HB5534 EngrossedLRB102 26077 BMS 35542 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 domiciled in this
12State that assumes or seeks to assume policies from a
13transferring insurer pursuant to this Act.
14    "Department" means the Department of Insurance.
15    "Director" means the Director of Insurance.
16    "Implementation order" means an order issued by a court
17under this Act.
18    "Insurance business transfer" means a transfer and
19novation that, once approved pursuant to this Act, transfers
20insurance obligations or risks, or both, of existing or
21in-force contracts of insurance or reinsurance from a
22transferring insurer to an assuming insurer, and effects a
23novation of the transferred contracts of insurance or
24reinsurance with the result that the assuming insurer becomes
25directly liable to the policyholders of the transferring



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1insurer and the transferring insurer's insurance obligations
2or risks, or both, under the contracts are extinguished.
3    "Insurance business transfer plan" means the plan
4submitted to the Department to accomplish the transfer and
5novation pursuant to an insurance business transfer, including
6any associated transfer of assets and rights from or on behalf
7of the transferring insurer to the assuming insurer.
8    "Independent expert" means an impartial person who has no
9financial interest in either the assuming insurer or
10transferring insurer, has not been employed by or acted as an
11officer, director, consultant, or other independent contractor
12for either the assuming insurer or transferring insurer within
13the past 12 months, is not appointed by the Director to assist
14in any capacity in any insurer rehabilitation or delinquency
15proceeding, is receiving no compensation in connection with
16the transaction governed by this Act other than a fee based on
17a fixed or hourly basis that is not contingent on the approval
18or consummation of an insurance business transfer, and
19provides proof of insurance coverage that is satisfactory to
20the Director.
21    "Insurer" means an insurance, surety, or reinsurance
22company, corporation, partnership, association, society,
23order, individual, or aggregation of individuals engaging in
24or proposing or attempting to engage in any kind of insurance
25or surety business, including the exchanging of reciprocal or
26inter-insurance contracts between individuals, partnerships,



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1and corporations.
2    "Policy" means a policy, annuity contract, certificate of
3insurance, or a contract of reinsurance pursuant to which an
4insurer agrees to assume an obligation or risk, or both, of the
5policyholder or to make payments on behalf of, or to, the
6policyholder or its beneficiaries, including property,
7casualty, life, health, and any other line of insurance the
8Director approves by rule as suitable for an insurance
9business transfer.
10    "Policyholder" means an insured or a reinsured under a
11policy that is part of the subject business.
12    "Subject business" means the policy or policies that are
13the subject of the insurance business transfer plan.
14    "Transfer and novation" means the transfer of insurance
15obligations or risks, or both, of existing or in-force
16policies from a transferring insurer to an assuming insurer
17that is intended to effect a novation of the transferred
18policies with the result that the assuming insurer becomes
19directly liable to the policyholders of the transferring
20insurer on the transferred policies and the transferring
21insurer's obligations or risks, or both, under the transferred
22policies are extinguished.
23    "Transferring insurer" means an insurer or reinsurer that
24transfers and novates or seeks to transfer and novate
25obligations or risks, or both, under one or more policies to an
26assuming insurer pursuant to an insurance business transfer



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



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1    Insurance Guaranty Associations, and all state insurance
2    guaranty associations for the states:
3            (A) in which the applicant holds or has ever held a
4        certificate of authority; and
5            (B) in which policies that are part of the subject
6        business were issued or policyholders currently
7        reside;
8        (3) to reinsurers of the applicant pursuant to the
9    notice provisions of the reinsurance agreements applicable
10    to the policies that are part of the subject business or,
11    where an agreement has no provision for notice, by
12    internationally recognized delivery service;
13        (4) to all policyholders holding policies that are
14    part of the subject business at their last known address
15    as indicated by the records of the applicant or to the
16    address to which premium notices or other policy documents
17    are sent. A notice of transfer shall also be sent to the
18    transferring insurer's agents or brokers of record on the
19    subject business; and
20        (5) by publication in a newspaper of general
21    circulation in the state in which the applicant has its
22    principal place of business and in such other publications
23    that the Director requires.
24    (b) If notice is given in accordance with this Section,
25any orders under this Act shall be conclusive with respect to
26all intended recipients of the notice whether or not they



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1receive actual notice.
2    (c) If this Act requires that the applicant provide notice
3but the Director has been named receiver of the applicant, the
4Director shall provide the required notice.
5    (d) Notice under this Section may take the form of
6first-class mail, facsimile, or electronic notice.
7    Section 20. Application procedure.
8    (a) An insurance business transfer plan shall be filed by
9the applicant with the Director for his or her review and
10approval. The plan may be supplemented by other information
11deemed necessary by the Director, and shall contain the
12following information or an explanation as to why the
13following information is not included:
14        (1) the name, address, and telephone number of the
15    transferring insurer and the assuming insurer and their
16    respective direct and indirect controlling persons, if
17    any;
18        (2) a summary of the insurance business transfer plan;
19        (3) an identification and description of the subject
20    business;
21        (4) the most recent audited financial statements and
22    statutory annual and quarterly reports of the transferring
23    insurer and the assuming insurer filed with their
24    domiciliary regulator;
25        (5) the most recent actuarial report and opinion that



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



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



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



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



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1    company;
2        (3) review of the plans or proposals the assuming
3    insurer has with respect to the administration of the
4    policies subject to the proposed transfer;
5        (4) whether the proposed transfer has a material,
6    adverse impact on the policyholders, reinsurers, and
7    claimants of the transferring and the assuming insurers;
8        (5) analysis of the assuming insurer's corporate
9    governance structure to ensure that there is proper board
10    and management oversight and expertise to manage the
11    subject business; and
12        (6) any other information that the Director requests
13    in order to review the insurance business transfer.
14    (c) The Director shall have 60 business days after the
15date of receipt of a complete insurance business transfer plan
16to review the plan to determine if the applicant is authorized
17to submit it to a court. The Director may extend the 60-day
18review period for an additional 30 business days.
19    (d) The Director shall authorize the submission of the
20insurance business transfer plan to a court unless he or she
21finds that the insurance business transfer would have a
22material adverse impact on the interests of policyholders,
23reinsurers, or claimants that are part of the subject
25    (e) If the Director determines that the insurance business
26transfer would have a material adverse impact on the interests



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1of policyholders, reinsurers, or claimants that are part of
2the subject business, he or she shall notify the applicant and
3specify any modifications, supplements, or amendments and any
4additional information or documentation with respect to the
5plan that must be provided to the Director before he or she
6shall allow the applicant to proceed with the court filing.
7    (f) The applicant shall have 30 days following the date
8the Director notifies him or her of a determination under
9subsection (e) to file an amended insurance business transfer
10plan providing the modifications, supplements, or amendments
11and additional information or documentation as requested by
12the Director. If necessary, the applicant may request in
13writing an extension of time of 30 days. If the applicant does
14not make an amended filing within the time period provided in
15this subsection, including any extension of time granted by
16the Director, the insurance business transfer plan filing
17shall terminate and a subsequent filing by the applicant shall
18be considered a new filing which shall require compliance with
19all provisions of this Act as if the prior filing had never
20been made.
21    (g) The Director's review period in subsection (c) shall
22recommence when the modification, supplement, amendment, or
23additional information requested in subsection (e) is
25    (h) If the Director determines that the plan may proceed
26with the court filing, the Director shall confirm that fact in



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



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



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



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



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1        (5) order that the applicant provide notice of the
2    transfer and novation in accordance with the notice
3    provisions in Section 15; and
4        (6) make such other provisions with respect to
5    incidental, consequential, and supplementary matters as
6    are necessary to assure the insurance business transfer
7    plan is fully and effectively carried out.
8    (d) If the court finds that the insurance business
9transfer plan should not be approved, the court by its order
11        (1) deny the petition; or
12        (2) provide the applicant leave to file an amended
13    insurance business transfer plan and petition.
14    (e) Nothing in this Section in any way effects the right of
15appeal of any party.
16    Section 35. Rules. The Department shall adopt rules that
17are consistent with the provisions of this Act. No insurance
18business transfer plan shall be approved in this State unless
19and until such rules are adopted.
20    Section 40. Confidentiality. The portion of the
21application for an insurance business transfer that would
22otherwise be confidential, including any documents, materials,
23communications, or other information submitted to the Director
24in contemplation of such application, shall not lose such



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2    Section 45. Ongoing oversight. Insurers subject to this
3Act consent to the jurisdiction of the Director with regard to
4ongoing oversight of operations, management, and solvency
5relating to the transferred business, including the authority
6of the Director to conduct financial analysis and
8    Section 50. Fees and costs.
9    (a) At the time of filing its application with the
10Director for review and approval of an insurance business
11transfer plan, an applicant shall pay a nonrefundable fee to
12the Department.
13    (b) The Director may retain independent attorneys,
14appraisers, actuaries, certified public accountants,
15authorized consultants, or other professionals and specialists
16to assist Department personnel in connection with the review
17required by this Act. The cost of retaining professionals and
18specialists shall be borne by the applicant.
19    (c) The transferring insurer and the assuming insurer
20shall jointly be obligated to pay any compensation, costs, and
21expenses of the independent expert and any consultants
22retained by the independent expert and approved by the
23Department incurred in fulfilling the obligations of the
24independent expert under this Act. Nothing in this Act shall



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1be construed to create any duty for the independent expert to
2any party other than the Department or a court.
3    (d) Failure to pay any of the requisite fees or costs
4within 30 days after demand shall be grounds for the Director
5to request that a court dismiss the petition for approval of
6the insurance business transfer plan before the filing of an
7implementation order by the court or, if after the filing of an
8implementation order, the Director may suspend or revoke the
9assuming insurer's certificate of authority to transact
10insurance business in this State.