State of Illinois
2015 and 2016


Introduced 2/11/2015, by Sen. Antonio Muņoz


215 ILCS 5/173.1  from Ch. 73, par. 785.1

    Amends the Illinois Insurance Code in the Section concerning credit allowed a domestic ceding insurer. Provides that the assuming insurer shall provide or make certain information to be reported to the Director of Insurance available to the ceding insurer and that the assuming insurer may decline to release trade secrets or commercially sensitive information that would qualify as exempt from disclosure under the Freedom of Information Act. With regard to an assuming insurer's trust fund, provides that not later than February 28 of each year, the assuming insurer's chief executive officer or chief financial officer shall certify to the Director that the trust fund contains funds in an amount not less than the assuming insurer's liabilities attributable to reinsurance ceded by U.S. ceding insurers, and in addition, a trusteed surplus of not less than $20,000,000. Permits a reduction in the required trusteed surplus in specified circumstances. Provides that in the event that the provision concerning the reduction in the required trusteed surplus applies to the trust, the assuming insurer's chief executive officer or chief financial officer shall then certify to the Director that the trust fund contains funds in an amount not less than the assuming insurer's liabilities attributable to reinsurance ceded by U.S. ceding insurers, and in addition, a reduced trusteed surplus of not less than the amount that has been authorized by the regulatory authority having principal regulatory oversight of the trust. Makes changes to the provisions concerning financial strength ratings. Sets forth provisions concerning downgrades by rating agencies, the Director's authority, upgrading the rating of a certified reinsurer, and the revocation of the certification of a certified reinsurer. Makes other changes.

LRB099 07013 MLM 27246 b





SB0870LRB099 07013 MLM 27246 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 Section 173.1 as follows:
6    (215 ILCS 5/173.1)  (from Ch. 73, par. 785.1)
7    Sec. 173.1. Credit allowed a domestic ceding insurer.
8    (1) Except as otherwise provided under Article VIII 1/2 of
9this Code and related provisions of the Illinois Administrative
10Code, credit for reinsurance shall be allowed a domestic ceding
11insurer as either an admitted asset or a deduction from
12liability on account of reinsurance ceded only when the
13reinsurer meets the requirements of paragraph (A) subsection
14(1)(A) or (B) or (B-5) or (C) or (C-5) or (D) of this
15subsection (1). Credit shall be allowed under paragraph (A),
16subsection (1)(A) or (B), or (B-5) of this subsection (1) only
17as respects cessions of those kinds or classes of business in
18which the assuming insurer is licensed or otherwise permitted
19to write or assume in its state of domicile, or in the case of a
20U.S. branch of an alien assuming insurer, in the state through
21which it is entered and licensed to transact insurance or
22reinsurance. Credit shall be allowed under paragraph (B-5) or
23(C) of this subsection (1) (C) of this Section only if the



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1applicable requirements of paragraph (E) of this subsection (1)
2subsection (1)(E) have been satisfied.
3        (A) Credit shall be allowed when the reinsurance is
4    ceded to an assuming insurer that is authorized in this
5    State to transact the types of insurance ceded and has at
6    least $5,000,000 in capital and surplus.
7        (B) Credit shall be allowed when the reinsurance is
8    ceded to an assuming insurer that is accredited as a
9    reinsurer in this State. An accredited reinsurer is one
10    that:
11            (1) files with the Director evidence of its
12        submission to this State's jurisdiction;
13            (2) submits to this State's authority to examine
14        its books and records;
15            (3) is licensed to transact insurance or
16        reinsurance in at least one state, or in the case of a
17        U.S. branch of an alien assuming insurer is entered
18        through and licensed to transact insurance or
19        reinsurance in at least one state;
20            (4) files annually with the Director a copy of its
21        annual statement filed with the insurance department
22        of its state of domicile and a copy of its most recent
23        audited financial statement; and
24            (5) maintains a surplus as regards policyholders
25        in an amount that is not less than $20,000,000 and
26        whose accreditation has been approved by the Director.



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



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1        the valid claims of its United States policyholders and
2        ceding insurers, their assigns and successors in
3        interest. The assuming insurer shall report to the
4        Director information substantially the same as that
5        required to be reported on the NAIC annual and
6        quarterly financial statement by authorized insurers
7        and any other financial information that the Director
8        deems necessary to determine the financial condition
9        of the assuming insurer and the sufficiency of the
10        trust fund. The assuming insurer shall provide or make
11        the information available to the ceding insurer. The
12        assuming insurer may decline to release trade secrets
13        or commercially sensitive information that would
14        qualify as exempt from disclosure under the Freedom of
15        Information Act. The Director shall also make the
16        information publicly available, subject only to such
17        reasonable objections as might be raised to a request
18        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
24        any amendments to the trust have been approved by:
25                (i) the regulatory official of the state where
26            the trust is domiciled; or



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



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1        prior to the next following December 31.
2            Not later than February 28 of each year, the
3        assuming insurer's chief executive officer or chief
4        financial officer shall certify to the Director that
5        the trust fund contains funds in an amount not less
6        than the assuming insurer's liabilities (as reported
7        to the assuming insurer by its cedants) attributable to
8        reinsurance ceded by U.S. ceding insurers, and in
9        addition, a trusteed surplus of not less than
10        $20,000,000. In the event that item (a-5) of
11        subparagraph (3) of this paragraph (C) applies to the
12        trust, the assuming insurer's chief executive officer
13        or chief financial officer shall then certify to the
14        Director that the trust fund contains funds in an
15        amount not less than the assuming insurer's
16        liabilities (as reported to the assuming insurer by its
17        cedants) attributable to reinsurance ceded by U.S.
18        ceding insurers and, in addition, a reduced trusteed
19        surplus of not less than the amount that has been
20        authorized by the regulatory authority having
21        principal regulatory oversight of the trust.
22            (d) No later than February 28 of each year, an
23        assuming insurer that maintains a trust fund in
24        accordance with paragraph (C) of this subsection (1)
25        shall provide or make available, if requested by a
26        beneficiary under the trust fund, the following



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1        information to the assuming insurer's U.S. ceding
2        insurers or their assigns and successors in interest:
3                (i) a copy of the form of the trust agreement
4            and any trust amendments to the trust agreement
5            pertaining to the trust fund;
6                (ii) a copy of the annual and quarterly
7            financial information, and its most recent audited
8            financial statement provided to the Director by
9            the assuming insurer, including any exhibits and
10            schedules thereto;
11                (iii) any financial information provided to
12            the Director by the assuming insurer that the
13            Director has deemed necessary to determine the
14            financial condition of the assuming insurer and
15            the sufficiency of the trust fund;
16                (iv) a copy of any annual and quarterly
17            financial information provided to the Director by
18            the trustee of the trust fund maintained by the
19            assuming insurer, including any exhibits and
20            schedules thereto;
21                (v) a copy of the information required to be
22            reported by the trustee of the trust to the
23            Director under the provisions of paragraph (C) of
24            this subsection (1); and
25                (vi) a written certification that the trust
26            fund consists of funds in trust in an amount not



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1            less than the assuming insurer's liabilities
2            attributable to reinsurance liabilities (as
3            reported to the assuming insurer by its cedants)
4            attributable to reinsurance ceded by U.S. ceding
5            insurers and, in addition, a trusteed surplus of
6            not less than $20,000.000.
7            (3) The following requirements apply to the
8        following categories of assuming insurer:
9                (a) The trust fund for a single assuming
10            insurer shall consist of funds in trust in an
11            amount not less than the assuming insurer's
12            liabilities attributable to reinsurance ceded by
13            U.S. ceding insurers, and in addition, the
14            assuming insurer shall maintain a trusteed surplus
15            of not less than $20,000,000, except as provided in
16            item (a-5) of subparagraph (3) of this paragraph
17            (C).
18                (a-5) At any time after the assuming insurer
19            has permanently discontinued underwriting new
20            business secured by the trust for at least 3 full
21            years, the Director with principal regulatory
22            oversight of the trust may authorize a reduction in
23            the required trusteed surplus, but only after a
24            finding, based on an assessment of the risk, that
25            the new required surplus level is adequate for the
26            protection of U.S. ceding insurers, policyholders,



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



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



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



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1                    (v) within 90 days after its financial
2                statements are due to be filed with the group's
3                domiciliary regulator, make available to the
4                Director an annual certification of each
5                underwriter member's solvency by the member's
6                domiciliary regulator and financial statements
7                of each underwriter member of the group
8                prepared by its independent public accountant.
9        (C-5) Credit shall be allowed when the reinsurance is
10    ceded to an assuming insurer that has been certified by the
11    Director as a reinsurer in this State and secures its
12    obligations in accordance with the requirements of this
13    paragraph (C-5).
14            (1) In order to be eligible for certification, the
15        assuming insurer shall meet the following
16        requirements:
17                (a) the assuming insurer must be domiciled and
18            licensed to transact insurance or reinsurance in a
19            qualified jurisdiction, as determined by the
20            Director pursuant to subparagraph (3) of this
21            paragraph (C-5);
22                (b) the assuming insurer must maintain minimum
23            capital and surplus, or its equivalent, in an
24            amount not less than $250,000,000 or such greater
25            amount as determined by the Director pursuant to
26            regulation;



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



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



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



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1            process in determining qualified jurisdictions. If
2            the Director approves a jurisdiction as qualified
3            that does not appear on the list of qualified
4            jurisdictions, then the Director shall provide
5            thoroughly documented justification in accordance
6            with criteria to be developed under regulations.
7                (c) U.S. jurisdictions that meet the
8            requirement for accreditation under the NAIC
9            financial standards and accreditation program
10            shall be recognized as qualified jurisdictions.
11                (d) If a certified reinsurer's domiciliary
12            jurisdiction ceases to be a qualified
13            jurisdiction, then the Director may suspend the
14            reinsurer's certification indefinitely, in lieu of
15            revocation.
16            (4) If an applicant for certification has been
17        certified as a reinsurer in an NAIC accredited
18        jurisdiction, then the Director may defer to that
19        jurisdiction's certification, and such assuming
20        insurer shall be considered to be a certified reinsurer
21        in this State, but only upon the Director's assignment
22        of an Illinois rating, which shall be made based on the
23        requirements of subparagraph (5) of this paragraph
24        (C-5).
25            (5) The Director shall assign a rating to each
26        certified reinsurer pursuant to rules adopted by the



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



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



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1                Service ratings Ba1, Ba2, Ba3, B1, B2, B3, Caa,
2                Ca, or C; and Fitch Ratings ratings BB+, BB,
3                BB- B+, B, B-, CCC+, CCC, CCC-, or D.
4                A failure to obtain or maintain at least 2
5            financial strength ratings from acceptable rating
6            agencies shall result in loss of eligibility for
7            certification.
8                (b) The business practices of the certified
9            reinsurer in dealing with its ceding insurers,
10            including its record of compliance with
11            reinsurance contractual terms and obligations.
12                (c) For certified reinsurers domiciled in the
13            U.S., a review of the most recent applicable NAIC
14            Annual Statement Blank, either Schedule F (for
15            property and casualty reinsurers) or Schedule S
16            (for life and health reinsurers).
17                (d) For certified reinsurers not domiciled in
18            the U.S., a review annually of Form CR-F (for
19            property and casualty reinsurers) or Form CR-S
20            (for life and health reinsurers).
21                (e) The reputation of the certified reinsurer
22            for prompt payment of claims under reinsurance
23            agreements, based on an analysis of ceding
24            insurers' Schedule F reporting of overdue
25            reinsurance recoverables, including the proportion
26            of obligations that are more than 90 days past due



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



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



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1        insurers, provided that the Director shall, at a
2        minimum, increase the security the certified reinsurer
3        is required to post by one rating level under item (a)
4        of subparagraph (8) of this paragraph (C-5) if the
5        Director finds that:
6                (a) more than 15% of the certified reinsurer's
7            ceding insurance clients have overdue reinsurance
8            recoverables on paid losses of 90 days or more that
9            are not in dispute and that exceed $100,000 for
10            each cedent; or
11                (b) the aggregate amount of reinsurance
12            recoverables on paid losses that are not in dispute
13            that are overdue by 90 days or more exceeds
14            $50,000,000.
15            (7) The Director shall publish a list of all
16        certified reinsurers and their ratings.
17            (8) A certified reinsurer shall secure obligations
18        assumed from U.S. ceding insurers under this
19        subsection (1) at a level consistent with its rating.
20                (a) The amount of security required in order
21            for full credit to be allowed shall correspond with
22            the applicable ratings category:
23                    Secure - 1: 0%.
24                    Secure - 2: 10%.
25                    Secure - 3: 20%.
26                    Secure - 4: 50%.



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1                    Secure - 5: 75%.
2                    Vulnerable - 6: 100%.
3                (b) Nothing in this subparagraph (8) shall
4            prohibit the parties to a reinsurance agreement
5            from agreeing to provisions establishing security
6            requirements that exceed the minimum security
7            requirements established for certified reinsurers
8            under this Section.
9                (c) In order for a domestic ceding insurer to
10            qualify for full financial statement credit for
11            reinsurance ceded to a certified reinsurer, the
12            certified reinsurer shall maintain security in a
13            form acceptable to the Director and consistent
14            with the provisions of subsection (2) of this
15            Section, or in a multibeneficiary trust in
16            accordance with paragraph (C) of this subsection
17            (1), except as otherwise provided in this
18            subparagraph (8).
19                (d) If a certified reinsurer maintains a trust
20            to fully secure its obligations subject to
21            paragraph (C) of this subsection (1), and chooses
22            to secure its obligations incurred as a certified
23            reinsurer in the form of a multibeneficiary trust,
24            then the certified reinsurer shall maintain
25            separate trust accounts for its obligations
26            incurred under reinsurance agreements issued or



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



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



SB0870- 26 -LRB099 07013 MLM 27246 b

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



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



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



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



SB0870- 30 -LRB099 07013 MLM 27246 b

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



SB0870- 31 -LRB099 07013 MLM 27246 b

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



SB0870- 32 -LRB099 07013 MLM 27246 b

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



SB0870- 33 -LRB099 07013 MLM 27246 b

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



SB0870- 34 -LRB099 07013 MLM 27246 b

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



SB0870- 35 -LRB099 07013 MLM 27246 b

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



SB0870- 36 -LRB099 07013 MLM 27246 b

1        with fiduciary powers;
2            (2) is regulated, supervised, and examined by
3        federal or state authorities having regulatory
4        authority over banks and trust companies; and
5            (3) is not affiliated with the assuming company,
6        however, if the subject of the reinsurance contract is
7        insurance written pursuant to Section 155.51 of this
8        Code, the financial institution may be affiliated with
9        the assuming company with the prior approval of the
10        Director.
11        (C) Except as set forth in subparagraph (11) of
12    paragraph (C-5) of subsection (1) of this Section as to
13    cessions by certified reinsurers, this amendatory Act of
14    the 99th General Assembly shall apply to all cessions after
15    the effective date of this amendatory Act of the 99th
16    General Assembly under reinsurance agreements that have an
17    inception, anniversary, or renewal date not less than 6
18    months after the effective date of this amendatory Act of
19    the 99th General Assembly.
20        (D) The Department shall adopt rules implementing the
21    provisions of this Article.
22(Source: P.A. 90-381, eff. 8-14-97.)