membership booklet, and a
12description of appeal and external review rights, deliver an
13outline of coverage to an applicant for or an enrollee in
14short-term, limited-duration health insurance coverage
15delivered or issued for delivery in this State.
16    (b) Any short-term, limited-duration health insurance
17coverage policy that is delivered or issued for delivery in the
18State shall display prominently in the policy, any application,
19sales, and marketing materials provided in connection with
20enrollment in such coverage, and the outline of coverage for
21such coverage, in at least 14-point, bold type, the following:



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12    (c) Any individual selling a short-term, limited-duration
13health insurance coverage policy in this State in face-to-face
14or telephonic sales interactions must read out loud the
15disclosure in subsection (b) to a prospective purchaser. An
16entity selling a short-term, limited-duration health insurance
17coverage policy in Illinois must display the disclosure in
18subsection (b) on the webpage where a prospective purchaser
19would purchase coverage.
20    (d) Nothing in this Section precludes an insurer from
21providing disclosures in addition to those required in
22subsections (b) and (c). Nothing in this Section precludes an
23insurer from providing disclosures intended to clarify those
24required in subsections (b) and (c) if approved by the



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1    Section 20. Filing and approval.
2    (a) Coverage subject to this Act may not be delivered or
3issued for delivery in this State unless the policy evidencing
4such coverage has been filed with and been approved by the
6    (b) A health insurance issuer who intends to deliver or
7issue for delivery a short-term, limited-duration health
8insurance coverage policy in this State shall file with the
10        (1) all paperwork required for individual health
11    insurance coverage pursuant to 50 Ill. Adm. Code 916; and
12        (2) all sales and marketing materials provided in
13    connection with enrollment in such coverage for
14    informational purposes.
15    (c) The Department shall adopt any rules necessary to carry
16out the provisions of this Act.
17    Section 90. The Illinois Insurance Code is amended by
18adding Article IIB and Sections 123C-23, 123C-24, 123C-25,
19123C-26, 123C-27, 123C-28, and 462a and by changing Sections
20121-2.08, 123C-1, 123C-2, 123C-3, 123C-9, 123C-11, 123C-12,
21123C-13, 123C-16, 123C-17, 123C-19, 156, 173.1, 456, 457, and
22458 as follows:
23    (215 ILCS 5/Art. IIB heading new)




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1    (215 ILCS 5/35B-1 new)
2    Sec. 35B-1. Short title. This Article may be cited as the
3Domestic Stock Company Division Law.
4    (215 ILCS 5/35B-5 new)
5    Sec. 35B-5. Purpose. The purpose of this Article is to
6stimulate economic development in the State of Illinois by
7creating and sustaining employment opportunities and
8increasing and sustaining taxable revenue, through improving
9the competitive position of domestic stock companies,
10maintaining the competitiveness of this State as a state of
11domicile for domestic stock companies, and enhancing the
12desirability of this State as a jurisdiction of domicile for
13newly incorporating and existing foreign stock companies.
14    (215 ILCS 5/35B-10 new)
15    Sec. 35B-10. Definitions. As used in this Article:
16    "Assets" means all assets or property, whether real,
17personal or mixed, tangible or intangible, and any right or
18interest therein, including all rights under contracts and
19other agreements.
20    "Capital" means the capital stock component of statutory
21surplus, as defined in the National Association of Insurance
22Commissioners Accounting Practices and Procedures Manual,
23version effective January 1, 2001, and subsequent revisions.



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1    "Divide" or "division" means the act by operation of law by
2which a domestic stock company divides into 2 or more resulting
3companies in accordance with a plan of division and this
5    "Dividing company" means a domestic stock company that
6approves a plan of division pursuant to Section 35B-20;
7    "Domestic stock company" means a domestic stock company
8transacting or being organized to transact any of the kinds of
9insurance business enumerated in Section 4.
10    "Liability" means a liability or obligation of any kind,
11character, or description, whether known or unknown, absolute
12or contingent, accrued or unaccrued, disputed or undisputed,
13liquidated or unliquidated, secured or unsecured, joint or
14several, due or to become due, determined, determinable, or
16    "New company" means a domestic stock company that is
17created by a division occurring on or after the effective date
18of this amendatory Act of the 100th General Assembly.
19    "Plan of division" means a plan of division approved by a
20dividing company in accordance Section 35B-20.
21    "Policy liability" means a liability as defined in this
22Section arising out of or related to an insurance policy,
23contract of insurance, or reinsurance agreement.
24    "Recorder" means the office of the recorder of the county
25where the principal office of a domestic stock company is



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1    "Resulting company" means a domestic stock company created
2by a division or a dividing company that survives a division.
3    "Shareholder" means the person in whose name shares are
4registered in the records of a corporation or the beneficial
5owner of shares to the extent of the rights granted by a
6nominee certificate on file with a corporation.
7    "Sign" or "signature" includes a manual, facsimile, or
8conformed or electronic signature.
9    "Surplus" means total statutory surplus less capital,
10calculated in accordance with the National Association of
11Insurance Commissioners Accounting Practices and Procedures
12Manual, version effective January 1, 2001, and subsequent
14    "Transfer" includes an assignment, assumption, conveyance,
15sale, lease, encumbrance, including a mortgage or security
16interest, gift, or transfer by operation of law.
17    (215 ILCS 5/35B-15 new)
18    Sec. 35B-15. Plan of division.
19    (a) A domestic stock company may, in accordance with the
20requirements of this Article, divide into 2 or more resulting
21companies pursuant to a plan of division.
22    (b) Each plan of division shall include:
23        (1) the name of the domestic stock company seeking to
24    divide;
25        (2) the name of each resulting company that will be



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1    created by the proposed division;
2        (3) for each new company that will be created by the
3    proposed division, a copy of its:
4            (A) proposed articles of incorporation;
5            (B) proposed bylaws; and
6            (C) the kinds of insurance business enumerated in
7        Section 4 that the new company would be authorized to
8        conduct;
9        (4) the manner of allocating between or among the
10    resulting companies:
11            (A) the assets of the domestic stock company that
12        will not be owned by all of the resulting companies as
13        tenants in common pursuant to Section 35B-35; and
14            (B) the liabilities of the domestic stock company,
15        including policy liabilities, to which not all of the
16        resulting companies will become jointly and severally
17        liable pursuant to paragraph (3) of subsection (a) of
18        Section 35B-40;
19        (5) the manner of distributing shares in the new
20    companies to the dividing company or its shareholders;
21        (6) a reasonable description of the liabilities,
22    including policy liabilities, and items of capital,
23    surplus, or other assets, in each case, that the domestic
24    stock company proposes to allocate to each resulting
25    company, including specifying the reinsurance contract,
26    reinsurance coverage obligations, and related claims that



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1    are applicable to those policies;
2        (7) all terms and conditions required by the laws of
3    this State or the articles of incorporation and bylaws of
4    the domestic stock company;
5        (8) evidence demonstrating that the interest of all
6    classes of policyholders of the dividing company will be
7    properly protected; and
8        (9) all other terms and conditions of the division.
9    Nothing in this subsection (b) shall expand or reduce the
10allocation and assignment of reinsurance as stated in the
11reinsurance contract.
12    (c) If the domestic stock company survives the division,
13the plan of division shall include, in addition to the
14information required by subsection (b):
15        (1) all proposed amendments to the dividing company's
16    articles of incorporation and bylaws, if any;
17        (2) if the dividing company desires to cancel some, but
18    less than all, shares in the dividing company, the manner
19    in which it will cancel such shares; and
20        (3) if the dividing company desires to convert some,
21    but less than all, shares in the dividing company into
22    shares, securities, obligations, money, other property,
23    rights to acquire shares or securities, or any combination
24    thereof, a statement disclosing the manner in which it will
25    convert the shares.
26    (d) If the domestic stock company does not survive the



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1proposed division, the plan of division shall contain, in
2addition to the information required by subsection (b), the
3manner in which the dividing company will cancel or convert
4shares in the dividing company into shares, securities,
5obligations, money, other property, rights to acquire shares or
6securities, or any combination thereof.
7    (e) Terms of a plan of division may be made dependent on
8facts objectively ascertainable outside of the plan of
10    (f) A dividing company may amend a plan of division in
11accordance with any procedures set forth in the plan of
12division or, if no such procedures are set forth in the plan of
13division, in any manner determined by the board of directors of
14the dividing company, except that a shareholder that was
15entitled to vote on or consent to approval of the plan of
16division is entitled to vote on or consent to any amendment of
17the plan of division that will change:
18        (1) the amount or kind of shares, securities,
19    obligations, money, other property, rights to acquire
20    shares or securities, or any combination thereof, to be
21    received by any of the shareholders of the dividing company
22    under the plan of division;
23        (2) the articles of incorporation or bylaws of any
24    resulting company that will be in effect when the division
25    becomes effective, except for changes that do not require
26    approval of the shareholders of the resulting company under



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1    its articles of incorporation or bylaws; or
2        (3) any other terms or conditions of the plan of
3    division, if the change would adversely affect the
4    shareholders in any material respect.
5    (g) A dividing company may abandon a plan of division after
6it has approved the plan of division without any action by the
7shareholders and in accordance with any procedures set forth in
8the plan of division or, if no such procedures are set forth in
9the plan of division, in a manner determined by the board of
10directors of the dividing company.
11    (h) A dividing company may abandon a plan of division after
12it has filed a certificate of division with the recorder by
13filing with the recorder, with concurrent copy to the director,
14a certificate of abandonment signed by the dividing company.
15The certificate of abandonment shall be effective on the date
16it is filed with the recorder and the dividing company shall be
17deemed to have abandoned its plan of division on such date.
18    (i) A dividing company may not abandon or amend its plan of
19division once the division becomes effective.
20    (215 ILCS 5/35B-20 new)
21    Sec. 35B-20. Requirements of a plan of division.
22    (a) A domestic stock company shall not file a plan of
23division with the Director unless the plan of division has been
24approved in accordance with:
25        (1) any applicable provisions of its articles of



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1    incorporation and bylaws; and
2        (2) all laws of this State governing the internal
3    affairs of a domestic stock company that provide for
4    approval of a merger.
5    (b) If any provision of the articles of incorporation or
6bylaws of a domestic stock company requires that a specific
7number or percentage of board of directors or shareholders
8approve the proposal or adoption of a plan of merger, or
9imposes other special procedures for the proposal or adoption
10of a plan of merger, such domestic stock company shall adhere
11to such provision in proposing or adopting a plan of division.
12If any provision of the articles of incorporation or bylaws of
13a domestic stock company is amended, such amendment shall
14thereafter apply to a division only in accordance with its
15express terms.
16    (215 ILCS 5/35B-25 new)
17    Sec. 35B-25. Plan of division approval.
18    (a) A division shall not become effective until it is
19approved by the Director after reasonable notice and a public
20hearing, if the notice and hearing are deemed by the Director
21to be in the public interest. The Director shall hold a public
22hearing if one is requested by the dividing company. A hearing
23conducted under this Section shall be conducted in accordance
24with Article 10 of the Illinois Administrative Procedure Act.
25    (b) The Director shall approve a plan of division unless



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1the Director finds that:
2        (1) the interest of any class of policyholder or
3    shareholder of the dividing company will not be properly
4    protected;
5        (2) each new company created by the proposed division,
6    except a new company that is a nonsurviving party to a
7    merger pursuant to subsection (b) of Section 156, would be
8    ineligible to receive a license to do insurance business in
9    this State pursuant to Section 5;
10        (3) the proposed division violates a provision of the
11    Uniform Fraudulent Transfer Act;
12        (4) the division is being made for purposes of
13    hindering, delaying, or defrauding any policyholders or
14    other creditors of the dividing company;
15        (5) one or more resulting companies will not be solvent
16    upon the consummation of the division; or
17        (6) the remaining assets of one or more resulting
18    companies will be, upon consummation of a division,
19    unreasonably small in relation to the business and
20    transactions in which the resulting company was engaged or
21    is about to engage.
22    (c) In determining whether the standards set forth in
23paragraph (3) of subsection (b) have been satisfied, the
24Director shall only apply the Uniform Fraudulent Transfer Act
25to a dividing company in its capacity as a resulting company
26and shall not apply the Uniform Fraudulent Transfer Act to any



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1dividing company that is not proposed to survive the division.
2    (d) In determining whether the standards set forth in
3paragraphs (3), (4), (5), and (6) of subsection (b) have been
4satisfied, the Director may consider all proposed assets of the
5resulting company, including, without limitation, reinsurance
6agreements, parental guarantees, support or keep well
7agreements, or capital maintenance or contingent capital
8agreements, in each case, regardless of whether the same would
9qualify as an admitted asset as defined in Section 3.1.
10    (e) In determining whether the standards set forth in
11paragraph (3) of subsection (b) have been satisfied, with
12respect to each resulting company, the Director shall, in
13applying the Uniform Fraudulent Transfer Act, treat:
14        (1) the resulting company as a debtor;
15        (2) liabilities allocated to the resulting company as
16    obligations incurred by a debtor;
17        (3) the resulting company as not having received
18    reasonably equivalent value in exchange for incurring the
19    obligations; and
20        (4) assets allocated to the resulting company as
21    remaining property.
22    (f) All information, documents, materials, and copies
23thereof submitted to, obtained by, or disclosed to the Director
24in connection with a plan of division or in contemplation
25thereof, including any information, documents, materials, or
26copies provided by or on behalf of a domestic stock company in



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1advance of its adoption or submission of a plan of division,
2shall be confidential and shall be subject to the same
3protection and treatment in accordance with Section 131.14d as
4documents and reports disclosed to or filed with the Director
5pursuant to Section 131.14b until such time, if any, as a
6notice of the hearing contemplated by subsection (a) is issued.
7    (g) From and after the issuance of a notice of the hearing
8contemplated by subsection (a), all business, financial, and
9actuarial information that the domestic stock company requests
10confidential treatment, other than the plan of division, shall
11continue to be confidential and shall not be available for
12public inspection and shall be subject to the same protection
13and treatment in accordance with Section 131.14d as documents
14and reports disclosed to or filed with the Director pursuant to
15Section 131.14b.
16    (h) All expenses incurred by the Director in connection
17with proceedings under this Section, including expenses for the
18services of any attorneys, actuaries, accountants, and other
19experts as may be reasonably necessary to assist the Director
20in reviewing the proposed division, shall be paid by the
21dividing company filing the plan of division. A dividing
22company may allocate expenses described in this subsection in a
23plan of division in the same manner as any other liability.
24    (i) If the Director approves a plan of division, the
25Director shall issue an order that shall be accompanied by
26findings of fact and conclusions of law.



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1    (j) The conditions in this Section for freeing one or more
2of the resulting companies from the liabilities of the dividing
3company and for allocating some or all of the liabilities of
4the dividing company shall be conclusively deemed to have been
5satisfied if the plan of division has been approved by the
6Director in a final order that is not subject to further
8    (215 ILCS 5/35B-30 new)
9    Sec. 35B-30. Certificate of division.
10    (a) After a plan of division has been adopted and approved,
11an officer or duly authorized representative of the dividing
12company shall sign a certificate of division.
13    (b) The certificate of division shall set forth:
14        (1) the name of the dividing company;
15        (2) a statement disclosing whether the dividing
16    company will survive the division;
17        (3) the name of each new company that will be created
18    by the division;
19        (4) the kinds of insurance business enumerated in
20    Section 4 that the new company will be authorized to
21    conduct;
22        (5) the date that the division is to be effective,
23    which shall not be more than 90 days after the dividing
24    company has filed the certificate of division with the
25    recorder, with a concurrent copy to the Director;



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1        (6) a statement that the division was approved by the
2    Director in accordance with Section 35B-25;
3        (6) a statement that the dividing company provided, no
4    later than 10 business days after the dividing company
5    filed the plan of division with the Director, reasonable
6    notice to each reinsurer that is party to a reinsurance
7    contract that is applicable to the policies included in the
8    plan of division;
9        (7) if the dividing company will survive the division,
10    an amendment to its articles of incorporation or bylaws
11    approved as part of the plan of division;
12        (8) for each new company created by the division, its
13    articles of incorporation and bylaws, provided that the
14    articles of incorporation and bylaws need not state the
15    name or address of an incorporator; and
16        (9) a reasonable description of the capital, surplus,
17    other assets and liabilities, including policy
18    liabilities, of the dividing company that are to be
19    allocated to each resulting company.
20    (c) The articles of incorporation and bylaws of each new
21company must satisfy the requirements of the laws of this
22State, provided that the documents need not be signed or
23include a provision that need not be included in a restatement
24of the document.
25    (d) A certificate of division is effective when filed with
26the recorder, with a concurrent copy to the Director, as



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1provided in this Section or on another date specified in the
2plan of division, whichever is later, provided that a
3certificate of division shall become effective not more than 90
4days after it is filed with the recorder. A division is
5effective when the relevant certificate of division is
7    (215 ILCS 5/35B-35 new)
8    Sec. 35B-35. Effects of division.
9    (a) When a division becomes effective pursuant to Section
11        (1) if the dividing company has survived the division:
12            (A) it continues to exist;
13            (B) its articles of incorporation shall be
14        amended, if necessary, as provided in the plan of
15        division; and
16            (C) its bylaws shall be amended, if necessary, as
17        provided in the plan of division;
18        (2) if the dividing company has not survived the
19    division, its separate existence ceases to exist;
20        (3) each new company:
21            (A) comes into existence;
22            (B) shall hold any capital, surplus, and other
23        assets allocated to such new company by the plan of
24        division as a successor to the dividing company,
25        automatically, by operation of law and not by transfer,



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1        whether directly or indirectly; and
2            (C) its articles of incorporation, if any, and
3        bylaws, if any, shall be effective;
4        (4) capital, surplus, and other assets of the dividing
5    company:
6            (A) that is allocated by the plan of division
7        either:
8                (i) vests in the applicable new company as
9            provided in the plan of division; or
10                (ii) remains vested in the dividing company as
11            provided in the plan of division;
12            (B) that is not allocated by the plan of division
13        either:
14                (i) remains vested in the dividing company, if
15            the dividing company survives the division; or
16                (ii) is allocated to and vests equally in the
17            resulting companies as tenants in common, if the
18            dividing company does not survive the division; or
19            (C) otherwise vests as provided in this subsection
20        without transfer, reversion, or impairment;
21        (5) a resulting company to which a cause of action is
22    allocated as provided in paragraph (4) of this subsection
23    (a) may be substituted or added in any pending action or
24    proceeding to which the dividing company is a party when
25    the division becomes effective;
26        (6) the liabilities, including policy liabilities, of



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1    the dividing company are allocated between or among the
2    resulting companies as provided in Section 35B-40 and each
3    resulting company to which liabilities are allocated is
4    liable only for those liabilities, including policy
5    liabilities, so allocated as successors to the dividing
6    company, automatically, by operation of law, and not by
7    transfer (or, for the avoidance of doubt, assumption),
8    whether directly or indirectly; and
9        (7) the shares in the dividing company that are to be
10    converted or canceled in the division are converted or
11    canceled, and the shareholders of those shares are entitled
12    only to the rights provided to them under the plan of
13    division and any appraisal rights that they may have
14    pursuant to Section 35B-45.
15    (b) Except as provided in the articles of incorporation or
16bylaws of the dividing company, the division does not give rise
17to any rights that a shareholder, director of a domestic stock
18company, or third party would have upon a dissolution,
19liquidation, or winding up of the dividing company.
20    (c) The allocation to a new company of capital, surplus, or
21other assets that is collateral covered by an effective
22financing statement shall not be effective until a new
23financing statement naming the new company as a debtor is
24effective under the Uniform Commercial Code.
25    (d) Unless otherwise provided in the plan of division, the
26shares in and any securities of each new company shall be



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1distributed to:
2        (1) the dividing company, if it survives the division;
3    or
4        (2) shareholders of the dividing company that do not
5    assert any appraisal rights that they may have pursuant to
6    Section 35B-45, pro rata.
7    (215 ILCS 5/35B-40 new)
8    Sec. 35B-40. Resulting company liabilities.
9    (a) Except as otherwise expressly provided in this Section,
10when a division becomes effective, each resulting company is
11responsible, automatically, by operation of law, for:
12        (1) individually, the liabilities, including policy
13    liabilities, that the resulting company issues,
14    undertakes, or incurs in its own name after the division;
15        (2) individually, the liabilities, including policy
16    liabilities, of the dividing company that are allocated to
17    or remain the liability of the resulting company to the
18    extent specified in the plan of division; and
19        (3) jointly and severally with the other resulting
20    companies, the liabilities, including policy liabilities,
21    of the dividing company that are not allocated by the plan
22    of division.
23    (b) Except as otherwise expressly provided in this Section,
24when a division becomes effective, no resulting company is
25responsible for or shall have any liability or obligation in



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1respect of:
2        (1) any liabilities, including policy liabilities,
3    that another resulting company issues, undertakes, or
4    incurs in its own name after the division; or
5        (2) any liabilities, including policy liabilities, of
6    the dividing company that are allocated to or remain the
7    liability of another resulting company in accordance with
8    the plan of division.
9    (c) If a provision of a debt security, note, or similar
10evidence of indebtedness for money borrowed, whether secured or
11unsecured, indenture or other contract relating to
12indebtedness, or a provision of any other type of contract
13other than an insurance policy, annuity, or reinsurance
14agreement, that was issued, incurred, or executed by the
15domestic stock company before requires the consent of the
16obligee to a merger of the dividing company or treats the
17merger as a default, that provision applies to a division of
18the dividing company as if the division was a merger.
19    (d) If a division breaches a contractual obligation of the
20dividing company at the time the division becomes effective,
21all of the resulting companies are liable, jointly and
22severally, for the contractual breach, but the validity and
23effectiveness of the division, including, without limitation,
24the allocation of liabilities in accordance with the plan of
25division, shall not be affected by the contractual breach.
26    (e) A direct or indirect allocation of capital, surplus,



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1assets, or liabilities, including policy liabilities, in a
2division shall occur automatically, by operation of law, and
3shall not be treated as a distribution or transfer for any
4purpose with respect to either the dividing company or any of
5the resulting companies.
6    (f) Liens, security interests, and other charges on the
7capital, surplus, or other assets of the dividing company are
8not impaired by the division, notwithstanding any otherwise
9enforceable allocation of liabilities, including policy
10liabilities, of the dividing company.
11    (g) If the dividing company is bound by a security
12agreement governed by Article 9 of the Uniform Commercial Code
13as enacted in this State or in any other jurisdiction, and the
14security agreement provides that the security interest
15attaches to after-acquired collateral, each resulting company
16is bound by the security agreement.
17    (h) An allocation of a policy or other liability does not:
18        (1) except as provided in the plan of division and
19    specifically approved by the Director, affect the rights
20    that a policyholder or creditor has under other law in
21    respect of the policy or other liability, except that those
22    rights are available only against a resulting company
23    responsible for the policy or liability under this Section;
24    or
25        (2) release or reduce the obligation of a reinsurer,
26    surety, or guarantor of the policy or liability.



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1    (215 ILCS 5/35B-45 new)
2    Sec. 35B-45. Shareholder rights. If the dividing company
3does not survive the division, an objecting shareholder of a
4dividing company is entitled to appraisal rights and to obtain
5payment of the fair value of that shareholder's shares, in the
6same manner and to the extent provided for pursuant to Section
8    (215 ILCS 5/35B-50 new)
9    Sec. 35B-50. Rules. The Director may adopt such rules as
10are necessary or appropriate to carry out this Article.
11    (215 ILCS 5/121-2.08)  (from Ch. 73, par. 733-2.08)
12    Sec. 121-2.08. Transactions in this State involving
13contracts of insurance independently procured directly from an
14unauthorized insurer by industrial insureds.
15    (a) As used in this Section:
16    "Exempt commercial purchaser" means exempt commercial
17purchaser as the term is defined in subsection (1) of Section
18445 of this Code.
19    "Home state" means home state as the term is defined in
20subsection (1) of Section 445 of this Code.
21    "Industrial insured" means an insured:
22        (i) that procures the insurance of any risk or risks of
23    the kinds specified in Classes 2 and 3 of Section 4 of this



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1    Code by use of the services of a full-time employee who is
2    a qualified risk manager or the services of a regularly and
3    continuously retained consultant who is a qualified risk
4    manager;
5        (ii) that procures the insurance directly from an
6    unauthorized insurer without the services of an
7    intermediary insurance producer; and
8        (iii) that is an exempt commercial purchaser whose home
9    state is Illinois.
10    "Insurance producer" means insurance producer as the term
11is defined in Section 500-10 of this Code.
12    "Qualified risk manager" means qualified risk manager as
13the term is defined in subsection (1) of Section 445 of this
15    "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    "Unauthorized insurer" means unauthorized insurer as the
19term is defined in subsection (1) of Section 445 of this Code.
20    (b) For contracts of insurance effective January 1, 2015 or
21later, within 90 days after the effective date of each contract
22of insurance issued under this Section, the insured shall file
23a report with the Director by submitting the report to the
24Surplus Line Association of Illinois in writing or in a
25computer readable format and provide information as designated
26by the Surplus Line Association of Illinois. The information in



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1the report shall be substantially similar to that required for
2surplus line submissions as described in subsection (5) of
3Section 445 of this Code. Where applicable, the report shall
4satisfy, with respect to the subject insurance, the reporting
5requirement of Section 12 of the Fire Investigation Act.
6    (c) For contracts of insurance effective January 1, 2015
7through December 31, 2017 or later, within 30 days after filing
8the report, the insured shall pay to the Director for the use
9and benefit of the State a sum equal to the gross premium of
10the contract of insurance multiplied by the surplus line tax
11rate, as described in paragraph (3) of subsection (a) of
12Section 445 of this Code, and shall pay the fire marshal tax
13that would otherwise be due annually in March for insurance
14subject to tax under Section 12 of the Fire Investigation Act.
15For contracts of insurance effective January 1, 2018 or later,
16within 30 days after filing the report, the insured shall pay
17to the Director for the use and benefit of the State a sum
18equal to 0.5% of the gross premium of the contract of
19insurance, and shall pay the fire marshal tax that would
20otherwise be due annually in March for insurance subject to tax
21under Section 12 of the Fire Investigation Act. For contracts
22of insurance effective January 1, 2015 or later, within 30 days
23after filing the report, the insured shall pay to the Surplus
24Line Association of Illinois a countersigning fee that shall be
25assessed at the same rate charged to members pursuant to
26subsection (4) of Section 445.1 of this Code.



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1    (d) For contracts of insurance effective January 1, 2015 or
2later, the insured shall withhold the amount of the taxes and
3countersignature fee from the amount of premium charged by and
4otherwise payable to the insurer for the insurance. If the
5insured fails to withhold the tax and countersignature fee from
6the premium, then the insured shall be liable for the amounts
7thereof and shall pay the amounts as prescribed in subsection
8(c) of this Section.
9    (e) Contracts of insurance with an industrial insured that
10qualifies as a Safety-Net Hospital are not subject to
11subsections (b) through (d) of this Section.
12(Source: P.A. 100-535, eff. 9-22-17.)
13    (215 ILCS 5/123C-1)  (from Ch. 73, par. 735C-1)
14    (Section scheduled to be repealed on January 1, 2027)
15    Sec. 123C-1. Definitions. As used in this Article:
16    A. "Affiliate" or "Affiliated company" includes a parent
17entity that controls a captive insurance company and:
18        (1) is an affiliate of another entity if the entity
19    directly or indirectly, through one or more
20    intermediaries, controls, is controlled by, or is under
21    common control with the other entity.
22        (2) is an affiliate of another entity if the entity is
23    an affiliate of and is controlled by the other entity
24    directly or indirectly through one or more intermediaries.
25A subsidiary or holding company of an entity is an affiliate of



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



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1    the foregoing:
2            (a) whose member organizations are engaged in
3        businesses or activities similar or related with
4        respect to the liability of which such members are
5        exposed by virtue of any related, similar, or common
6        business, trade, product, services, premises, or
7        operations; and
8            (b) whose member organizations:
9                (i) directly or indirectly own or control, and
10            hold with power to vote, at least 80% of all of the
11            outstanding voting securities of an association
12            captive insurance company incorporated as a stock
13            insurer; or
14                (ii) directly or indirectly have at least 80%
15            of the voting control over an association captive
16            insurance company organized as a mutual insurer;
17            or
18        (3) any risk retention group, as defined in subsection
19    (11) of Section 123B-2, domiciled in this State and
20    organized under this Article; however, beginning 6 months
21    after the effective date of this amendatory Act of 1995, a
22    risk retention group shall no longer qualify as an
23    association under this Article.
24    Provided, however, that with respect to each of the
25associations described in paragraphs (1), (2) and (3) above, no
26member organization may (i) own, control, or hold with power to



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1vote in excess of 25% of the voting securities of an
2association captive insurance company incorporated as a stock
3insurer, or (ii) have more than 25% of the voting control of an
4association captive insurance company organized as a mutual
6    C. "Association captive insurance company" means any
7company that insures risks of (i) the member organizations of
8an association, and (ii) their affiliated companies.
9    D. "Captive insurance company" means any pure captive
10insurance company, association captive insurance company or
11industrial insured captive insurance company organized under
12the provisions of this Article.
13    E. "Director" means the Director of the Department of
15    F. "Industrial insured" means an insured which (together
16with its affiliates) at the time of its initial procurement of
17insurance from an industrial insured captive insurance
19        (1) has available to it advice with respect to the
20    purchase of insurance through the use of the services of a
21    full-time employee acting as an insurance manager or buyer
22    or the services of a regularly and continuously retained
23    qualified insurance consultant; and
24        (2) pays aggregate annual premiums in excess of
25        $100,000 for insurance on all risks except for life,
26        accident and health; and



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1        (3) either (i) has at least 25 full-time employees, or
2    (ii) has gross assets in excess of $3,000,000, or (iii) has
3    annual gross revenues in excess of $5,000,000.
4    G. "Industrial insured captive insurance company" means
5any company that insures risks of industrial insureds that are
6members of the industrial insured group, and their affiliated
8    H. "Industrial insured group" means any group of industrial
9insureds that collectively:
10        (1) directly or indirectly (including ownership or
11    control through a company which is wholly owned by such
12    group of industrial insureds) own or control, and hold with
13    power to vote, all of the outstanding voting securities of
14    an industrial insured captive insurance company
15    incorporated as a stock insurer; or
16        (2) directly or indirectly (including control through
17    a company which is wholly owned by such group of industrial
18    insureds) have complete voting control over an industrial
19    insured captive insurance company organized as a mutual
20    insurer; provided, however, that no member organization
21    may (i) own, control, or hold with power to vote in excess
22    of 25% of the voting securities of an industrial insured
23    captive insurance company incorporated as a stock insurer,
24    or (ii) have more than 25% of the voting control of an
25    industrial insured captive insurance company organized as
26    a mutual insurer.



SB1737 Enrolled- 33 -LRB100 06758 SMS 16799 b

1    I. "Member organization" means any individual, legal
2representative, corporation (whether for profit or not for
3profit), partnership, association, unit of government, trust
4or other organization that belongs to an association or an
5industrial insured group.
6    J. "Parent" means a corporation, partnership, individual
7or other legal entity that directly or indirectly owns,
8controls, or holds with power to vote more than 50% of the
9outstanding voting securities of a company.
10    K. "Personal risk liability" means liability to other
11persons for (i) damage because of injury to any person, (ii)
12damage to property, or (iii) other loss or damage, in each case
13resulting from any personal, familial, or household
14responsibilities or activities, but does not include legal
15liability for damages (including costs of defense, legal costs
16and fees, and other claims expenses) because of injuries to
17other persons, damage to their property, or other damage or
18loss to such other persons resulting from or arising out of:
19        (i) any business (whether for profit or not for
20    profit), trade, product, services (including professional
21    services), premises, or operations; or
22        (ii) any activity of any state or local government, or
23    any agency or political subdivision thereof.
24    L. "Pure captive insurance company" means any company that
25insures only risks of its parent or affiliated companies or



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1    M. "Unit of government" includes any state, regional or
2local government, or any agency or political subdivision
3thereof, or any district, authority, public educational
4institution or school district, public corporation or other
5unit of government in this State or any similar unit of
6government in any other state.
7    N. "Control" means the power to direct, or cause the
8direction of, the management and policies of an entity, other
9than the power that results from an official position with or
10corporate office held in the entity. The power may be possessed
11directly or indirectly by any means, including through the
12ownership of voting securities or by contract, other than a
13commercial contract for goods or non-management services.
14    O. "Qualified independent actuary" means a person that is
16        (1) a member in good standing with the Casualty
17    Actuarial Society; or
18        (2) a member in good standing with the American Academy
19    of Actuaries who has been approved as qualified for signing
20    casualty loss reserve opinions by the Casualty Practice
21    Council of the American Academy of Actuaries.
22    P. "Controlled unaffiliated business" means an entity:
23        (1) that is not an affiliate;
24        (2) that has an existing contractual relationship with
25    an affiliate under which the affiliate bears a potential
26    financial loss; and



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1        (3) whose risks are managed by a captive insurance
2    company under Section 123C-24 of this Code.
3    Q. "Operational risk" means any potential financial loss of
4an affiliate, except for a loss arising from an insurance
5policy issued by a captive or insurance affiliate.
6    R. "Captive management company" means an entity providing
7administrative services to a captive insurance company.
8    S. "Safety-Net Hospital" means an Illinois hospital that
9qualifies as a Safety-Net Hospital under Section 5-5e.1 of the
10Illinois Public Aid Code.
11(Source: P.A. 89-97, eff. 7-7-95; 90-794, eff. 8-14-98.)
12    (215 ILCS 5/123C-2)  (from Ch. 73, par. 735C-2)
13    (Section scheduled to be repealed on January 1, 2027)
14    Sec. 123C-2. Authority of captives; restrictions.
15    A. (Blank). Any captive insurance company, when permitted
16by its articles of association or charter, may apply to the
17Director for a certificate of authority to transact any and all
18insurance in classes 2 and 3 of Section 4 of this Code, except
20        (1) no pure captive insurance company may insure any
21    risks other than those of its parent and affiliated
22    companies;
23        (2) no association captive insurance company may
24    insure any risks other than those of the member
25    organizations of its association, and their affiliated



SB1737 Enrolled- 36 -LRB100 06758 SMS 16799 b

1    companies;
2        (3) no industrial insured captive insurance company
3    may insure any risks other than those of the members of the
4    industrial insured group, and their affiliated companies;
5    and
6        (4) no captive insurance company may provide:
7            (i) personal motor vehicle coverage or homeowner's
8        insurance coverage or any component thereof, or
9            (ii) personal coverage for personal risk
10        liability, or
11            (iii) coverage for an employer's liability to its
12        employees other than legal liability under the federal
13        Employers' Liability Act (45 U.S.C. 51 et seq.),
14        provided, however, this exclusion does not preclude
15        reinsurance of such employer's liability, or
16            (iv) accident and health insurance as provided in
17        clause (a) of Class 2 of Section 4, provided, however,
18        this exclusion does not preclude stop-loss insurance
19        or reinsurance of a single employer self-funded
20        employee disability benefit plan or an employee
21        welfare plan as described in 29 U.S.C. 1001 et seq.
22    A-5. A captive insurance company may not issue:
23        (1) life insurance;
24        (2) annuities;
25        (3) accident and health insurance for the company's
26    parent and affiliates, except to insure employee benefits



SB1737 Enrolled- 37 -LRB100 06758 SMS 16799 b

1    that are subject to the federal Employee Retirement Income
2    Security Act of 1974 or, to the extent the parent company
3    is a college or university, an accident or health plan
4    offered to enrolled students of the college or university;
5        (4) title insurance;
6        (5) mortgage guaranty insurance;
7        (6) financial guaranty insurance;
8        (7) homeowner's insurance coverage;
9        (8) personal automobile insurance; or
10        (9) workers' compensation insurance, except to the
11    extent allowed in subsection A-10.
12    A-10. A captive insurance company is authorized to issue a
13contractual reimbursement policy to:
14        (1) the parent company or an affiliated certified
15    self-insurer authorized under the Workers' Compensation
16    Act or a similar affiliated entity expressly authorized by
17    analogous laws of another state; or
18        (2) the parent company or an affiliate that is insured
19    by a workers' compensation insurance policy with a
20    negotiated deductible endorsement.
21    B. No captive insurance company shall do any insurance
22business in this State unless:
23        (1) it first obtains from the Director a certificate of
24    authority authorizing it to do such insurance business in
25    this State; and
26        (2) it appoints a resident registered agent to accept



SB1737 Enrolled- 38 -LRB100 06758 SMS 16799 b

1    service of process and to otherwise act on its behalf in
2    this State.
3    C. No captive insurance company shall adopt a name that is
4the same as, deceptively similar to, or likely to be confused
5with or mistaken for, any other existing business name
6registered in this State.
7    D. Each captive insurance company, or the organizations
8providing the principal administrative or management services
9to such captive insurance company, shall maintain a place of
10business in this State.
11(Source: P.A. 91-357, eff. 7-29-99.)
12    (215 ILCS 5/123C-3)  (from Ch. 73, par. 735C-3)
13    (Section scheduled to be repealed on January 1, 2027)
14    Sec. 123C-3. Minimum capital and surplus.
15    A. The Department may not issue a certificate of authority
16to a captive insurance company unless the company possesses and
17maintains unencumbered capital and surplus in an amount
18determined by the Director after considering:
19        (1) the amount of premium written by the captive
20    insurance company;
21        (2) the characteristics of the assets held by the
22    captive insurance company;
23        (3) the terms of reinsurance arrangements entered into
24    by the captive insurance company;
25        (4) the type of business covered in policies issued by



SB1737 Enrolled- 39 -LRB100 06758 SMS 16799 b

1    the captive insurance company;
2        (5) the underwriting practices and procedures of the
3    captive insurance company; and
4        (6) any other criteria that has an impact on the
5    operations of the captive insurance company determined to
6    be significant by the Director. No pure captive insurance
7    company, association captive insurance company
8    incorporated as a stock insurer, or industrial insured
9    captive insurance company incorporated as a stock insurer
10    shall be issued a certificate of authority unless it shall
11    possess and thereafter maintain unimpaired paid-in capital
12    of not less than the minimum capital requirement applicable
13    to the class or classes and clause or clauses of Section 4
14    describing the kind or kinds of insurance which such
15    captive insurance company is authorized to write, as set
16    forth in subsection (1) of Section 13.
17    B. The amount of capital and surplus determined by the
18Director under subsection A of this Section may not be less
19than $250,000 for a pure captive insurance company, $500,000
20for an industrial insured captive insurance company, and
21$750,000 for an association captive insurance company. Such
22capital may be in the form of (1) all cash or cash equivalents;
23or (2) cash or cash equivalents representing at least 20% of
24the requisite capital, together with an irrevocable letter of
25credit for the remainder of the requisite capital, which letter
26of credit must (a) be approved by the Director, (b) be issued



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1or unconditionally confirmed by (i) a bank chartered by this
2State, (ii) a member bank of the Federal Reserve System or
3(iii) a United States office of a foreign banking corporation
4that is: (A) licensed under the laws of the United States or
5any state thereof, (B) regulated, supervised and examined by
6United States federal or state authorities having regulatory
7authority over banks and trust companies, and (C) designated by
8the Securities Valuation Office of the National Association of
9Insurance Commissioners as meeting its credit standards for
10issuing or confirming letters of credit or, in the event that
11the Director elects to establish credit standards by rule, in
12compliance with rules promulgated by the Director establishing
13reasonable standards of safety and soundness substantially
14equivalent to those of the Securities Valuation Office of the
15National Association of Insurance Commissioners, and (c)
16satisfy the requirements of Section 123C-19; or (3) cash or
17cash equivalents representing at least 33% of the requisite
18capital, together with irrevocable contractual obligations of
19the member organizations of the captive insurance company for
20the payment of the remainder of the requisite capital in no
21more than 3 equal installments in each of the 3 calendar years
22following the date of the grant of the certificate of authority
23to the captive insurance company, which irrevocable
24contractual obligations shall by contract be subject to
25acceleration (in a manner acceptable to the Director) by the
26Company at the direction of the Director and shall be secured



SB1737 Enrolled- 41 -LRB100 06758 SMS 16799 b

1by a letter of credit or other form of guarantee or security
2acceptable to the Director.
3    C. The capital and surplus required by subsection A of this
4Section must be in the form of:
5        (1) United States currency;
6        (2) an irrevocable letter of credit, in a form approved
7    by the Director and not secured by a guarantee from an
8    affiliate, naming the Director as beneficiary for the
9    security of the captive insurance company's policyholders
10    and issued by a bank approved by the Director;
11        (3) bonds of this State; or
12        (4) bonds or other evidences of indebtedness of the
13    United States, the principal and interest of which are
14    guaranteed by the United States.
15(Source: P.A. 86-632.)
16    (215 ILCS 5/123C-9)  (from Ch. 73, par. 735C-9)
17    (Section scheduled to be repealed on January 1, 2027)
18    Sec. 123C-9. Reports, statements and mandatory reserves.
19    A. Captive insurance companies shall not be required to
20make any annual report except as provided in this Article.
21    B. (1) On or before Prior to March 1 of each year, each
22captive insurance company shall submit to the Director a report
23of its financial condition, verified by oath of 2 of its
24executive officers and including (i) a balance sheet reporting
25assets, liabilities, capital and surplus, (ii) a statement of



SB1737 Enrolled- 42 -LRB100 06758 SMS 16799 b

1gain or loss from operations, (iii) a statement of changes in
2financial position, (iv) a statement of changes in capital and
3surplus, and (v) in the case of industrial insured captive
4insurance companies, an analysis of loss reserve development,
5information on risks ceded and assumed under reinsurance
6agreements, on forms prescribed by the Director, and a schedule
7of its invested assets on forms prescribed by the Director, and
8(vi) a statement of actuarial opinion by a qualified
9independent actuary concerning the reasonableness of the
10captive insurance company's loss and loss adjustment expense
11reserves in such form and of such content as specified in the
12National Association of Insurance Commissioners Annual
13Statement Instructions: Property and Casualty.
14    (2) In addition, prior to March 1 of each year, each
15association captive insurance company shall submit to the
16Director such additional data or information, which the
17Director may from time to time require, on a form specified by
18the Director.
19    (3) On or before June 1 of each year, each captive
20insurance company shall submit to the Director a report of its
21financial condition at last year's end with an independent
22certified public accountant's opinion of the company's
23financial condition. Prior to June 1 of each year, each
24association and industrial insured captive insurance company
25shall submit to the Director a report of its financial
26condition, certified by a recognized firm of independent public



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1accountants acceptable to the Director and including the items
2referred to in items (i), (ii), (iii) and (iv) of paragraph (1)
3of this subsection B.
4    (4) Unless the Director permits otherwise, the reports of
5financial condition referred to in paragraphs (1) and (3) of
6this subsection B are to be prepared in accordance with the
7Accounting Practices and Procedures Manual adopted by the
8National Association of Insurance Commissioners. The Director
9shall have authority to extend the time for filing any report
10or statement by any company for reasons which he considers good
11and sufficient.
12    C. In addition, any captive insurance company may be
13required by the Director, when he considers such action to be
14necessary and appropriate for the protection of policyholders,
15creditors, shareholders or claimants, to file, within 60 days
16after mailing to the company of a notice that such is required,
17a supplemental summary statement as of the last day of any
18calendar month occurring during the 100 days next preceding the
19mailing of such notice designated by him on forms prescribed
20and furnished by the Director. No company shall be required to
21file more than 4 supplemental summary statements during any
22consecutive 12 month period.
23    D. Every captive insurance company shall, at all times,
24maintain reserves in an amount estimated in the aggregate to
25provide for the payment of all losses and claims incurred,
26whether reported or unreported, which are unpaid and for which



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1such company may be liable, and to provide for the expenses of
2adjustment or settlement of such losses and claims. The
3aggregate reserves shall be reduced by reinsurance ceded which
4meets the requirements of Section 123C-13. For the purpose of
5such reserves, the company shall keep a complete and itemized
6record showing all losses and claims on which it has received
7notice, including all notices received by it of the occurrence
8of any event which may result in a loss. Such record shall be
9opened in chronological receipt order, with each notice of loss
10or claim identified by appropriate number or coding.
11    E. Every captive insurance company shall maintain an
12unearned premium reserve on all policies in force which reserve
13shall be charged as a liability. The portions of the gross
14premiums in force, after deducting reinsurance qualifying
15under Section 123C-13, which shall be held as a premium
16reserve, shall never be less in the aggregate than the
17company's actual liability to all its insureds for the return
18of gross unearned premiums. In the calculation of the company's
19actual liability to all its insureds, the reserve shall be
20computed pursuant to the method commonly referred to as the
21monthly pro rata method; provided, however, that the Director
22may require that such reserve shall be equal to the unearned
23portions of the gross premiums in force, after deducting
24reinsurance qualifying under Section 123C-13, in which case the
25reserve shall be computed on each respective risk from the date
26of the issuance of the policy.



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1    E-5. A captive insurance company may make a written
2application to the Director for filing its annual report
3required under this Section on a fiscal year's end. If an
4alternative filing date is granted, the company shall file:
5        (1) the annual report, including a statement of
6    actuarial opinion by a qualified independent actuary
7    concerning the reasonableness of the captive insurance
8    company's loss and loss adjustment expense reserves in such
9    form and of such content as specified in the National
10    Association of Insurance Commissioners Annual Statement
11    Instructions: Property and Casualty, no later than the 60th
12    day after the date of the company's fiscal year's end;
13        (2) the report of its financial condition at last
14    year's end with an independent certified public
15    accountant's opinion of the company's financial condition;
16    and
17        (3) its balance sheet, income statement, and statement
18    of cash flows, verified by 2 of its executive officers,
19    before March 1 of each year to provide sufficient detail to
20    support a premium tax return.
21    F. The reports required by this Section shall be prepared
22and filed on a calendar year basis.
23    G. Notwithstanding the requirements of this Section, a
24captive insurance company may prepare and issue financial
25statements prepared in accordance with generally accepted
26accounting principles.



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1(Source: P.A. 85-131; 86-1155; 86-1156.)
2    (215 ILCS 5/123C-11)  (from Ch. 73, par. 735C-11)
3    (Section scheduled to be repealed on January 1, 2027)
4    Sec. 123C-11. Grounds and procedures for suspension or
5revocation of certificate of authority.
6    A. The certificate of authority of a captive insurance
7company to do an insurance business in this State may be
8suspended or revoked by the Director for any of the following
10        (1) insolvency or impairment of required capital or
11    surplus to policy holders;
12        (2) failure to meet the requirements of Sections 123C-3
13    or 123C-4;
14        (3) refusal or failure to submit an annual report, as
15    required by Section 123C-9, or any other report or
16    statement required by law or by lawful order of the
17    Director;
18        (4) failure to comply with the provisions of its own
19    charter or bylaws (or, in the case of an industrial insured
20    captive, with the provisions of the investment policy set
21    forth in its plan of operation as approved from time to
22    time by the Director);
23        (5) failure to submit to examination or any legal
24    obligation relative thereto, as required by Section
25    123C-10;



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1        (6) refusal or failure to pay expenses, and charges,
2    and taxes as required by Sections 408, 409, 123C-10, and
3    123C-17;
4        (7) use of methods that, although not otherwise
5    specifically prohibited by law, nevertheless render its
6    operation detrimental or its condition unsound with
7    respect to the public or to its policyholders; or
8        (8) failure otherwise to comply with the laws of this
9    State.
10    B. If the Director finds, upon examination, hearing, or
11other evidence, that any captive insurance company has
12committed any of the acts specified in subsection A, he may
13suspend or revoke such certificate of authority if he deems it
14in the best interest of the public and the policyholders of
15such captive insurance company, notwithstanding any other
16provision of this Article.
17    C. The provisions of Articles XIII and XIII 1/2 shall apply
18to and govern the conservation, rehabilitation, liquidation
19and dissolution of captive insurance companies.
20(Source: P.A. 85-131.)
21    (215 ILCS 5/123C-12)  (from Ch. 73, par. 735C-12)
22    (Section scheduled to be repealed on January 1, 2027)
23    Sec. 123C-12. Legal investments.
24    A. The provisions of Article VIII and of Sections 131.2 and
25131.3 shall apply to association captive insurance companies.



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1    B. No pure captive insurance company or industrial insured
2captive insurance company shall be subject to any restrictions
3on allowable investments whatever, including those limitations
4contained in Articles VIII and VIII 1/2; provided, however,
5that the Director may prohibit or limit any investment or type
6of investment that threatens the solvency or liquidity of any
7such company; and provided further that an industrial insured
8captive insurance company must adhere to the investment policy
9set forth in its plan of operation as approved from time to
10time by the Director.
11    C. A captive insurance company may make loans to its
12affiliates with the prior approval of the Director. Each loan
13must be evidenced by a note approved by the Director. A captive
14insurance company may not make a loan of the minimum capital
15and surplus funds required by this Article.
16    D. The Director may prohibit or limit an investment that
17threatens the solvency or liquidity of a captive insurance
19(Source: P.A. 85-131.)
20    (215 ILCS 5/123C-13)  (from Ch. 73, par. 735C-13)
21    (Section scheduled to be repealed on January 1, 2027)
22    Sec. 123C-13. Reinsurance.
23    A. Any captive insurance company may provide reinsurance on
24risks ceded by any other insurer; provided, however, that the
25risks so assumed are the same as the captive insurance company



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1could legally insure on a direct basis.
2    The provisions of Section 174.1 shall not apply to any
3captive insurance company providing reinsurance.
4    B. Subject to the provisions of Article XI, any captive
5insurance company may cede, and may take credit for in the
6establishment of reserves, all or any part of its risks.
7Furthermore, in addition to Section 173.1, any pure or
8industrial insured captive insurance company may take credit,
9as either an asset or a deduction from liability, for
10reinsurance so ceded to the extent:
11        (1) The reinsurer satisfies all of the following (a)
12    through (g):
13            (a) the principal business of the reinsurer (other
14        than investments in subsidiaries and other investment
15        activities) is to accept reinsurance from captive
16        insurance companies organized under Article VIIC, of
17        which the company accepting the reinsurance directly
18        or indirectly owns, controls, or holds with power to
19        vote more than 80% of the outstanding voting securities
20        if organized as a stock company or more than 80% of the
21        voting control if organized as a mutual company and to
22        provide insurance related services;
23            (b) is licensed to transact insurance or
24        reinsurance in its jurisdiction of domicile;
25            (c) submits to this State's authority to examine
26        its books and records and agrees to pay the cost



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1        thereof;
2            (d) files annually with the Director a copy of its
3        most recent audited financial statements;
4            (e) maintains a surplus as regards policyholders
5        in an amount that is not less than $20,000,000;
6            (f) files with the Department the following:
7                (i) evidence of its submission to the
8            jurisdiction of any court of competent
9            jurisdiction in any state of the United States and
10            its agreement to comply with all requirements
11            necessary to give the court jurisdiction and to
12            abide by the final decision of the court or of any
13            appellate court in the event of an appeal; and
14                (ii) an instrument designating the Director or
15            a designated attorney as its true and lawful
16            attorney upon whom may be served any lawful process
17            in any action, suit, or proceeding instituted by or
18            on behalf of the ceding company;
19            (g) has not been the subject of an order of the
20        Director entered after notice and hearing prohibiting
21        the reinsurer from utilizing this paragraph (1); or
22        (2) the taking of credit by the captive insurance
23    company has otherwise received the prior approval of the
24    Director.
25    C. A captive insurance company shall provide notice to the
26Director of a reinsurance agreement to which the company



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1becomes a party not later than the 30th day after the date of
2the execution of the agreement.
3    D. A captive insurance company shall provide notice of a
4termination of a previously filed reinsurance agreement to the
5Director not later than the 30th day after the date of
7    E. Notwithstanding Section 123C-15 of this Code, a captive
8insurance company, with the Director's approval, may accept
9risks from and cede risks to or take credit for reserves on
10risks ceded to:
11        (1) a captive reinsurance pool composed only of other
12    captive insurance companies holding a certificate of
13    authority under this Article or a similar law of another
14    jurisdiction; or
15        (2) an affiliated captive insurance company holding a
16    certificate of authority under this Article or a similar
17    law of another jurisdiction.
18(Source: P.A. 87-108.)
19    (215 ILCS 5/123C-16)  (from Ch. 73, par. 735C-16)
20    (Section scheduled to be repealed on January 1, 2027)
21    Sec. 123C-16. Tax.
22    A. Every captive insurance company organized under the
23provisions of this Article and doing business in this State
24shall, for the privilege of doing business in this State, pay
25to the Director for the State treasury the State tax imposed



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1under Section 409 to the same extent and in the same manner as
2a domestic insurance company using a tax form prescribed by the
3Director on or before March 15 of each year.
4    B. Domestic captive insurance companies shall be insurance
5companies subject to the rules now provided for such companies
6under the Illinois Income Tax Act.
7    C. A domestic captive insurance company that has engaged
8one or more administrative or management service organizations
9in order to comply with subsection D of Section 123C-2 shall be
10deemed to meet the requirements of Section 409(4)(a) through
11(d) provided that the company and such organizations when
12viewed collectively as a group:
13        (a) maintain a place of business in this State; and
14        (b) maintain in this State personnel knowledgeable of
15    and responsible for the company's operations, books,
16    records, administration and annual statement; and
17        (c) conduct in this State substantially all of the
18    company's underwriting, policy issuing and servicing
19    operations relating to the company's policyholders and
20    certificate holders; and
21        (d) comply with the provisions of Section 133(2) with
22    respect to such domestic captive insurance company's
23    books, records, documents, accounts, vouchers and
24    securities.
25(Source: P.A. 86-632; 86-634.)



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1    (215 ILCS 5/123C-17)  (from Ch. 73, par. 735C-17)
2    (Section scheduled to be repealed on January 1, 2027)
3    Sec. 123C-17. Fees.
4    A. The Director shall charge, collect, and give proper
5acquittances for the payment of the following fees and charges
6with respect to a captive insurance company:
7        1. For filing all documents submitted for the
8    incorporation or organization or certification of a
9    captive insurance company, $2,000 $7,000.
10        2. For filing requests for approval of changes in the
11    elements of a plan of operations, $200.
12    B. Except as otherwise provided in subsection A of this
13Section and in Section 123C-10, the provisions of Section 408
14shall apply to captive insurance companies.
15    C. Any funds collected from captive insurance companies
16pursuant to this Section shall be treated in the manner
17provided in subsection (11) of Section 408.
18(Source: P.A. 93-32, eff. 7-1-03.)
19    (215 ILCS 5/123C-19)  (from Ch. 73, par. 735C-19)
20    (Section scheduled to be repealed on January 1, 2027)
21    Sec. 123C-19. Letters of credit.
22    A. Any letter of credit used to meet the requirements set
23forth in Sections 123C-3 and 123C-4:
24        (1) (blank); may not be used to provide more than 80%
25    of the amount required in Section 123C-3 and may not be



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1    used to provide more than 80% of the amount required in
2    Section 123C-4;
3        (2) may not be allowed to expire without the prior
4    written approval of the Director and shall provide for 30
5    days' advance written notice to the Director of the
6    proposed expiration of the letter of credit; and
7        (3) must be provided pursuant to arrangements,
8    acceptable to the Director, wherein all funds obtained by
9    the company under the letter of credit are free of claims
10    of any party which may arise on account of the company's
11    resort to the letter of credit.
12    B. If letters of credit are used to provide surplus in
13excess of the amounts required in Section 123C-4:
14        (1) the aggregate amount of all such letters of credit
15    shall not exceed the policyholder surplus of the company;
16        (2) without the prior written approval of the Director,
17    no such letter of credit may be allowed to expire, in any
18    period of 12 consecutive months ending on the date of such
19    expiration, in an amount greater than the greater of (a)
20    10% of the company's surplus as regards policyholders as of
21    the 31st day of December next preceding, or (b) the net
22    income of the company for the 12 month period ending the
23    31st 31st day of December next preceding. For purposes of
24    this Section, net income includes net realized capital
25    gains in an amount not to exceed 20% of net unrealized
26    capital gains; and



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1        (3) each such letter of credit shall provide for 30
2    days' advance written notice to the Director of the
3    proposed expiration of the letter of credit.
4    C. (Blank). The Director may require any company to draw
5upon its letters of credit, in amounts determined by the
6Director, if the Director determines that such action is
7necessary for the protection of the interests of policyholders.
8    D. (Blank). Any company including amounts supported by
9letters of credit in its capital or surplus shall, prior to the
10time any person becomes a policyholder, notify such person of
11the amounts supported by letters of credit and included in the
12company's capital or surplus.
13(Source: P.A. 85-131.)
14    (215 ILCS 5/123C-23 new)
15    Sec. 123C-23. Approval of captive reinsurance pools.
16Before determining whether to approve a captive insurance
17company's participation in a captive reinsurance pool under
18Section 123C-13 of this Code, the Director may:
19        (1) require the captive insurance company provide to
20    the Director evidence that the captive reinsurance pool:
21            (a) is composed only of other captive insurance
22        companies holding a certificate of authority under
23        this Article or a similar law of another jurisdiction;
24        and
25            (b) will be able to meet the pool's financial



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1        obligations; and
2        (2) impose any other limitation or requirement on the
3    captive insurance company that is necessary and proper to
4    provide adequate security for the captive insurance
5    company.
6    (215 ILCS 5/123C-24 new)
7    Sec. 123C-24. Standards for risk management of controlled
8unaffiliated business. The Director may adopt rules
9establishing standards to ensure that an affiliated company is
10able to exercise control of the risk management function of any
11controlled unaffiliated business to be insured by the captive
12insurance company.
13    (215 ILCS 5/123C-25 new)
14    Sec. 123C-25. Captive managers. Before providing captive
15management services to a licensed captive insurance company, a
16captive management company shall register with the Director by
17providing the information required on a form adopted by the
19    (215 ILCS 5/123C-26 new)
20    Sec. 123C-26. Dividends.
21    A. A captive insurance company shall notify the Director in
22writing when issuing policyholder dividends.
23    B. A captive insurance company, with the Director's



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1approval, may issue dividends or distributions to the holders
2of an equity interest in the captive insurance company. The
3Director shall adopt rules to implement this subsection B.
4    (215 ILCS 5/123C-27 new)
5    Sec. 123C-27. Rulemaking authority. The Director may adopt
6reasonable rules as necessary to implement the purposes and
7provisions of this Article.
8    (215 ILCS 5/123C-28 new)
9    Sec. 123C-28. Confidentiality.
10    A. Any information filed by an applicant or captive
11insurance company under this Article is confidential and
12privileged for all purposes, including for purposes of the
13Freedom of Information Act, a response to a subpoena, or
14evidence in a civil action. Except as provided by subsections B
15and C of this Section, the information may not be disclosed
16without the prior written consent of the applicant or captive
17insurance company to which the information pertains.
18    B. If the recipient of the information described by
19subsection A of this Section has the legal authority to
20maintain the confidential or privileged status of the
21information and verifies that authority in writing, the
22Director or his or her designee may disclose the information to
23any of the following entities functioning in an official



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1        (1) a director of insurance or an insurance department
2    of another state;
3        (2) an authorized law enforcement official;
4        (3) a State's Attorney of this State;
5        (4) the Attorney General;
6        (5) a grand jury;
7        (6) the National Association of Insurance
8    Commissioners if the captive insurance company is
9    affiliated with an insurance company that is part of an
10    insurance holding company system as described in Article
11    VIII 1/2 of this Code;
12        (7) another state or federal regulator if the applicant
13    or captive insurance company to which the information
14    relates operates in the entity's jurisdiction;
15        (8) an international insurance regulator or analogous
16    financial agency if the captive insurance company is
17    affiliated with an insurance company that is part of an
18    insurance holding company system as described in Article
19    VIII 1/2 of this Code and the holding company system
20    operates in the entity's jurisdiction; or
21        (9) members of a supervisory college described by
22    Section 131.20c of this Code, if the captive insurance
23    company is affiliated with an insurance company that is
24    part of an insurance holding company system as described in
25    Article VIII 1/2 of this Code.
26    C. The Director may use information described by subsection



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1A of this Section in the furtherance of a legal or regulatory
2action relating to the administration of this Code.
3    (215 ILCS 5/156)  (from Ch. 73, par. 768)
4    Sec. 156. Merger and consolidation permitted.
5    (a) Upon complying with the provisions of this article, any
6domestic company, except a Lloyds, is hereby authorized and
7empowered to merge or consolidate with any domestic company or
8with any foreign or alien company, except a Lloyds if the
9surviving company meets the requirements for authorization to
10engage in the insurance business in this state and, if such
11merger or consolidation is authorized by the laws of the state
12or country under which such foreign or alien company is
13incorporated or organized.
14    (b) The Director may permit the formation of a domestic
15stock company that is established for the sole purpose of
16merging or consolidating with an existing stock company
17simultaneously with the effectiveness of a division authorized
18by this Code. Upon request of the dividing company, the
19Director may waive the requirements of Section 131.8 of this
20Code. Each domestic stock company formed under this subsection
21shall be deemed to exist before a merger and division under
22this Section becomes effective, but solely for the purpose of
23being a party to such merger and division. The Director shall
24not require that such domestic stock company be licensed to
25transact insurance business in this state before such merger



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1and division. All insurance policies, annuities, or
2reinsurance agreements allocated to such domestic stock
3company shall become the obligation of the domestic stock
4company that survives the merger simultaneously with the
5effectiveness of the merger and division. The plan of merger or
6consolidation shall be deemed to have been authorized and
7approved by such domestic stock company if the dividing company
8authorized and approved such plan. The certificate of merger
9shall state that it was approved by the domestic stock company
10formed under this subsection.
11(Source: Laws 1967, p. 1760.)
12    (215 ILCS 5/173.1)  (from Ch. 73, par. 785.1)
13    Sec. 173.1. Credit allowed a domestic ceding insurer.
14    (1) Except as otherwise provided under Article VIII 1/2 of
15this Code and related provisions of the Illinois Administrative
16Code, credit for reinsurance shall be allowed a domestic ceding
17insurer as either an admitted asset or a deduction from
18liability on account of reinsurance ceded only when the
19reinsurer meets the requirements of paragraph (A) subsection
20(1)(A) or (B) or (B-5) or (C) or (C-5) or (D) of this
21subsection (1). Credit shall be allowed under paragraph (A),
22subsection (1)(A) or (B), or (B-5) of this subsection (1) only
23as respects cessions of those kinds or classes of business in
24which the assuming insurer is licensed or otherwise permitted
25to write or assume in its state of domicile, or in the case of a



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1U.S. branch of an alien assuming insurer, in the state through
2which it is entered and licensed to transact insurance or
3reinsurance. Credit shall be allowed under paragraph (B-5) or
4(C) of this subsection (1) (C) of this Section only if the
5applicable requirements of paragraph (E) of this subsection (1)
6subsection (1)(E) have been satisfied.
7        (A) Credit shall be allowed when the reinsurance is
8    ceded to an assuming insurer that is authorized in this
9    State to transact the types of insurance ceded and has at
10    least $5,000,000 in capital and surplus.
11        (B) Credit shall be allowed when the reinsurance is
12    ceded to an assuming insurer that is accredited as a
13    reinsurer in this State. An accredited reinsurer is one
14    that:
15            (1) files with the Director evidence of its
16        submission to this State's jurisdiction;
17            (2) submits to this State's authority to examine
18        its books and records;
19            (3) is licensed to transact insurance or
20        reinsurance in at least one state, or in the case of a
21        U.S. branch of an alien assuming insurer is entered
22        through and licensed to transact insurance or
23        reinsurance in at least one state;
24            (4) files annually with the Director a copy of its
25        annual statement filed with the insurance department
26        of its state of domicile and a copy of its most recent



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1        audited financial statement; and
2            (5) maintains a surplus as regards policyholders
3        in an amount that is not less than $20,000,000 and
4        whose accreditation has been approved by the Director.
5        No credit shall be allowed a domestic ceding insurer,
6        if the assuming insurers' accreditation has been
7        revoked by the Director after notice and hearing.
8        (B-5)(1) Credit shall be allowed when the reinsurance
9    is ceded to an assuming insurer that is domiciled in, or in
10    the case of a U.S. branch of an alien assuming insurer is
11    entered through, a state that employs standards regarding
12    credit for reinsurance substantially similar to those
13    applicable under this Code and the assuming insurer or U.S.
14    branch of an alien assuming insurer:
15            (a) maintains a surplus as regards policyholders
16        in an amount not less than $20,000,000; and
17            (b) submits to the authority of this State to
18        examine its books and records.
19        (2) The requirement of item (a) of subparagraph (1) of
20    paragraph (B-5) of this subsection (1) does not apply to
21    reinsurance ceded and assumed pursuant to pooling
22    arrangements among insurers in the same holding company
23    system.
24         (C)(1) Credit shall be allowed when the reinsurance is
25    ceded to an assuming insurer that maintains a trust fund in
26    a qualified United States financial institution, as



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1    defined in paragraph (B) of subsection (3) of this Section
2    subsection 3(B), for the payment of the valid claims of its
3    United States policyholders and ceding insurers, their
4    assigns and successors in interest. The assuming insurer
5    shall report to the Director information substantially the
6    same as that required to be reported on the NAIC annual and
7    quarterly financial statement by authorized insurers and
8    any other financial information that the Director deems
9    necessary to determine the financial condition of the
10    assuming insurer and the sufficiency of the trust fund. The
11    assuming insurer shall provide or make the information
12    available to the ceding insurer. The assuming insurer may
13    decline to release trade secrets or commercially sensitive
14    information that would qualify as exempt from disclosure
15    under the Freedom of Information Act. The Director shall
16    also make the information publicly available, subject only
17    to such reasonable objections as might be raised to a
18    request pursuant to the Freedom of Information Act, as
19    determined by the Director. The assuming insurer shall
20    submit to examination of its books and records by the
21    Director and bear the expense of examination.
22        (2)(a) Credit for reinsurance shall not be granted
23    under this subsection unless the form of the trust and any
24    amendments to the trust have been approved by:
25            (i) the regulatory official of the state where the
26        trust is domiciled; or



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1            (ii) the regulatory official of another state who,
2        pursuant to the terms of the trust instrument, has
3        accepted principal regulatory oversight of the trust.
4        (b) The form of the trust and any trust amendments also
5    shall be filed with the regulatory official of every state
6    in which the ceding insurer beneficiaries of the trust are
7    domiciled. The trust instrument shall provide that
8    contested claims shall be valid and enforceable upon the
9    final order of any court of competent jurisdiction in the
10    United States. The trust shall vest legal title to its
11    assets in its trustees for the benefit of the assuming
12    insurer's United States policyholders and ceding insurees
13    and their assigns and successors in interest. The trust and
14    the assuming insurer shall be subject to examination as
15    determined by the Director.
16        (c) The trust shall remain in effect for as long as the
17    assuming insurer has outstanding obligations due under the
18    reinsurance agreements subject to the trust. No later than
19    February 28 of each year the trustee of the trust shall
20    report to the Director in writing the balance of the trust
21    and a list of the trust's investments at the preceding
22    year-end and shall certify the date of termination of the
23    trust, if so planned, or certify that the trust will not
24    expire prior to the next following December 31.
25        No later than February 28 of each year, the assuming
26    insurer's chief executive officer or chief financial



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1    officer shall certify to the Director that the trust fund
2    contains funds in an amount not less than the assuming
3    insurer's liabilities (as reported to the assuming insurer
4    by its cedent) attributable to reinsurance ceded by U.S.
5    ceding insurers, and in addition, a trusteed surplus of no
6    less than $20,000,000. In the event that item (a-5) of
7    subparagraph (3) of this paragraph (C) applies to the
8    trust, the assuming insurer's chief executive officer or
9    chief financial officer shall then certify to the Director
10    that the trust fund contains funds in an amount not less
11    than the assuming insurer's liabilities (as reported to the
12    assuming insurer by its cedent) attributable to
13    reinsurance ceded by U.S. ceding insurers and, in addition,
14    a reduced trusteed surplus of not less than the amount that
15    has been authorized by the regulatory authority having
16    principal regulatory oversight of the trust.
17        (d) No later than February 28 of each year, an assuming
18    insurer that maintains a trust fund in accordance with this
19    paragraph (C) shall provide or make available, if requested
20    by a beneficiary under the trust fund, the following
21    information to the assuming insurer's U.S. ceding insurers
22    or their assigns and successors in interest:
23            (i) a copy of the form of the trust agreement and
24        any trust amendments to the trust agreement pertaining
25        to the trust fund;
26            (ii) a copy of the annual and quarterly financial



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1        information, and its most recent audited financial
2        statement provided to the Director by the assuming
3        insurer, including any exhibits and schedules thereto;
4            (iii) any financial information provided to the
5        Director by the assuming insurer that the Director has
6        deemed necessary to determine the financial condition
7        of the assuming insurer and the sufficiency of the
8        trust fund;
9            (iv) a copy of any annual and quarterly financial
10        information provided to the Director by the trustee of
11        the trust fund maintained by the assuming insurer,
12        including any exhibits and schedules thereto;
13            (v) a copy of the information required to be
14        reported by the trustee of the trust to the Director
15        under the provisions of this paragraph (C); and
16            (vi) a written certification that the trust fund
17        consists of funds in trust in an amount not less than
18        the assuming insurer's liabilities attributable to
19        reinsurance liabilities (as reported to the assuming
20        insurer by its cedent) attributable to reinsurance
21        ceded by U.S. ceding insurers and, in addition, a
22        trusteed surplus of not less than $20,000,000.
23        (3) The following requirements apply to the following
24    categories of assuming insurer:
25            (a) The trust fund for a single assuming insurer
26        shall consist of funds in trust in an amount not less



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1        than the assuming insurer's liabilities attributable
2        to reinsurance ceded by U.S. ceding insurers, and in
3        addition, the assuming insurer shall maintain a
4        trusteed surplus of not less than $20,000,000, except
5        as provided in item (a-5) of this subparagraph (3).
6            (a-5) At any time after the assuming insurer has
7        permanently discontinued underwriting new business
8        secured by the trust for at least 3 full years, the
9        Director with principal regulatory oversight of the
10        trust may authorize a reduction in the required
11        trusteed surplus, but only after a finding, based on an
12        assessment of the risk, that the new required surplus
13        level is adequate for the protection of U.S. ceding
14        insurers, policyholders, and claimants in light of
15        reasonably foreseeable adverse loss development. The
16        risk assessment may involve an actuarial review,
17        including an independent analysis of reserves and cash
18        flows, and shall consider all material risk factors,
19        including, when applicable, the lines of business
20        involved, the stability of the incurred loss
21        estimates, and the effect of the surplus requirements
22        on the assuming insurer's liquidity or solvency. The
23        minimum required trusteed surplus may not be reduced to
24        an amount less than 30% of the assuming insurer's
25        liabilities attributable to reinsurance ceded by U.S.
26        ceding insurers covered by the trust.



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1            (b)(i) In the case of a group including
2        incorporated and individual unincorporated
3        underwriters:
4                (I) for reinsurance ceded under reinsurance
5            agreements with an inception, amendment, or
6            renewal date on or after January 1, 1993 August 1,
7            1995, the trust shall consist of a trusteed account
8            in an amount not less than the respective
9            underwriters' group's several liabilities
10            attributable to business ceded by U.S. domiciled
11            ceding insurers to any member of the group;
12                (II) for reinsurance ceded under reinsurance
13            agreements with an inception date on or before
14            December 31, 1992 July 31, 1995 and not amended or
15            renewed after that date, notwithstanding the other
16            provisions of this Act, the trust shall consist of
17            a trusteed account in an amount not less than the
18            group's several insurance and reinsurance
19            liabilities attributable to business written in
20            the United States; and
21                (III) in addition to these trusts, the group
22            shall maintain in trust a trusteed surplus of which
23            not less than $100,000,000 shall be held jointly
24            for the benefit of the U.S. domiciled ceding
25            insurers of any member of the group for all years
26            of account.



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1            (ii) The incorporated members of the group shall
2        not be engaged in any business other than underwriting
3        as a member of the group and shall be subject to the
4        same level of solvency regulation and control by the
5        group's domiciliary regulator as are the
6        unincorporated members.
7            (iii) Within 90 days after its financial
8        statements are due to be filed with the group's
9        domiciliary regulator, the group shall provide to the
10        Director an annual certification by the group's
11        domiciliary regulator of the solvency of each
12        underwriter member, or if a certification is
13        unavailable, financial statements prepared by
14        independent public accountants of each underwriter
15        member of the group.
16            (c) In the case of a group of incorporated insurers
17        under common administration, the group shall:
18                (i) have continuously transacted an insurance
19            business outside the United States for at least 3
20            years immediately before making application for
21            accreditation;
22                (ii) maintain aggregate policyholders' surplus
23            of not less than $10,000,000,000;
24                (iii) maintain a trust in an amount not less
25            than the group's several liabilities attributable
26            to business ceded by United States domiciled



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1            ceding insurers to any member of the group pursuant
2            to reinsurance contracts issued in the name of the
3            group;
4                (iv) in addition, maintain a joint trusteed
5            surplus of which not less than $100,000,000 shall
6            be held jointly for the benefit of the United
7            States ceding insurers of any member of the group
8            as additional security for these liabilities; and
9                (v) within 90 days after its financial
10            statements are due to be filed with the group's
11            domiciliary regulator, make available to the
12            Director an annual certification of each
13            underwriter member's solvency by the member's
14            domiciliary regulator and financial statements of
15            each underwriter member of the group prepared by
16            its independent public accountant.
17        (C-5) Credit shall be allowed when the reinsurance is
18    ceded to an assuming insurer that has been certified by the
19    Director as a reinsurer in this State and secures its
20    obligations in accordance with the requirements of this
21    paragraph (C-5).
22            (1) In order to be eligible for certification, the
23        assuming insurer shall meet the following
24        requirements:
25                (a) the assuming insurer must be domiciled and
26            licensed to transact insurance or reinsurance in a



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1            qualified jurisdiction, as determined by the
2            Director pursuant to subparagraph (3) of this
3            paragraph (C-5);
4                (b) the assuming insurer must maintain minimum
5            capital and surplus, or its equivalent, in an
6            amount not less than $250,000,000 or such greater
7            amount as determined by the Director pursuant to
8            regulation; this requirement may also be satisfied
9            by an association, including incorporated and
10            individual unincorporated underwriters, having
11            minimum capital and surplus equivalents (net of
12            liabilities) of at least $250,000,000 and a
13            central fund containing a balance of at least
14            $250,000,000;
15                (c) the assuming insurer must maintain
16            financial strength ratings from 2 or more rating
17            agencies deemed acceptable by the Director; these
18            ratings shall be based on interactive
19            communication between the rating agency and the
20            assuming insurer and shall not be based solely on
21            publicly available information; each certified
22            reinsurer shall be rated on a legal entity basis,
23            with due consideration being given to the group
24            rating where appropriate, except that an
25            association, including incorporated and individual
26            unincorporated underwriters, that has been



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1            approved to do business as a single certified
2            reinsurer may be evaluated on the basis of its
3            group rating; these financial strength ratings
4            shall be one factor used by the Director in
5            determining the rating that is assigned to the
6            assuming insurer; acceptable rating agencies
7            include the following:
8                    (i) Standard & Poor's;
9                    (ii) Moody's Investors Service;
10                    (iii) Fitch Ratings;
11                    (iv) A.M. Best Company; or
12                    (v) any other nationally recognized
13                statistical rating organization;
14                (d) the assuming insurer must agree to submit
15            to the jurisdiction of this State, appoint the
16            Director as its agent for service of process in
17            this State, and agree to provide security for 100%
18            of the assuming insurer's liabilities attributable
19            to reinsurance ceded by U.S. ceding insurers if it
20            resists enforcement of a final U.S. judgment; and
21                (e) the assuming insurer must agree to meet
22            applicable information filing requirements as
23            determined by the Director, both with respect to an
24            initial application for certification and on an
25            ongoing basis.
26            (2) An association, including incorporated and



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1        individual unincorporated underwriters, may be a
2        certified reinsurer. In order to be eligible for
3        certification, in addition to satisfying the
4        requirements of subparagraph (1) of this paragraph
5        (C-5):
6                (a) the association shall satisfy its minimum
7            capital and surplus requirements through the
8            capital and surplus equivalents (net of
9            liabilities) of the association and its members,
10            which shall include a joint central fund that may
11            be applied to any unsatisfied obligation of the
12            association or any of its members, in the amounts
13            specified in item (b) of subparagraph (1) of this
14            paragraph (C-5);
15                (b) the incorporated members of the
16            association shall not be engaged in any business
17            other than underwriting as a member of the
18            association and shall be subject to the same level
19            of regulation and solvency control by the
20            association's domiciliary regulator as are the
21            unincorporated members; and
22                (c) within 90 days after its financial
23            statements are due to be filed with the
24            association's domiciliary regulator, the
25            association shall provide to the Director an
26            annual certification by the association's



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1            domiciliary regulator of the solvency of each
2            underwriter member; or if a certification is
3            unavailable, financial statements, prepared by
4            independent public accountants, of each
5            underwriter member of the association.
6            (3) The Director shall create and publish a list of
7        qualified jurisdictions, under which an assuming
8        insurer licensed and domiciled in such jurisdiction is
9        eligible to be considered for certification by the
10        Director as a certified reinsurer.
11                (a) In order to determine whether the
12            domiciliary jurisdiction of a non-U.S. assuming
13            insurer is eligible to be recognized as a qualified
14            jurisdiction, the Director shall evaluate the
15            appropriateness and effectiveness of the
16            reinsurance supervisory system of the
17            jurisdiction, both initially and on an ongoing
18            basis, and consider the rights, benefits, and
19            extent of reciprocal recognition afforded by the
20            non-U.S. jurisdiction to reinsurers licensed and
21            domiciled in the U.S. A qualified jurisdiction
22            must agree in writing to share information and
23            cooperate with the Director with respect to all
24            certified reinsurers domiciled within that
25            jurisdiction. A jurisdiction may not be recognized
26            as a qualified jurisdiction if the Director has



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1            determined that the jurisdiction does not
2            adequately and promptly enforce final U.S.
3            judgments and arbitration awards. The costs and
4            expenses associated with the Director's review and
5            evaluation of the domiciliary jurisdictions of
6            non-U.S. assuming insurers shall be borne by the
7            certified reinsurer or reinsurers domiciled in
8            such jurisdiction.
9                (b) Additional factors to be considered in
10            determining whether to recognize a qualified
11            jurisdiction include, but are not limited to, the
12            following:
13                    (i) the framework under which the assuming
14                insurer is regulated;
15                    (ii) the structure and authority of the
16                domiciliary regulator with regard to solvency
17                regulation requirements and financial
18                surveillance;
19                    (iii) the substance of financial and
20                operating standards for assuming insurers in
21                the domiciliary jurisdiction;
22                    (iv) the form and substance of financial
23                reports required to be filed or made publicly
24                available by reinsurers in the domiciliary
25                jurisdiction and the accounting principles
26                used;



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1                    (v) the domiciliary regulator's
2                willingness to cooperate with U.S. regulators
3                in general and the Director in particular;
4                    (vi) the history of performance by
5                assuming insurers in the domiciliary
6                jurisdiction;
7                    (vii) any documented evidence of
8                substantial problems with the enforcement of
9                final U.S. judgments in the domiciliary
10                jurisdiction; and
11                    (viii) any relevant international
12                standards or guidance with respect to mutual
13                recognition of reinsurance supervision adopted
14                by the International Association of Insurance
15                Supervisors or its successor organization.
16                (c) If, upon conducting an evaluation under
17            this paragraph with respect to the reinsurance
18            supervisory system of any non-U.S. assuming
19            insurer, the Director determines that the
20            jurisdiction qualifies to be recognized as a
21            qualified jurisdiction, the Director shall publish
22            notice and evidence of such recognition in an
23            appropriate manner. The Director may establish a
24            procedure to withdraw recognition of those
25            jurisdictions that are no longer qualified.
26                (d) The Director shall consider the list of



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1            qualified jurisdictions through the NAIC committee
2            process in determining qualified jurisdictions. If
3            the Director approves a jurisdiction as qualified
4            that does not appear on the list of qualified
5            jurisdictions, then the Director shall provide
6            thoroughly documented justification in accordance
7            with criteria to be developed under regulations.
8                (e) U.S. jurisdictions that meet the
9            requirement for accreditation under the NAIC
10            financial standards and accreditation program
11            shall be recognized as qualified jurisdictions.
12                (f) If a certified reinsurer's domiciliary
13            jurisdiction ceases to be a qualified
14            jurisdiction, then the Director may suspend the
15            reinsurer's certification indefinitely, in lieu of
16            revocation.
17            (4) If an applicant for certification has been
18        certified as a reinsurer in an NAIC accredited
19        jurisdiction, then the Director may defer to that
20        jurisdiction's certification and to the rating
21        assigned by that jurisdiction if the assuming insurer
22        submits a properly executed Form CR-1 and such
23        additional information as the Director requires. Such
24        assuming insurer shall be considered to be a certified
25        reinsurer in this State but only upon the Director's
26        assignment of an Illinois rating, which shall be made



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1        based on the requirements of subparagraph (5) of this
2        paragraph (C-5). The following shall apply:
3                (a) Any change in the certified reinsurer's
4            status or rating in the other jurisdiction shall
5            apply automatically in Illinois as of the date it
6            takes effect in the other jurisdiction. The
7            certified reinsurer shall notify the Director of
8            any change in its status or rating within 10 days
9            after receiving notice of the change.
10                (b) The Director may withdraw recognition of
11            the other jurisdiction's rating at any time and
12            assign a new rating in accordance with
13            subparagraph (5) of this paragraph (C-5).
14                (c) The Director may withdraw recognition of
15            the other jurisdiction's certification at any time
16            with written notice to the certified reinsurer.
17            Unless the Director suspends or revokes the
18            certified reinsurer's certification in accordance
19            with item (c) of subparagraph (9) of this paragraph
20            (C-5), the certified reinsurer's certification
21            shall remain in good standing in Illinois for a
22            period of 3 months, which shall be extended if
23            additional time is necessary to consider the
24            assuming insurer's application for certification
25            in Illinois.
26            (5) The Director shall assign a rating to each



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1        certified reinsurer pursuant to rules adopted by the
2        Department. Factors that shall be considered as part of
3        the evaluation process include the following:
4                (a) The certified reinsurer's financial
5            strength rating from an acceptable rating agency.
6            Financial strength ratings shall be classified
7            according to the following ratings categories:
8                    (i) Ratings Category "Secure - 1"
9                corresponds to the highest level of rating
10                given by a rating agency, including, but not
11                limited to, A.M. Best Company rating A++;
12                Standard & Poor's rating AAA; Moody's
13                Investors Service rating Aaa; and Fitch
14                Ratings rating AAA.
15                    (ii) Ratings Category "Secure - 2"
16                corresponds to the second-highest level of
17                rating or group of ratings given by a rating
18                agency, including, but not limited to, A.M.
19                Best Company rating A+; Standard & Poor's
20                rating AA+, AA, or AA-; Moody's Investors
21                Service ratings Aa1, Aa2, or Aa3; and Fitch
22                Ratings ratings AA+, AA, or AA-.
23                    (iii) Ratings Category "Secure - 3"
24                corresponds to the third-highest level of
25                rating or group of ratings given by a rating
26                agency, including, but not limited to, A.M.



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1                Best Company rating A; Standard & Poor's
2                ratings A+ or A; Moody's Investors Service
3                ratings A1 or A2; and Fitch Ratings ratings A+
4                or A.
5                    (iv) Ratings Category "Secure - 4"
6                corresponds to the fourth-highest level of
7                rating or group of ratings given by a rating
8                agency, including, but not limited to, A.M.
9                Best Company rating A-; Standard & Poor's
10                rating A-; Moody's Investors Service rating
11                A3; and Fitch Ratings rating A-.
12                    (v) Ratings Category "Secure - 5"
13                corresponds to the fifth-highest level of
14                rating or group of ratings given by a rating
15                agency, including, but not limited to, A.M.
16                Best Company ratings B++ or B+; Standard &
17                Poor's ratings BBB+, BBB, or BBB-; Moody's
18                Investors Service ratings Baa1, Baa2, or Baa3;
19                and Fitch Ratings ratings BBB+, BBB, or BBB-.
20                    (vi) Ratings Category "Vulnerable - 6"
21                corresponds to a level of rating given by a
22                rating agency, other than those described in
23                subitems (i) through (v) of this item (a),
24                including, but not limited to, A.M. Best
25                Company rating B, B-, C++, C+, C, C-, D, E, or
26                F; Standard & Poor's ratings BB+, BB, BB-, B+,



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1                B, B-, CCC, CC, C, D, or R; Moody's Investors
2                Service ratings Ba1, Ba2, Ba3, B1, B2, B3, Caa,
3                Ca, or C; and Fitch Ratings ratings BB+, BB,
4                BB-, B+, B, B-, CCC+, CCC, CCC-, or D.
5                A failure to obtain or maintain at least 2
6            financial strength ratings from acceptable rating
7            agencies shall result in loss of eligibility for
8            certification.
9                (b) The business practices of the certified
10            reinsurer in dealing with its ceding insurers,
11            including its record of compliance with
12            reinsurance contractual terms and obligations.
13                (c) For certified reinsurers domiciled in the
14            U.S., a review of the most recent applicable NAIC
15            Annual Statement Blank, either Schedule F (for
16            property and casualty reinsurers) or Schedule S
17            (for life and health reinsurers).
18                (d) For certified reinsurers not domiciled in
19            the U.S., a review annually of Form CR-F (for
20            property and casualty reinsurers) or Form CR-S
21            (for life and health reinsurers).
22                (e) The reputation of the certified reinsurer
23            for prompt payment of claims under reinsurance
24            agreements, based on an analysis of ceding
25            insurers' Schedule F reporting of overdue
26            reinsurance recoverables, including the proportion



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1            of obligations that are more than 90 days past due
2            or are in dispute, with specific attention given to
3            obligations payable to companies that are in
4            administrative supervision or receivership.
5                (f) Regulatory actions against the certified
6            reinsurer.
7                (g) The report of the independent auditor on
8            the financial statements of the insurance
9            enterprise, on the basis described in item (h) of
10            this subparagraph (5).
11                (h) For certified reinsurers not domiciled in
12            the U.S., audited financial statements (audited
13            Generally Accepted Accounting Principles (U.S.
14            GAAP) basis statement if available, audited
15            International Financial Reporting Standards (IFRS)
16            basis statements are allowed but must include an
17            audited footnote reconciling equity and net income
18            to U.S. GAAP basis or, with the permission of the
19            Director, audited IFRS basis statements with
20            reconciliation to U.S. GAAP basis certified by an
21            officer of the company), regulatory filings, and
22            actuarial opinion (as filed with the non-U.S.
23            jurisdiction supervisor). Upon the initial
24            application for certification, the Director shall
25            consider the audited financial statements filed
26            with its non-U.S. jurisdiction supervisor for the



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1            3 years immediately preceding the date of the
2            initial application for certification.
3                (i) The liquidation priority of obligations to
4            a ceding insurer in the certified reinsurer's
5            domiciliary jurisdiction in the context of an
6            insolvency proceeding.
7                (j) A certified reinsurer's participation in
8            any solvent scheme of arrangement, or similar
9            procedure, that involves U.S. ceding insurers. The
10            Director shall receive prior notice from a
11            certified reinsurer that proposes participation by
12            the certified reinsurer in a solvent scheme of
13            arrangement.
14            The maximum rating that a certified reinsurer may
15        be assigned shall correspond to its financial strength
16        rating, which shall be determined according to
17        subitems (i) through (vi) of item (a) of this
18        subparagraph (5). The Director shall use the lowest
19        financial strength rating received from an acceptable
20        rating agency in establishing the maximum rating of a
21        certified reinsurer.
22            (6) Based on the analysis conducted under item (e)
23        of subparagraph (5) of this paragraph (C-5) of a
24        certified reinsurer's reputation for prompt payment of
25        claims, the Director may make appropriate adjustments
26        in the security the certified reinsurer is required to



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1        post to protect its liabilities to U.S. ceding
2        insurers, provided that the Director shall, at a
3        minimum, increase the security the certified reinsurer
4        is required to post by one rating level under item (a)
5        of subparagraph (8) of this paragraph (C-5) if the
6        Director finds that:
7                (a) more than 15% of the certified reinsurer's
8            ceding insurance clients have overdue reinsurance
9            recoverables on paid losses of 90 days or more that
10            are not in dispute and that exceed $100,000 for
11            each cedent; or
12                (b) the aggregate amount of reinsurance
13            recoverables on paid losses that are not in dispute
14            that are overdue by 90 days or more exceeds
15            $50,000,000.
16            (7) The Director shall post notice on the
17        Department's website promptly upon receipt of any
18        application for certification, including instructions
19        on how members of the public may respond to the
20        application. The Director may not take final action on
21        the application until at least 30 days after posting
22        the notice required by this subparagraph. The Director
23        shall publish a list of all certified reinsurers and
24        their ratings.
25            (8) A certified reinsurer shall secure obligations
26        assumed from U.S. ceding insurers under this



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1        subsection (1) at a level consistent with its rating.
2                (a) The amount of security required in order
3            for full credit to be allowed shall correspond with
4            the applicable ratings category:
5                    Secure - 1: 0%.
6                    Secure - 2: 10%.
7                    Secure - 3: 20%.
8                    Secure - 4: 50%.
9                    Secure - 5: 75%.
10                    Vulnerable - 6: 100%.
11                (b) Nothing in this subparagraph (8) shall
12            prohibit the parties to a reinsurance agreement
13            from agreeing to provisions establishing security
14            requirements that exceed the minimum security
15            requirements established for certified reinsurers
16            under this Section.
17                (c) In order for a domestic ceding insurer to
18            qualify for full financial statement credit for
19            reinsurance ceded to a certified reinsurer, the
20            certified reinsurer shall maintain security in a
21            form acceptable to the Director and consistent
22            with the provisions of subsection (2) of this
23            Section, or in a multibeneficiary trust in
24            accordance with paragraph (C) of this subsection
25            (1), except as otherwise provided in this
26            subparagraph (8).



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1                (d) If a certified reinsurer maintains a trust
2            to fully secure its obligations subject to
3            paragraph (C) of this subsection (1), and chooses
4            to secure its obligations incurred as a certified
5            reinsurer in the form of a multibeneficiary trust,
6            then the certified reinsurer shall maintain
7            separate trust accounts for its obligations
8            incurred under reinsurance agreements issued or
9            renewed as a certified reinsurer with reduced
10            security as permitted by this subsection or
11            comparable laws of other U.S. jurisdictions and
12            for its obligations subject to paragraph (C) of
13            this subsection (1). It shall be a condition to the
14            grant of certification under this paragraph (C-5)
15            that the certified reinsurer shall have bound
16            itself, by the language of the trust and agreement
17            with the Director with principal regulatory
18            oversight of each such trust account, to fund, upon
19            termination of any such trust account, out of the
20            remaining surplus of such trust any deficiency of
21            any other such trust account. The certified
22            reinsurer shall also provide or make available, if
23            requested by a beneficiary under a trust, all the
24            information that is required to be provided under
25            the requirements of item (d) of subparagraph (2) of
26            paragraph (C) of this subsection (1) to the



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1            certified reinsurer's U.S. ceding insurers or
2            their assigns and successors in interest. The
3            assuming insurer may decline to release trade
4            secrets or commercially sensitive information that
5            would qualify as exempt from disclosure under the
6            Freedom of Information Act.
7                (e) The minimum trusteed surplus requirements
8            provided in paragraph (C) of this subsection (1)
9            are not applicable with respect to a
10            multibeneficiary trust maintained by a certified
11            reinsurer for the purpose of securing obligations
12            incurred under this subsection, except that such
13            trust shall maintain a minimum trusteed surplus of
14            $10,000,000.
15                (f) With respect to obligations incurred by a
16            certified reinsurer under this subsection (1), if
17            the security is insufficient, then the Director
18            may reduce the allowable credit by an amount
19            proportionate to the deficiency and may impose
20            further reductions in allowable credit upon
21            finding that there is a material risk that the
22            certified reinsurer's obligations will not be paid
23            in full when due.
24            (9)(a) In the case of a downgrade by a rating
25        agency or other disqualifying circumstance, the
26        Director shall by written notice assign a new rating to



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1        the certified reinsurer in accordance with the
2        requirements of subparagraph (5) of this paragraph
3        (C-5).
4            (b) If the rating of a certified reinsurer is
5        upgraded by the Director, then the certified reinsurer
6        may meet the security requirements applicable to its
7        new rating on a prospective basis, but the Director
8        shall require the certified reinsurer to post security
9        under the previously applicable security requirements
10        as to all contracts in force on or before the effective
11        date of the upgraded rating. If the rating of a
12        certified reinsurer is downgraded by the Director,
13        then the Director shall require the certified
14        reinsurer to meet the security requirements applicable
15        to its new rating for all business it has assumed as a
16        certified reinsurer.
17            (c) The Director may suspend, revoke, or otherwise
18        modify a certified reinsurer's certification at any
19        time if the certified reinsurer fails to meet its
20        obligations or security requirements under this
21        Section or if other financial or operating results of
22        the certified reinsurer, or documented significant
23        delays in payment by the certified reinsurer, lead the
24        Director to reconsider the certified reinsurer's
25        ability or willingness to meet its contractual
26        obligations. In seeking to suspend, revoke, or



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1        otherwise modify a certified reinsurer's
2        certification, the Director shall follow the
3        procedures provided in paragraph (G) of this
4        subsection (1).
5            (d) For purposes of this subsection (1), a
6        certified reinsurer whose certification has been
7        terminated for any reason shall be treated as a
8        certified reinsurer required to secure 100% of its
9        obligations.
10                (i) As used in this item (d), the term
11            "terminated" refers to revocation, suspension,
12            voluntary surrender and inactive status.
13                (ii) If the Director continues to assign a
14            higher rating as permitted by other provisions of
15            this Section, then this requirement does not apply
16            to a certified reinsurer in inactive status or to a
17            reinsurer whose certification has been suspended.
18            (e) Upon revocation of the certification of a
19        certified reinsurer by the Director, the assuming
20        insurer shall be required to post security in
21        accordance with subsection (2) of this Section in order
22        for the ceding insurer to continue to take credit for
23        reinsurance ceded to the assuming insurer. If funds
24        continue to be held in trust, then the Director may
25        allow additional credit equal to the ceding insurer's
26        pro rata share of the funds, discounted to reflect the



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1        risk of uncollectibility and anticipated expenses of
2        trust administration.
3            (f) Notwithstanding the change of a certified
4        reinsurer's rating or revocation of its certification,
5        a domestic insurer that has ceded reinsurance to that
6        certified reinsurer may not be denied credit for
7        reinsurance for a period of 3 months for all
8        reinsurance ceded to that certified reinsurer, unless
9        the reinsurance is found by the Director to be at high
10        risk of uncollectibility.
11            (10) A certified reinsurer that ceases to assume
12        new business in this State may request to maintain its
13        certification in inactive status in order to continue
14        to qualify for a reduction in security for its in-force
15        business. An inactive certified reinsurer shall
16        continue to comply with all applicable requirements of
17        this subsection (1), and the Director shall assign a
18        rating that takes into account, if relevant, the
19        reasons why the reinsurer is not assuming new business.
20            (11) Credit for reinsurance under this paragraph
21        (C-5) shall apply only to reinsurance contracts
22        entered into or renewed on or after the effective date
23        of the certification of the assuming insurer.
24            (12) The Director shall comply with all reporting
25        and notification requirements that may be established
26        by the NAIC with respect to certified reinsurers and



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1        qualified jurisdictions.
2        (D) Credit shall be allowed when the reinsurance is
3    ceded to an assuming insurer not meeting the requirements
4    of paragraph subsection (1) (A), (B), or (C) of this
5    subsection (1) but only with respect to the insurance of
6    risks located in jurisdictions where that reinsurance is
7    required by applicable law or regulation of that
8    jurisdiction.
9        (E) If the assuming insurer is not licensed to transact
10    insurance in this State or an accredited or certified
11    reinsurer in this State, the credit permitted by paragraphs
12    (B-5) and subsection (1) (C) of this subsection (1) shall
13    not be allowed unless the assuming insurer agrees in the
14    reinsurance agreements:
15            (1) that in the event of the failure of the
16        assuming insurer to perform its obligations under the
17        terms of the reinsurance agreement, the assuming
18        insurer, at the request of the ceding insurer, shall
19        submit to the jurisdiction of any court of competent
20        jurisdiction in any state of the United States, will
21        comply with all requirements necessary to give the
22        court jurisdiction, and will abide by the final
23        decision of the court or of any appellate court in the
24        event of an appeal; and
25            (2) to designate the Director or a designated
26        attorney as its true and lawful attorney upon whom may



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1        be served any lawful process in any action, suit, or
2        proceeding instituted by or on behalf of the ceding
3        company.
4        This provision is not intended to conflict with or
5    override the obligation of the parties to a reinsurance
6    agreement to arbitrate their disputes, if an obligation to
7    arbitrate is created in the agreement.
8        (F) If the assuming insurer does not meet the
9    requirements of paragraph (A) or (B) of this subsection (1)
10    (1)(A) or (B), the credit permitted by paragraph (C) of
11    this subsection (1) (1)(C) shall not be allowed unless the
12    assuming insurer agrees in the trust agreements to the
13    following conditions:
14            (1) Notwithstanding any other provisions in the
15        trust instrument, if the trust fund is inadequate
16        because it contains an amount less than the amount
17        required by subparagraph (3) of paragraph (C)
18        subsection (C)(3) of this subsection (1) Section or if
19        the grantor of the trust has been declared insolvent or
20        placed into receivership, rehabilitation, liquidation,
21        or similar proceedings under the laws of its state or
22        country of domicile, the trustee shall comply with an
23        order of the state official with regulatory oversight
24        over the trust or with an order of a court of competent
25        jurisdiction directing the trustee to transfer to the
26        state official with regulatory oversight all of the



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1        assets of the trust fund.
2            (2) The assets shall be distributed by and claims
3        shall be filed with and valued by the state official
4        with regulatory oversight in accordance with the laws
5        of the state in which the trust is domiciled that are
6        applicable to the liquidation of domestic insurance
7        companies.
8            (3) If the state official with regulatory
9        oversight determines that the assets of the trust fund
10        or any part thereof are not necessary to satisfy the
11        claims of the U.S. ceding insurers of the grantor of
12        the trust, the assets or part thereof shall be returned
13        by the state official with regulatory oversight to the
14        trustee for distribution in accordance with the trust
15        agreement.
16            (4) The grantor shall waive any rights otherwise
17        available to it under U.S. law that are inconsistent
18        with the provision.
19        (G) If an accredited or certified reinsurer ceases to
20    meet the requirements for accreditation or certification,
21    then the Director may suspend or revoke the reinsurer's
22    accreditation or certification.
23            (1) The Director must give the reinsurer notice and
24        opportunity for hearing. The suspension or revocation
25        may not take effect until after the Director's order on
26        hearing, unless:



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1                (a) the reinsurer waives its right to hearing;
2                (b) the Director's order is based on
3            regulatory action by the reinsurer's domiciliary
4            jurisdiction or the voluntary surrender or
5            termination of the reinsurer's eligibility to
6            transact insurance or reinsurance business in its
7            domiciliary jurisdiction or in the primary
8            certifying state of the reinsurer under
9            subparagraph (4) of paragraph (C-5) of this
10            subsection (1); or
11                (c) the Director finds that an emergency
12            requires immediate action and a court of competent
13            jurisdiction has not stayed the Director's action.
14            (2) While a reinsurer's accreditation or
15        certification is suspended, no reinsurance contract
16        issued or renewed after the effective date of the
17        suspension qualifies for credit except to the extent
18        that the reinsurer's obligations under the contract
19        are secured in accordance with subsection (2) of this
20        Section. If a reinsurer's accreditation or
21        certification is revoked, no credit for reinsurance
22        may be granted after the effective date of the
23        revocation, except to the extent that the reinsurer's
24        obligations under the contract are secured in
25        accordance with subsection (2) of this Section.
26        (H) The following provisions shall apply concerning



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1    concentration of risk:
2            (1) A ceding insurer shall take steps to manage its
3        reinsurance recoverable proportionate to its own book
4        of business. A domestic ceding insurer shall notify the
5        Director within 30 days after reinsurance recoverables
6        from any single assuming insurer, or group of
7        affiliated assuming insurers, exceeds 50% of the
8        domestic ceding insurer's last reported surplus to
9        policyholders, or after it is determined that
10        reinsurance recoverables from any single assuming
11        insurer, or group of affiliated assuming insurers, is
12        likely to exceed this limit. The notification shall
13        demonstrate that the exposure is safely managed by the
14        domestic ceding insurer.
15            (2) A ceding insurer shall take steps to diversify
16        its reinsurance program. A domestic ceding insurer
17        shall notify the Director within 30 days after ceding
18        to any single assuming insurer, or group of affiliated
19        assuming insurers, more than 20% of the ceding
20        insurer's gross written premium in the prior calendar
21        year, or after it has determined that the reinsurance
22        ceded to any single assuming insurer, or group of
23        affiliated assuming insurers, is likely to exceed this
24        limit. The notification shall demonstrate that the
25        exposure is safely managed by the domestic ceding
26        insurer.



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1    (2) Credit for the reinsurance ceded by a domestic insurer
2to an assuming insurer not meeting the requirements of
3subsection (1) of this Section shall be allowed in an amount
4not exceeding the assets or liabilities carried by the ceding
5insurer. The credit shall not exceed the amount of funds held
6by or held in trust for the ceding insurer under a reinsurance
7contract with the assuming insurer as security for the payment
8of obligations thereunder, if the security is held in the
9United States subject to withdrawal solely by, and under the
10exclusive control of, the ceding insurer; or, in the case of a
11trust, held in a qualified United States financial institution,
12as defined in paragraph (B) of subsection (3) of this Section
13(3)(B). This security may be in the form of:
14        (A) Cash.
15        (B) Securities listed by the Securities Valuation
16    Office of the National Association of Insurance
17    Commissioners, including those deemed exempt from filing
18    as defined by the Purposes and Procedures Manual of the
19    Securities Valuation Office that conform to the
20    requirements of Article VIII of this Code that are not
21    issued by an affiliate of either the assuming or ceding
22    company.
23        (C) Clean, irrevocable, unconditional, letters of
24    credit issued or confirmed by a qualified United States
25    financial institution, as defined in paragraph (A) of
26    subsection (3) of this Section (3)(A). The letters of



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1    credit shall be effective no later than December 31 of the
2    year for which filing is being made, and in the possession
3    of, or in trust for, the ceding company on or before the
4    filing date of its annual statement. Letters of credit
5    meeting applicable standards of issuer acceptability as of
6    the dates of their issuance (or confirmation) shall,
7    notwithstanding the issuing (or confirming) institution's
8    subsequent failure to meet applicable standards of issuer
9    acceptability, continue to be acceptable as security until
10    their expiration, extension, renewal, modification, or
11    amendment, whichever first occurs.
12        (D) Any other form of security acceptable to the
13    Director.
14    (3)(A) For purposes of paragraph (C) of subsection (2) of
15this Section subsection 2(C), a "qualified United States
16financial institution" means an institution that:
17        (1) is organized or, in the case of a U.S. office of a
18    foreign banking organization, licensed under the laws of
19    the United States or any state thereof;
20        (2) is regulated, supervised, and examined by U.S.
21    federal or state authorities having regulatory authority
22    over banks and trust companies;
23        (3) has been designated by either the Director or the
24    Securities Valuation Office of the National Association of
25    Insurance Commissioners as meeting such standards of
26    financial condition and standing as are considered



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1    necessary and appropriate to regulate the quality of
2    financial institutions whose letters of credit will be
3    acceptable to the Director; and
4        (4) is not affiliated with the assuming company.
5    (B) A "qualified United States financial institution"
6means, for purposes of those provisions of this law specifying
7those institutions that are eligible to act as a fiduciary of a
8trust, an institution that:
9        (1) is organized or, in the case of the U.S. branch or
10    agency office of a foreign banking organization, licensed
11    under the laws of the United States or any state thereof
12    and has been granted authority to operate with fiduciary
13    powers;
14        (2) is regulated, supervised, and examined by federal
15    or state authorities having regulatory authority over
16    banks and trust companies; and
17        (3) is not affiliated with the assuming company,
18    however, if the subject of the reinsurance contract is
19    insurance written pursuant to Section 155.51 of this Code,
20    the financial institution may be affiliated with the
21    assuming company with the prior approval of the Director.
22    (C) Except as set forth in subparagraph (11) of paragraph
23(C-5) of subsection (1) of this Section as to cessions by
24certified reinsurers, this amendatory Act of the 100th General
25Assembly shall apply to all cessions after the effective date
26of this amendatory Act of the 100th General Assembly under



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1reinsurance agreements that have an inception, anniversary, or
2renewal date not less than 6 months after the effective date of
3this amendatory Act of the 100th General Assembly.
4    (D) The Department shall adopt rules implementing the
5provisions of this Article.
6(Source: P.A. 90-381, eff. 8-14-97.)
7    (215 ILCS 5/456)  (from Ch. 73, par. 1065.3)
8    Sec. 456. Making of rates. (1) All rates shall be made in
9accordance with the following provisions:
10    (a) Due consideration shall be given to past and
11prospective loss experience within and outside this state, to
12catastrophe hazards, if any, to a reasonable margin for profit
13and contingencies, to dividends, savings or unabsorbed premium
14deposits allowed or returned by companies to their
15policyholders, members or subscribers, to past and prospective
16expenses both countrywide and those specially applicable to
17this state, to underwriting practice and judgment and to all
18other relevant factors within and outside this state;
19    (b) The systems of expense provisions included in the rates
20for use by any company or group of companies may differ from
21those of other companies or groups of companies to reflect the
22requirements of the operating methods of any such company or
23group with respect to any kind of insurance, or with respect to
24any subdivision or combination thereof for which subdivision or
25combination separate expense provisions are applicable;



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1    (c) Risks may be grouped by classifications for the
2establishment of rates and minimum premiums. Classification
3rates may be modified to produce rates for individual risks in
4accordance with rating plans which measure variation in hazards
5or expense provisions, or both. Such rating plans may measure
6any differences among risks that have a probable effect upon
7losses or expenses;
8    (d) Rates shall not be excessive, inadequate or unfairly
10    A rate in a competitive market is not excessive. A rate in
11a noncompetitive market is excessive if it is likely to produce
12a long run profit that is unreasonably high for the insurance
13provided or if expenses are unreasonably high in relation to
14the services rendered.
15    A rate is not inadequate unless such rate is clearly
16insufficient to sustain projected losses and expenses in the
17class of business to which it applies and the use of such rate
18has or, if continued, will have the effect of substantially
19lessening competition or the tendency to create monopoly in any
21    Unfair discrimination exists if, after allowing for
22practical limitations, price differentials fail to reflect
23equitably the differences in expected losses and expenses. A
24rate is not unfairly discriminatory because different premiums
25result for policyholders with like exposures but different
26expenses, or like expenses but different loss exposures, so



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1long as the rate reflects the differences with reasonable
3    (e) The rating plan shall contain a mandatory offer of a
4deductible applicable only to the medical benefit under the
5Workers' Compensation Act. Such deductible offer shall be in a
6minimum amount of at least $1,000 per accident.
7    (f) Any rating plan or program shall include a rule
8permitting 2 or more employers with similar risk
9characteristics, who participate in a loss prevention program
10or safety group, to pool their premium and loss experience in
11determining their rate or premium for such participation in the
13    (2) Except to the extent necessary to meet the provisions
14of subdivision (d) of subsection (1) of this Section,
15uniformity among companies in any matters within the scope of
16this Section is neither required nor prohibited.
17(Source: P.A. 82-939.)
18    (215 ILCS 5/457)  (from Ch. 73, par. 1065.4)
19    Sec. 457. Rate filings. (1) Every Beginning January 1,
201983, every company shall prefile file with the Director every
21manual of classifications, every manual of rules and rates,
22every rating plan and every modification of the foregoing which
23it intends to use. Such filings shall be made at least not
24later than 30 days before after they become effective. A
25company may satisfy its obligation to make such filings by



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1adopting the filing of a licensed rating organization of which
2it is a member or subscriber, filed pursuant to subsection (2)
3of this Section, in total or, with the approval of the
4Director, by notifying the Director in what respects it intends
5to deviate from such filing. If a company intends to deviate
6from the filing of a licensed rating organization of which it
7is a member, the company shall provide the Director with
8supporting information that specifies the basis for the
9requested deviation and provides justification for the
10deviation. Any company adopting a pure premium filed by a
11rating organization pursuant to subsection (2) must file with
12the Director the modification factor it is using for expenses
13and profit so that the final rates in use by such company can
14be determined.
15    (2) Each Beginning January 1, 1983, each licensed rating
16organization must prefile file with the Director every manual
17of classification, every manual of rules and advisory rates,
18every pure premium which has been fully adjusted and fully
19developed, every rating plan and every modification of any of
20the foregoing which it intends to recommend for use to its
21members and subscribers, at least not later than 30 days before
22after such manual, premium, plan or modification thereof takes
23effect. Every licensed rating organization shall also file with
24the Director the rate classification system, all rating rules,
25rating plans, policy forms, underwriting rules or similar
26materials, and each modification of any of the foregoing which



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1it requires its members and subscribers to adhere to not later
2than 30 days before such filings or modifications thereof are
3to take effect. Every such filing shall state the proposed
4effective date thereof and shall indicate the character and
5extent of the coverage contemplated.
6    (3) A filing and any supporting information made pursuant
7to this Section shall be open to public inspection as soon as
8filed after the filing becomes effective.
9    (4) A filing shall not be effective nor used until approved
10by the Director. A filing shall be deemed approved and legally
11effective if the Director fails to disapprove within 30 days
12after the filing.
13(Source: P.A. 82-939.)
14    (215 ILCS 5/458)  (from Ch. 73, par. 1065.5)
15    Sec. 458. Disapproval of filings. (1) If within 30 thirty
16days of any filing the Director finds that such filing does not
17meet the requirements of this Article, he shall send to the
18company or rating organization which made such filing a written
19notice of disapproval of such filing, specifying therein in
20what respects he finds that such filing fails to meet the
21requirements of this Article and stating when, within a
22reasonable period thereafter, such filing shall be deemed no
23longer effective. A company or rating organization whose filing
24has been disapproved shall be given a hearing upon a written
25request made within 30 days after the disapproval order. If the



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1company or rating organization making the filing shall, prior
2to the expiration of the period prescribed in the notice,
3request a hearing, such filings shall be effective until the
4expiration of a reasonable period specified in any order
5entered thereon. If the rate resulting from such filing be
6unfairly discriminatory or materially inadequate, and the
7difference between such rate and the approved rate equals or
8exceeds the cost of making an adjustment, the Director shall in
9such notice or order direct an adjustment of the premium to be
10made with the policyholder either by refund or collection of
11additional premium. If the policyholder does not accept the
12increased rate, cancellation shall be made on a pro rata basis.
13Any policy issued pursuant to this subsection shall contain a
14provision that the premium thereon shall be subject to
15adjustment upon the basis of the filing finally approved.
16    (2) If at any time subsequent to the applicable review
17period provided for in subsection (1) of this Section, the
18Director finds that a filing does not meet the requirements of
19this Article, he shall, after a hearing held upon not less than
20ten days written notice, specifying the matters to be
21considered at such hearing, to every company and rating
22organization which made such filing, issue an order specifying
23in what respects he finds that such filing fails to meet the
24requirements of this Article, and stating when, within a
25reasonable period thereafter, such filings shall be deemed no
26longer effective. Copies of said order shall be sent to every



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



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1    (4) Whenever an insurer has no legally effective rates as a
2result of the Director's disapproval of rates or other act, the
3Director shall on request of the insurer specify interim rates
4for the insurer that are high enough to protect the interests
5of all parties and may order that a specified portion of the
6premiums be placed in an escrow account approved by him or her.
7When new rates become legally effective, the Director shall
8order the escrowed funds or any overcharge in the interim rates
9to be distributed appropriately, except that refunds to
10policyholders that are de minimis shall not be required.
11(Source: P.A. 82-939.)
12    (215 ILCS 5/462a new)
13    Sec. 462a. Premium increase notice. A policy of workers'
14compensation insurance issued, delivered, amended, or renewed
15on or after January 1, 2019 shall remain in full force and
16effect subject to the same terms and conditions, loss cost
17multipliers, and classification of the employer with regard to
18the payment of dividends, unless written notice is mailed or
19delivered by the insurer to the employer, at the address shown
20on the policy, and to the employer's authorized agent or
21broker, indicating the insurer's intention to condition
22renewal upon issuance of a policy that supersedes the policy
23previously issued and that will result in a premium in excess
24of 5% above the rate recommendation filed with the Department,
25exclusive of any premium increase generated as a result of



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1increased loss costs or increased exposure units or as a result
2of experience rating, contractor credit adjustment program,
3large deductible, retrospective rating, or audit. The notice
4shall be delivered at least 30 days in advance of the
5expiration date of the policy, and shall set forth: (1) the
6amount of the premium increase or, if the amount cannot
7reasonably be determined as of the time the notice is provided,
8a reasonable estimate of the premium increase based upon the
9information available to the insurer at that time; and (2) the
10reason for the increased premium in excess of the rate
11recommendation filed with the Department. Nothing in this
12Section requires the insurer to provide notice when the
13employer, an agent or broker authorized by the employer, or
14another insurer of the employer has delivered written notice
15that the policy has been replaced or is no longer desired.
16    (215 ILCS 5/123C-4 rep.)
17    (215 ILCS 5/460 rep.)
18    Section 95. The Illinois Insurance Code is amended by
19repealing Sections 123C-4 and 460.
20    Section 99. Effective date. This Act takes effect upon
21becoming law, except that the provisions changing Sections 456,
22457, and 458 of the Illinois Insurance Code and the provisions
23repealing Section 460 of the Illinois Insurance Code take
24effect February 1, 2019.