103RD GENERAL ASSEMBLY
State of Illinois
2023 and 2024
SB1961

 

Introduced 2/9/2023, by Sen. Bill Cunningham

 

SYNOPSIS AS INTRODUCED:
 
New Act
215 ILCS 5/534.4  from Ch. 73, par. 1065.84-4

    Creates the Insurance Business Transfer Act. Provides that notwithstanding any other provision of law, a court may issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of this Act. Sets forth provisions concerning notice requirements, application procedure, application to a court for approval of a plan, approval and denial of insurance business transfer plans, and fees and costs. Provides that the Department of Insurance may adopt rules that are consistent with the provisions. Provides that the portion of the application for an insurance business transfer that would otherwise be confidential, including any documents, materials, communications, or other information submitted to the Director of Insurance in contemplation of an application, shall not lose such confidentiality. Provides that insurers consent to the jurisdiction of the Director with regard to ongoing oversight of operations, management, and solvency relating to the transferred business. Provides that at the time of filing its application for review and approval of an insurance business transfer plan, an applicant shall pay a nonrefundable fee of $10,000 to the Department. Provides that the Director may direct the applicant to retain parties to assist Department personnel. Defines terms. Amends the Illinois Insurance Code. Changes the definition of "insolvent company" to include any company which has assumed or has been allocated a policy obligation through an approved insurance business transfer plan.


LRB103 28001 BMS 54380 b

 

 

A BILL FOR

 

SB1961LRB103 28001 BMS 54380 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
5Insurance Business Transfer Act.
 
6    Section 3. Purpose and intent. The purpose of this Act is
7to provide options to address the significant limitations in
8the current methods available to insurers to transfer or
9assume blocks of insurance business in an efficient and
10cost-effective manner that provides needed legal finality for
11such transfers in order to provide for improved operational
12and capital efficiency for insurance companies, stimulates the
13economy by attracting segments of the insurance industry to
14this State, makes this State an attractive home jurisdiction
15for insurance companies, encourages economic growth and
16increased investment in the financial services sector, and
17increases the availability of quality insurance industry jobs
18in this State. These purposes are accomplished by providing a
19basis and procedures for the transfer and statutory novation
20of policies from a transferring insurer to an assuming insurer
21by way of an insurance business transfer without the
22affirmative consent of policyholders or reinsureds. This Act
23establishes the requirements for notice and disclosure and

 

 

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1standards and procedures for the approval of the transfer and
2novation by the Director and a court pursuant to an insurance
3business transfer plan. This Act does not limit or restrict
4other means of effecting a transfer or novation.
 
5    Section 5. Definitions. As used in this Act:
6    "Affiliate" means a person that directly or indirectly,
7through one or more intermediaries, controls, is controlled
8by, or is under common control with the person specified.
9    "Applicant" means a transferring insurer or reinsurer
10applying under this Act.
11    "Assuming insurer" means an insurer authorized to transact
12business in Class 2 or Class 3 of Section 4 of the Illinois
13Insurance Code that is domiciled in this State that assumes or
14seeks to assume policies from a transferring insurer pursuant
15to this Act.
16    "Department" means the Department of Insurance.
17    "Director" means the Director of Insurance.
18    "Implementation order" means an order issued by a court
19under this Act.
20    "Independent expert" means an impartial person who has no
21financial interest in either the assuming insurer or
22transferring insurer, has not been employed by or acted as an
23officer, director, consultant, or other independent contractor
24for either the assuming insurer or transferring insurer within
25the past 12 months, is not appointed by the Director to assist

 

 

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1in any capacity in any insurer rehabilitation or delinquency
2proceeding, is receiving no compensation in connection with
3the transaction governed by this Act other than a fee based on
4a fixed or hourly basis that is not contingent on the approval
5or consummation of an insurance business transfer, and
6provides proof of insurance coverage that is satisfactory to
7the Director.
8    "Insurance business transfer" means a transfer and
9novation that, once approved pursuant to this Act, transfers
10insurance obligations or risks, or both, of existing or
11in-force contracts of insurance or reinsurance from a
12transferring insurer to an assuming insurer, and effects a
13novation of the transferred contracts of insurance or
14reinsurance with the result that the assuming insurer becomes
15directly liable to the policyholders of the transferring
16insurer and the transferring insurer's insurance obligations
17or risks, or both, under the contracts are extinguished.
18    "Insurance business transfer plan" means the plan
19submitted to the Department to accomplish the transfer and
20novation pursuant to an insurance business transfer, including
21any associated transfer of assets and rights from or on behalf
22of the transferring insurer to the assuming insurer.
23    "Insurer" means an insurance, surety, or reinsurance
24company, corporation, partnership, association, society,
25order, individual, or aggregation of individuals engaging in
26or proposing or attempting to engage in nonlife and accident

 

 

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1and health insurance or surety business, including the
2exchanging of reciprocal or inter-insurance contracts between
3individuals, partnerships, and corporations.
4    "Policy" means a policy, certificate of insurance, or a
5contract of reinsurance pursuant to which an insurer agrees to
6assume an obligation or risk, or both, of the policyholder or
7to make payments on behalf of, or to, the policyholder or its
8beneficiaries, including property and casualty insurance.
9"Policy" does not include any policy, contract, or certificate
10of insurance as defined in clause (a) or (b) of Class 1 of
11Section 4 of the Illinois Insurance Code.
12    "Policyholder" means an insured or a reinsured under a
13policy that is part of the subject business.
14    "Subject business" means the policy or policies that are
15the subject of the insurance business transfer plan.
16    "Transfer and novation" means the transfer of insurance
17obligations or risks, or both, of existing or in-force
18policies from a transferring insurer to an assuming insurer
19that is intended to effect a novation of the transferred
20policies with the result that the assuming insurer becomes
21directly liable to the policyholders of the transferring
22insurer on the transferred policies and the transferring
23insurer's obligations or risks, or both, under the transferred
24policies are extinguished.
25    "Transferring insurer" means an insurer or reinsurer that
26transfers and novates or seeks to transfer and novate

 

 

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1obligations or risks, or both, under one or more policies to an
2assuming insurer pursuant to an insurance business transfer
3plan.
 
4    Section 10. Court authority. Notwithstanding any other
5provision of law, a court may issue any order, process, or
6judgment that is necessary or appropriate to carry out the
7provisions of this Act. No provision of this Act shall be
8construed to preclude a court from, on its own motion, taking
9any action or making any determination necessary or
10appropriate to enforce or implement court orders or rules or
11to prevent an abuse of power.
 
12    Section 15. Notice requirements.
13    (a) Whenever notice is required to be given by an
14applicant under this Act, except as otherwise permitted by a
15court or the Director, the applicant shall within 15 days
16after the event triggering the requirement transmit the
17notice:
18        (1) to the chief insurance regulator in each
19    jurisdiction:
20            (A) in which the applicant holds or has ever held a
21        certificate of authority; and
22            (B) in which policies that are part of the subject
23        business were issued or policyholders currently
24        reside;

 

 

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1        (2) to the National Conference of Insurance Guaranty
2    Funds and all state insurance guaranty associations for
3    the states:
4            (A) in which the applicant holds or has ever held a
5        certificate of authority; and
6            (B) in which policies that are part of the subject
7        business were issued or policyholders currently
8        reside;
9        (3) to reinsurers of the applicant pursuant to the
10    notice provisions of the reinsurance agreements applicable
11    to the policies that are part of the subject business or,
12    where an agreement has no provision for notice, by
13    internationally recognized delivery service;
14        (4) to all policyholders holding policies that are
15    part of the subject business at their last known address
16    as indicated by the records of the applicant or to the
17    address to which premium notices or other policy documents
18    are sent. A notice of transfer shall also be sent to the
19    transferring insurer's agents or brokers of record on the
20    subject business; and
21        (5) by publication in a newspaper of general
22    circulation in the state in which the applicant has its
23    principal place of business and in such other publications
24    that the Director requires.
25    (b) If notice is given in accordance with this Section,
26any orders under this Act shall be conclusive with respect to

 

 

SB1961- 7 -LRB103 28001 BMS 54380 b

1all intended recipients of the notice whether or not they
2receive actual notice.
3    (c) If this Act requires that the applicant provide notice
4but the Director has been named receiver of the applicant, the
5Director shall provide the required notice.
6    (d) Notice under this Section may take the form of
7first-class mail, facsimile, or electronic notice.
 
8    Section 20. Application procedure.
9    (a) An insurance business transfer plan shall be filed by
10the applicant with the Director for his or her review and
11approval no sooner than January 1, 2024. The plan may be
12supplemented by other information deemed necessary by the
13Director, and shall contain the following information or an
14explanation as to why the following information is not
15included:
16        (1) the name, address, and telephone number of the
17    transferring insurer and the assuming insurer and their
18    respective direct and indirect controlling persons, if
19    any;
20        (2) a summary of the insurance business transfer plan;
21        (3) an identification and description of the subject
22    business;
23        (4) the most recent audited financial statements and
24    statutory annual and quarterly reports of the transferring
25    insurer and the assuming insurer filed with their

 

 

SB1961- 8 -LRB103 28001 BMS 54380 b

1    domiciliary regulator;
2        (5) the most recent actuarial report and opinion that
3    quantify the liabilities associated with the subject
4    business;
5        (6) pro forma financial statements showing the
6    projected statutory balance sheet, results of operation,
7    and cash flows of the assuming insurer for the 3 years
8    following the proposed transfer and novation;
9        (7) officers' certificates of the transferring insurer
10    and the assuming insurer attesting that each has obtained
11    all required internal approvals and authorizations
12    regarding the insurance business transfer plan and
13    completed all necessary and appropriate actions relating
14    thereto;
15        (8) a proposal for plan implementation and
16    administration, including the form of notice to be
17    provided under the insurance business transfer plan to any
18    policyholder whose policy is part of the subject business;
19        (9) a full description as to how notice under the
20    insurance business transfer plan shall be provided;
21        (10) a description of any reinsurance arrangements
22    that would pass to the assuming insurer under the
23    insurance business transfer plan;
24        (11) a description of any guarantees or additional
25    reinsurance that will cover the subject business following
26    the transfer and novation;

 

 

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1        (12) a statement describing the assuming insurer's
2    proposed investment policies and any contemplated
3    third-party claims management and administration
4    arrangements;
5        (13) a description of how the transferring and
6    assuming insurers will be licensed for the following
7    guaranty association coverage purposes:
8            (A) guaranty association coverage;
9            (B) the financial implications of the transaction
10        including solvency, capital adequacy, cash flow,
11        reserves, asset quality, and risk-based capital;
12            (C) an analysis of the assuming insurer's
13        corporate governance structure to ensure that there is
14        proper board management oversight and expertise to
15        manage the subject business;
16            (D) the competency, experience, and integrity of
17        the persons who would control the operation of an
18        involved insurer; and
19            (E) ensuring the transaction is not being made for
20        improper purposes, including fraud;
21        (14) evidence of approval or nonobjection of the
22    transfer from the chief insurance regulator of the state
23    of the transferring insurer's domicile; and
24        (15) a report from an independent expert, selected by
25    the Director from a list of at least 2 nominees submitted
26    jointly by the transferring insurer and the assuming

 

 

SB1961- 10 -LRB103 28001 BMS 54380 b

1    insurer, to assist the Director and a court in connection
2    with their review of the proposed transaction. If the
3    Director, in his or her sole discretion, rejects the
4    nominees, he or she may appoint the independent expert.
5    The report shall provide the following:
6            (A) a statement of the independent expert's
7        professional qualifications and descriptions of the
8        experience that qualifies him or her as an expert
9        suitable for the engagement;
10            (B) whether the independent expert has, or has
11        had, direct or indirect interest in the transferring
12        or assuming insurer or any of their respective
13        affiliates;
14            (C) the scope of the report;
15            (D) a summary of the terms of the insurance
16        business transfer plan to the extent relevant to the
17        report;
18            (E) a listing and summaries of documents, reports,
19        and other material information the independent expert
20        has considered in preparing the report and whether any
21        information requested was not provided;
22            (F) the extent to which the independent expert has
23        relied on information provided by and judgment of
24        others;
25            (G) the people on whom the independent expert has
26        relied and why, in his or her opinion, such reliance is

 

 

SB1961- 11 -LRB103 28001 BMS 54380 b

1        reasonable;
2            (H) the independent expert's opinion of the likely
3        effects of the insurance business transfer plan on
4        policyholders, reinsurers, and claimants,
5        distinguishing between:
6                (i) transferring policyholders, reinsurers,
7            and claimants;
8                (ii) policyholders, reinsurers, and claimants
9            of the transferring insurer whose policies will
10            not be transferred; and
11                (iii) policyholders, reinsurers, and claimants
12            of the assuming insurer;
13            (I) the facts and circumstances supporting each
14        opinion that the independent expert expresses in the
15        report; and
16            (J) consideration as to whether the security
17        position of policyholders that are affected by the
18        insurance business transfer are materially adversely
19        affected by the transfer.
20    (b) The independent expert's report as required by
21paragraph (15) of subsection (a) shall include, but not be
22limited to, a review of the following:
23        (1) analysis of the transferring insurer's actuarial
24    review of resources for the subject business to determine
25    the reserve adequacy;
26        (2) analysis of the financial condition of the

 

 

SB1961- 12 -LRB103 28001 BMS 54380 b

1    transferring and assuming insurers and the effect the
2    transfer will have on the financial condition of each
3    company;
4        (3) review of the plans or proposals the assuming
5    insurer has with respect to the administration of the
6    policies subject to the proposed transfer;
7        (4) whether the proposed transfer has a material,
8    adverse impact on the policyholders, reinsurers, and
9    claimants of the transferring and the assuming insurers;
10        (5) analysis of the assuming insurer's corporate
11    governance structure to ensure that there is proper board
12    and management oversight and expertise to manage the
13    subject business; and
14        (6) any other information that the Director requests
15    in order to review the insurance business transfer.
16    (c) The Director shall authorize the submission of the
17insurance business transfer plan to a court unless he or she
18finds that the insurance business transfer would have a
19material adverse impact on the interests of policyholders,
20reinsurers, or claimants that are part of the subject
21business.
22    (d) If the Director determines that the insurance business
23transfer would have a material adverse impact on the interests
24of policyholders, reinsurers, or claimants that are part of
25the subject business, he or she shall notify the applicant and
26specify any modifications, supplements, or amendments and any

 

 

SB1961- 13 -LRB103 28001 BMS 54380 b

1additional information or documentation with respect to the
2plan that must be provided to the Director before he or she
3shall allow the applicant to proceed with the court filing.
4    (e) The applicant shall have 30 days following the date
5the Director notifies him or her of a determination under
6subsection (d) to file an amended insurance business transfer
7plan providing the modifications, supplements, or amendments
8and additional information or documentation as requested by
9the Director. If necessary, the applicant may request in
10writing an extension of time of 30 days. If the applicant does
11not make an amended filing within the time period provided in
12this subsection, including any extension of time granted by
13the Director, the insurance business transfer plan filing
14shall terminate and a subsequent filing by the applicant shall
15be considered a new filing which shall require compliance with
16all provisions of this Act as if the prior filing had never
17been made.
18    (f) The Director's review period shall recommence when the
19modification, supplement, amendment, or additional information
20requested in subsection (d) is received.
21    (g) If the Director determines that the plan may proceed
22with the court filing, the Director shall confirm that fact in
23writing to the applicant.
 
24    Section 25. Application to the court for approval of a
25plan.

 

 

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1    (a) Within 30 days after notice from the Director that the
2applicant may proceed with the court filing, the applicant
3shall apply to the court for approval of the insurance
4business transfer plan. Upon written request by the applicant,
5the Director may extend the period for filing an application
6with the court for an additional 30 days.
7    (b) The applicant shall inform the court of the reasons
8why he or she petitions the court to find no material adverse
9impact to policyholders, reinsurers, or claimants affected by
10the proposed transfer.
11    (c) The application shall be in the form of a verified
12petition for implementation of the insurance business transfer
13plan in the court. The petition shall include the insurance
14business transfer plan and shall identify any documents and
15witnesses which the applicant intends to present at a hearing
16regarding the petition.
17    (d) The Director shall be a party to the proceedings
18before the court concerning the petition and shall be served
19with copies of all filings. The Director's position in the
20proceeding shall not be limited by his or her initial review of
21the plan.
22    (e) Following the filing of the petition, the applicant
23shall file a motion for a scheduling order setting a hearing on
24the petition.
25    (f) Within 15 days after receipt of the scheduling order,
26the applicant shall cause notice of the hearing to be provided

 

 

SB1961- 15 -LRB103 28001 BMS 54380 b

1in accordance with the notice provisions of Section 15 of this
2Act. Following the date of distribution of the notice, there
3shall be a 60-day comment period.
4    (g) The notice to policyholders shall state or provide:
5        (1) the date and time of the approval hearing;
6        (2) the name, address, and telephone number of the
7    assuming insurer and transferring insurer;
8        (3) that a policyholder may comment on or object to
9    the transfer and novation;
10        (4) the procedures and deadline for submitting
11    comments or objections on the plan;
12        (5) a summary of any effect that the transfer and
13    novation will have on the policyholder's rights;
14        (6) a statement that the assuming insurer is
15    authorized to assume the subject business and that court
16    approval of the plan shall extinguish all rights of
17    policyholders under policies that are part of the subject
18    business against the transferring insurer;
19        (7) that policyholders shall not have the opportunity
20    to opt out of or otherwise reject the transfer and
21    novation;
22        (8) contact information for the Department where the
23    policyholder may obtain further information; and
24        (9) information on how an electronic copy of the
25    insurance business transfer plan may be accessed. If
26    policyholders are unable to readily access electronic

 

 

SB1961- 16 -LRB103 28001 BMS 54380 b

1    copies, the applicant shall provide hard copies by
2    first-class mail.
3    (h) Any person, including by their legal representative,
4who considers himself, herself, or itself to be adversely
5affected can present evidence or comments to the court at the
6approval hearing. However, such comment or evidence shall not
7confer standing on any person. Any person participating in the
8approval hearing must follow the process established by the
9court and shall bear his or her own costs and attorney's fees.
 
10    Section 30. Approval; denial; insurance business transfer
11plans.
12    (a) After the comment period pursuant to subsection (f) of
13Section 25 has ended the insurance business transfer plan
14shall be presented by the applicant for approval by the court.
15    (b) At any time before the court issues an order approving
16the insurance business transfer plan, the applicant may
17withdraw the insurance business transfer plan without
18prejudice.
19    (c) If the court finds that the implementation of the
20insurance business transfer plan would not materially
21adversely affect the interests of policyholders, reinsurers,
22or claimants that are part of the subject business, the court
23shall enter a judgment and implementation order. The judgment
24and implementation order shall:
25        (1) order implementation of the insurance business

 

 

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1    transfer plan;
2        (2) order a statutory novation with respect to all
3    policyholders or reinsureds and their respective policies
4    and reinsurance agreements under the subject business,
5    including the extinguishment of all rights of
6    policyholders under policies that are part of the subject
7    business against the transferring insurer, and providing
8    that the transferring insurer shall have no further
9    rights, obligations, or liabilities with respect to such
10    policies, and that the assuming insurer shall have all
11    such rights, obligations, and liabilities as if it were
12    the original insurer of such policies;
13        (3) release the transferring insurer from all
14    obligations or liabilities under policies that are part of
15    the subject business;
16        (4) authorize and order the transfer of property or
17    liabilities, including, but not limited to, the ceded
18    reinsurance of transferred policies and contracts on the
19    subject business, notwithstanding any non-assignment
20    provisions in any such reinsurance contracts. The subject
21    business shall vest in and become liabilities of the
22    assuming insurer;
23        (5) order that the applicant provide notice of the
24    transfer and novation in accordance with the notice
25    provisions in Section 15; and
26        (6) make such other provisions with respect to

 

 

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1    incidental, consequential, and supplementary matters as
2    are necessary to assure the insurance business transfer
3    plan is fully and effectively carried out.
4    (d) If the court finds that the insurance business
5transfer plan should not be approved, the court by its order
6may:
7        (1) deny the petition; or
8        (2) provide the applicant leave to file an amended
9    insurance business transfer plan and petition.
10    (e) Nothing in this Section in any way effects the right of
11appeal of any party.
 
12    Section 35. Rules. The Department may adopt rules that are
13consistent with the provisions of this Act.
 
14    Section 40. Confidentiality. The portion of the
15application for an insurance business transfer that would
16otherwise be confidential, including any documents, materials,
17communications, or other information submitted to the Director
18in contemplation of such application, shall not lose such
19confidentiality.
 
20    Section 45. Ongoing oversight. Insurers subject to this
21Act consent to the jurisdiction of the Director with regard to
22ongoing oversight of operations, management, and solvency
23relating to the transferred business, including the authority

 

 

SB1961- 19 -LRB103 28001 BMS 54380 b

1of the Director to conduct financial analysis and
2examinations.
 
3    Section 50. Fees and costs.
4    (a) At the time of filing its application with the
5Director for review and approval of an insurance business
6transfer plan, an applicant shall pay a nonrefundable fee of
7$10,000 to the Department.
8    (b) The Director may retain independent attorneys,
9appraisers, actuaries, certified public accountants,
10authorized consultants, or other professionals and specialists
11to assist Department personnel, or direct the applicant to
12retain such parties under the direction of the Department, in
13connection with the review required by this Act. The cost of
14retaining professionals and specialists shall be borne by the
15applicant.
16    (c) The transferring insurer and the assuming insurer
17shall jointly be obligated to pay any compensation, costs, and
18expenses of the independent expert and any consultants
19retained by the independent expert and approved by the
20Department incurred in fulfilling the obligations of the
21independent expert under this Act. Nothing in this Act shall
22be construed to create any duty for the independent expert to
23any party other than the Department or a court.
24    (d) Failure to pay any of the requisite fees or costs
25within 30 days after demand shall be grounds for the Director

 

 

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1to request that a court dismiss the petition for approval of
2the insurance business transfer plan before the filing of an
3implementation order by the court or, if after the filing of an
4implementation order, the Director may suspend or revoke the
5assuming insurer's certificate of authority to transact
6insurance business in this State.
 
7    Section 90. The Illinois Insurance Code is amended by
8changing Section 534.4 as follows:
 
9    (215 ILCS 5/534.4)  (from Ch. 73, par. 1065.84-4)
10    Sec. 534.4. "Insolvent company" means a company organized
11as a stock company, mutual company, reciprocal or Lloyds (a)
12which holds a certificate of authority to transact insurance
13in this State either at the time the policy was issued or when
14the insured event occurred, or any company which has assumed
15or has been allocated such policy obligation through merger,
16division, consolidation, or reinsurance, or an approved
17insurance business transfer plan, whether or not such assuming
18company held a certificate of authority to transact insurance
19in this State at the time such policy was issued or when the
20insured event occurred; and (b) against which a final Order of
21Liquidation with a finding of insolvency to which there is no
22further right of appeal has been entered by a court of
23competent jurisdiction in the company's State of domicile
24after the effective date of this Article.

 

 

SB1961- 21 -LRB103 28001 BMS 54380 b

1(Source: P.A. 100-1190, eff. 4-5-19.)