98TH GENERAL ASSEMBLY
State of Illinois
2013 and 2014
SB1729

 

Introduced 2/15/2013, by Sen. William R. Haine

 

SYNOPSIS AS INTRODUCED:
 
215 ILCS 5/35A-5
215 ILCS 5/35A-10
215 ILCS 5/35A-15
215 ILCS 5/35A-30
215 ILCS 5/35A-60

    Amends the Illinois Insurance Code in the Article concerning risk-based capital. Sets forth a definition of "fraternal benefit society" and makes a change in the definition of "negative trend". Includes fraternal benefit societies in the provisions concerning RBC Reports and mandatory control level events. Makes a change to one of the definitions of a company action level event to include the filing of an RBC Report by an insurer that indicates that the insurer, if a life, health, or life and health insurer or a fraternal benefit society (rather than a life, health, or life and health insurer), has total adjusted capital that is greater than or equal to its company action level RBC, but less than the product of its authorized control level RBC and 3.0 (rather than 2.5) and has a negative trend. Sets forth a provision concerning the RBC Reports required to be filed by fraternal benefit societies. Effective immediately.


LRB098 09834 RPM 39990 b

 

 

A BILL FOR

 

SB1729LRB098 09834 RPM 39990 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 5. The Illinois Insurance Code is amended by
5changing Sections 35A-5, 35A-10, 35A-15, 35A-30, and 35A-60 as
6follows:
 
7    (215 ILCS 5/35A-5)
8    Sec. 35A-5. Definitions. As used in this Article, the terms
9listed in this Section have the meaning given herein.
10    "Adjusted RBC Report" means an RBC Report that has been
11adjusted by the Director in accordance with subsection (f) of
12Section 35A-10.
13    "Authorized control level RBC" means the number determined
14under the risk-based capital formula in accordance with the RBC
15Instructions.
16    "Company action level RBC" means the product of 2.0 and the
17insurer's authorized control level RBC.
18    "Corrective Order" means an order issued by the Director in
19accordance with Article XII 1/2 specifying corrective actions
20that the Director determines are required.
21    "Domestic insurer" means any insurance company domiciled
22in this State under Article II, Article III, Article III 1/2,
23or Article IV or a health organization as defined by this

 

 

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1Article, except this shall include only those health
2maintenance organizations that are "domestic companies" in
3accordance with Section 5-3 of the Health Maintenance
4Organization Act and only those limited health service
5organizations that are "domestic companies" in accordance with
6Section 4003 of the Limited Health Service Organization Act.
7    "Fraternal benefit society" means any insurance company
8licensed under Article XVII of this Code.
9    "Foreign insurer" means any foreign or alien insurance
10company licensed under Article VI that is not domiciled in this
11State and any health maintenance organization that is not a
12"domestic company" in accordance with Section 5-3 of the Health
13Maintenance Organization Act and any limited health service
14organization that is not a "domestic company" in accordance
15with Section 4003 of the Limited Health Service Organization
16Act.
17    "Health organization" means an entity operating under a
18certificate of authority issued pursuant to the Health
19Maintenance Organization Act, the Dental Service Plan Act, the
20Limited Health Service Organization Act, or the Voluntary
21Health Services Plans Act, unless the entity is otherwise
22defined as a "life, health, or life and health insurer"
23pursuant to this Act.
24    "Life, health, or life and health insurer" means an
25insurance company that has authority to transact the kinds of
26insurance described in either or both clause (a) or clause (b)

 

 

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1of Class 1 of Section 4 or a licensed property and casualty
2insurer writing only accident and health insurance.
3    "Mandatory control level RBC" means the product of 0.70 and
4the insurer's authorized control level RBC.
5    "NAIC" means the National Association of Insurance
6Commissioners.
7    "Negative trend" means, with respect to a life, health, or
8life and health insurer or a fraternal benefit society, a
9negative trend over a period of time, as determined in
10accordance with the trend test calculation included in the Life
11or Fraternal RBC Instructions.
12    "Property and casualty insurer" means an insurance company
13that has authority to transact the kinds of insurance in either
14or both Class 2 or Class 3 of Section 4 or a licensed insurer
15writing only insurance authorized under clause (c) of Class 1,
16but does not include monoline mortgage guaranty insurers,
17financial guaranty insurers, and title insurers.
18    "RBC" means risk-based capital.
19    "RBC Instructions" means the RBC Report including
20risk-based capital instructions adopted by the NAIC as those
21instructions may be amended by the NAIC from time to time in
22accordance with the procedures adopted by the NAIC.
23    "RBC level" means an insurer's company action level RBC,
24regulatory action level RBC, authorized control level RBC, or
25mandatory control level RBC.
26    "RBC Plan" means a comprehensive financial plan containing

 

 

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1the elements specified in subsection (b) of Section 35A-15.
2    "RBC Report" means the risk-based capital report required
3under Section 35A-10.
4    "Receivership" means conservation, rehabilitation, or
5liquidation under Article XIII.
6    "Regulatory action level RBC" means the product of 1.5 and
7the insurer's authorized control level RBC.
8    "Revised RBC Plan" means an RBC Plan rejected by the
9Director and revised by the insurer with or without the
10Director's recommendations.
11    "Total adjusted capital" means the sum of (1) an insurer's
12statutory capital and surplus and (2) any other items that the
13RBC Instructions may provide.
14(Source: P.A. 90-794, eff. 8-14-98; 91-549, eff. 8-14-99.)
 
15    (215 ILCS 5/35A-10)
16    Sec. 35A-10. RBC Reports.
17    (a) On or before each March 1 (the "filing date"), every
18domestic insurer shall prepare and submit to the Director a
19report of its RBC levels as of the end of the previous calendar
20year in the form and containing the information required by the
21RBC Instructions. Every domestic insurer shall also file its
22RBC Report with the NAIC in accordance with the RBC
23Instructions. In addition, if requested in writing by the chief
24insurance regulatory official of any state in which it is
25authorized to do business, every domestic insurer shall file

 

 

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1its RBC Report with that official no later than the later of 15
2days after the insurer receives the written request or the
3filing date.
4    (b) A life, health, or life and health insurer's or
5fraternal benefit society's RBC shall be determined under the
6formula set forth in the RBC Instructions. The formula shall
7take into account (and may adjust for the covariance between):
8        (1) the risk with respect to the insurer's assets;
9        (2) the risk of adverse insurance experience with
10    respect to the insurer's liabilities and obligations;
11        (3) the interest rate risk with respect to the
12    insurer's business; and
13        (4) all other business risks and other relevant risks
14    set forth in the RBC Instructions.
15These risks shall be determined in each case by applying the
16factors in the manner set forth in the RBC Instructions.
17    (c) A property and casualty insurer's RBC shall be
18determined in accordance with the formula set forth in the RBC
19Instructions. The formula shall take into account (and may
20adjust for the covariance between):
21        (1) asset risk;
22        (2) credit risk;
23        (3) underwriting risk; and
24        (4) all other business risks and other relevant risks
25    set forth in the RBC Instructions.
26These risks shall be determined in each case by applying the

 

 

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1factors in the manner set forth in the RBC Instructions.
2    (d) A health organization's RBC shall be determined in
3accordance with the formula set forth in the RBC Instructions.
4The formula shall take the following into account (and may
5adjust for the covariance between):
6        (1) asset risk;
7        (2) credit risk;
8        (3) underwriting risk; and
9        (4) all other business risks and other relevant risks
10    set forth in the RBC Instructions.
11These risks shall be determined in each case by applying the
12factors in the manner set forth in the RBC Instructions.
13    (e) An excess of capital over the amount produced by the
14risk-based capital requirements contained in this Code and the
15formulas, schedules, and instructions referenced in this Code
16is desirable in the business of insurance. Accordingly,
17insurers should seek to maintain capital above the RBC levels
18required by this Code. Additional capital is used and useful in
19the insurance business and helps to secure an insurer against
20various risks inherent in, or affecting, the business of
21insurance and not accounted for or only partially measured by
22the risk-based capital requirements contained in this Code.
23    (f) If a domestic insurer files an RBC Report that, in the
24judgment of the Director, is inaccurate, the Director shall
25adjust the RBC Report to correct the inaccuracy and shall
26notify the insurer of the adjustment. The notice shall contain

 

 

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1a statement of the reason for the adjustment.
2(Source: P.A. 91-549, eff. 8-14-99.)
 
3    (215 ILCS 5/35A-15)
4    Sec. 35A-15. Company action level event.
5    (a) A company action level event means any of the following
6events:
7        (1) The filing of an RBC Report by an insurer that
8    indicates that:
9            (A) the insurer's total adjusted capital is
10        greater than or equal to its regulatory action level
11        RBC, but less than its company action level RBC;
12            (B) the insurer, if a life, health, or life and
13        health insurer or a fraternal benefit society, has
14        total adjusted capital that is greater than or equal to
15        its company action level RBC, but less than the product
16        of its authorized control level RBC and 3.0 2.5 and has
17        a negative trend; or
18            (C) the insurer, if a property and casualty
19        insurer, has total adjusted capital that is greater
20        than or equal to its company action level RBC, but less
21        than the product of its authorized control level RBC
22        and 3.0 and triggers the trend test determined in
23        accordance with the trend test calculation included in
24        the property and casualty RBC Instructions.
25        (2) The notification by the Director to the insurer of

 

 

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1    an Adjusted RBC Report that indicates an event described in
2    paragraph (1), provided the insurer does not challenge the
3    Adjusted RBC Report under Section 35A-35.
4        (3) The notification by the Director to the insurer
5    that the Director has, after a hearing, rejected the
6    insurer's challenge under Section 35A-35 to an Adjusted RBC
7    Report that indicates the event described in paragraph (1).
8    (b) In the event of a company action level event, the
9insurer shall prepare and submit to the Director an RBC Plan
10that does all of the following:
11        (1) Identifies the conditions that contribute to the
12    company action level event.
13        (2) Contains proposed corrective actions that the
14    insurer intends to take and that are expected to result in
15    the elimination of the company action level event. A health
16    organization is not prohibited from proposing recognition
17    of a parental guarantee or a letter of credit to eliminate
18    the company action level event; however the Director shall,
19    at his discretion, determine whether or the extent to which
20    the proposed parental guarantee or letter of credit is an
21    acceptable part of a satisfactory RBC Plan or Revised RBC
22    Plan.
23        (3) Provides projections of the insurer's financial
24    results in the current year and at least the 4 succeeding
25    years, both in the absence of proposed corrective actions
26    and giving effect to the proposed corrective actions,

 

 

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1    including projections of statutory operating income, net
2    income, capital, and surplus. The projections for both new
3    and renewal business may include separate projections for
4    each major line of business and separately identify each
5    significant income, expense, and benefit component.
6        (4) Identifies the key assumptions affecting the
7    insurer's projections and the sensitivity of the
8    projections to the assumptions.
9        (5) Identifies the quality of, and problems associated
10    with, the insurer's business including, but not limited to,
11    its assets, anticipated business growth and associated
12    surplus strain, extraordinary exposure to risk, mix of
13    business, and use of reinsurance, if any, in each case.
14    (c) The insurer shall submit the RBC Plan to the Director
15within 45 days after the company action level event occurs or
16within 45 days after the Director notifies the insurer that the
17Director has, after a hearing, rejected its challenge under
18Section 35A-35 to an Adjusted RBC Report.
19    (d) Within 60 days after an insurer submits an RBC Plan to
20the Director, the Director shall notify the insurer whether the
21RBC Plan shall be implemented or is, in the judgment of the
22Director, unsatisfactory. If the Director determines the RBC
23Plan is unsatisfactory, the notification to the insurer shall
24set forth the reasons for the determination and may set forth
25proposed revisions that will render the RBC Plan satisfactory
26in the judgment of the Director. Upon notification from the

 

 

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1Director, the insurer shall prepare a Revised RBC Plan, which
2may incorporate by reference any revisions proposed by the
3Director. The insurer shall submit the Revised RBC Plan to the
4Director within 45 days after the Director notifies the insurer
5that the RBC Plan is unsatisfactory or within 45 days after the
6Director notifies the insurer that the Director has, after a
7hearing, rejected its challenge under Section 35A-35 to the
8determination that the RBC Plan is unsatisfactory.
9    (e) In the event the Director notifies an insurer that its
10RBC Plan or Revised RBC Plan is unsatisfactory, the Director
11may, at the Director's discretion and subject to the insurer's
12right to a hearing under Section 35A-35, specify in the
13notification that the notification constitutes a regulatory
14action level event.
15    (f) Every domestic insurer that files an RBC Plan or
16Revised RBC Plan with the Director shall file a copy of the RBC
17Plan or Revised RBC Plan with the chief insurance regulatory
18official in any state in which the insurer is authorized to do
19business if that state has a law substantially similar to the
20confidentiality provisions in subsection (a) of Section 35A-50
21and if that official requests in writing a copy of the plan.
22The insurer shall file a copy of the RBC Plan or Revised RBC
23Plan in that state no later than the later of 15 days after
24receiving the written request for the copy or the date on which
25the RBC Plan or Revised RBC Plan is filed under subsection (c)
26or (d) of this Section.

 

 

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1(Source: P.A. 97-955, eff. 8-14-12.)
 
2    (215 ILCS 5/35A-30)
3    Sec. 35A-30. Mandatory control level event.
4    (a) A mandatory control level event means any of the
5following events:
6        (1) The filing of an RBC Report that indicates that the
7    insurer's total adjusted capital is less than its mandatory
8    control level RBC.
9        (2) The notification by the Director to the insurer of
10    an Adjusted RBC Report that indicates the event described
11    in paragraph (1), provided the insurer does not challenge
12    the Adjusted RBC Report under Section 35A-35.
13        (3) The notification by the Director to the insurer
14    that the Director has, after a hearing, rejected the
15    insurer's challenge under Section 35A-35 to the Adjusted
16    RBC Report that indicates the event described in paragraph
17    (1).
18    (b) In the event of a mandatory control level event with
19respect to a life, health, or life and health insurer or a
20fraternal benefit society, the Director shall take actions
21necessary to place the insurer in receivership under Article
22XIII. In that event, the mandatory control level event shall be
23deemed sufficient grounds for the Director to take action under
24Article XIII, and the Director shall have the rights, powers,
25and duties with respect to the insurer that are set forth in

 

 

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1Article XIII. If the Director takes action under this
2subsection regarding an Adjusted RBC Report, the insurer shall
3be entitled to the protections of Article XIII. If the Director
4finds that there is a reasonable expectation that the mandatory
5control level event may be eliminated within 90 days after it
6occurs, the Director may delay action for not more than 90 days
7after the mandatory control level event.
8    (c) In the case of a mandatory control level event with
9respect to a property and casualty insurer, the Director shall
10take the actions necessary to place the insurer in receivership
11under Article XIII or, in the case of an insurer that is
12writing no business and that is running-off its existing
13business, may allow the insurer to continue its run-off under
14the supervision of the Director. In either case, the mandatory
15control level event is deemed sufficient grounds for the
16Director to take action under Article XIII, and the Director
17has the rights, powers, and duties with respect to the insurer
18that are set forth in Article XIII. If the Director takes
19action regarding an Adjusted RBC Report, the insurer shall be
20entitled to the protections of Article XIII. If the Director
21finds that there is a reasonable expectation that the mandatory
22control level event may be eliminated within 90 days after it
23occurs, the Director may delay action for not more than 90 days
24after the mandatory control level event.
25    (d) In the case of a mandatory control level event with
26respect to a health organization, the Director shall take the

 

 

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1actions necessary to place the insurer in receivership under
2Article XIII or, in the case of an insurer that is writing no
3business and that is running-off its existing business, may
4allow the insurer to continue its run-off under the supervision
5of the Director. In either case, the mandatory control level
6event is deemed sufficient grounds for the Director to take
7action under Article XIII, and the Director has the rights,
8powers, and duties with respect to the insurer that are set
9forth in Article XIII. If the Director takes action regarding
10an Adjusted RBC Report, the insurer shall be entitled to the
11protections of Article XIII. If the Director finds that there
12is a reasonable expectation that the mandatory control level
13event may be eliminated within 90 days after it occurs, the
14Director may delay action for not more than 90 days after the
15mandatory control level event.
16(Source: P.A. 91-549, eff. 8-14-99.)
 
17    (215 ILCS 5/35A-60)
18    Sec. 35A-60. Phase-in of Article.
19    (a) For RBC Reports filed with respect to the December 31,
201993 annual statement, instead of the provisions of Sections
2135A-15, 35A-20, 35A-25, and 35A-30, the following provisions
22apply:
23        (1) In the event of a company action level event, the
24    Director shall take no action under this Article.
25        (2) In the event of a regulatory action level event

 

 

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1    under paragraph (1), (2), or (3) of subsection (a) of
2    Section 35A-20, the Director shall take the actions
3    required under Section 35A-15.
4        (3) In the event of a regulatory action level event
5    under paragraph (4), (5), (6), (7), (8), or (9) of
6    subsection (a) of Section 35A-20 or an authorized control
7    level event, the Director shall take the actions required
8    under Section 35A-20.
9        (4) In the event of a mandatory control level event,
10    the Director shall take the actions required under Section
11    35A-25.
12    (b) For RBC Reports required to be filed by property and
13casualty insurers with respect to the December 31, 1995 annual
14statement, instead of the provisions of Section 35A-15, 35A-20,
1535A-25, and 35A-30, the following provisions apply:
16        (1) In the event of a company action level event with
17    respect to a domestic insurer, the Director shall take no
18    regulatory action under this Article.
19        (2) In the event of a regulatory action level event
20    under paragraph (1), (2) or (3) of subsection (a) of
21    Section 35A-20, the Director shall take the actions
22    required under Section 35A-15.
23        (3) In the event of a regulatory action level event
24    under paragraph (4), (5), (6), (7), (8), or (9) of
25    subsection (a) of Section 35A-20 or an authorized control
26    level event, the Director shall take the actions required

 

 

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1    under Section 35A-20.
2        (4) In the event of a mandatory control level event,
3    the Director shall take the actions required under Section
4    35A-25.
5    (c) For RBC Reports required to be filed by health
6organizations with respect to the December 31, 1999 annual
7statement and the December 31, 2000 annual statement, instead
8of the provisions of Sections 35A-15, 35A-20, 35A-25, and
935A-30, the following provisions apply:
10        (1) In the event of a company action level event with
11    respect to a domestic insurer, the Director shall take no
12    regulatory action under this Article.
13        (2) In the event of a regulatory action level event
14    under paragraph (1), (2), or (3) of subsection (a) of
15    Section 35A-20, the Director shall take the actions
16    required under Section 35A-15.
17        (3) In the event of a regulatory action level event
18    under paragraph (4), (5), (6), (7), (8), or (9) of
19    subsection (a) of Section 35A-20 or an authorized control
20    level event, the Director shall take the actions required
21    under Section 35A-20.
22        (4) In the event of a mandatory control level event,
23    the Director shall take the actions required under Section
24    35A-25.
25    This subsection does not apply to a health organization
26that provides or arranges for a health care plan under which

 

 

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1enrollees may access health care services from contracted
2providers without a referral from their primary care physician.
3    Nothing in this subsection shall preclude or limit other
4powers or duties of the Director under any other laws.
5    (d) For RBC Reports required to be filed by fraternal
6benefit societies with respect to the December 31, 2013 annual
7statement and the December 31, 2014 annual statement, instead
8of the provisions of Sections 35A-15, 35A-20, 35A-25, and
935A-30, the following provisions apply:
10        (1) In the event of a company action level event with
11    respect to a domestic insurer, the Director shall take no
12    regulatory action under this Article.
13        (2) In the event of a regulatory action level event
14    under paragraph (1), (2), or (3) of subsection (a) of
15    Section 35A-20, the Director shall take the actions
16    required under Section 35A-15.
17        (3) In the event of a regulatory action level event
18    under paragraph (4), (5), (6), (7), (8), or (9) of
19    subsection (a) of Section 35A-20 or an authorized control
20    level event, the Director shall take the actions required
21    under Section 35A-20.
22        (4) In the event of a mandatory control level event,
23    the Director shall take the actions required under Section
24    35A-25.
25    Nothing in this subsection shall preclude or limit other
26powers or duties of the Director under any other laws.

 

 

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1(Source: P.A. 91-549, eff. 8-14-99.)
 
2    Section 99. Effective date. This Act takes effect upon
3becoming law.