Full Text of HR0352 102nd General Assembly
HR0352 102ND GENERAL ASSEMBLY |
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| 1 | | HOUSE RESOLUTION
| 2 | | WHEREAS, Effective November 27, 2018, the Illinois General | 3 | | Assembly passed an Article entitled The Domestic Stock | 4 | | Division Law (215 ILCS 5/35B-1 et.seq.); this law allows an | 5 | | Illinois domestic stock insurance company to divide itself | 6 | | into two or more resulting companies; and
| 7 | | WHEREAS, Since its enactment, the Illinois Life and Health | 8 | | Insurance Guaranty Association has been very concerned with | 9 | | certain aspects of the law that could allow for | 10 | | non-transparent transactions and materially deficient | 11 | | resulting insurance companies; and
| 12 | | WHEREAS, The Illinois Life and Health Insurance Guaranty | 13 | | Association has proposed amendments to the law in 2019, 2020, | 14 | | and 2021 on various key deficiencies found within the law; the | 15 | | law allows an existing Illinois domestic insurance company to | 16 | | divide into two or more companies under a Division Plan; the | 17 | | legislation could be used by an insurance company to segregate | 18 | | an unprofitable book of business from the remainder of the | 19 | | company's profitable business and supporting assets; only the | 20 | | new company would be responsible for fulfilment of contractual | 21 | | obligations to policy holders transferred to the new company, | 22 | | not the original insurance company; together, those policy | 23 | | holders and the Association would then bear the risk of |
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| 1 | | insufficient assets or unpredictable liabilities transferred | 2 | | to the new company without the support of the original | 3 | | insurance company's financial strength; and
| 4 | | WHEREAS, The Division Plan can be approved without a | 5 | | hearing; all documents supporting the Division Plan and the | 6 | | Division Plan itself are deemed confidential, unless the | 7 | | Director of Insurance elects otherwise; even if a hearing is | 8 | | held at the Director's discretion, only the Division Plan will | 9 | | become public, not the supporting financial and actuarial | 10 | | information and documents, which remain confidential and not | 11 | | subject to public disclosure through typical discovery such as | 12 | | interrogatories and request for production of documents, | 13 | | subpoena, or even a Freedom of Information Act request; a new | 14 | | company's obligations to policy holders can be supported by | 15 | | inferior assets; the legislation requires that the Director | 16 | | "shall approve" the Plan unless certain conditions are not | 17 | | met; some of the conditions include that the Plan will not | 18 | | create a new company that will be insolvent and the remaining | 19 | | assets of the new company will not be unreasonably small in | 20 | | relation to the business and transactions in which the new | 21 | | company will engage; and | 22 | | WHEREAS, In determining if these two conditions have been | 23 | | met, the Director may consider inferior assets transferred to | 24 | | the new company; the financial safety of an existing insurance |
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| 1 | | company must be judged on the basis of "admitted assets", | 2 | | i.e., assets defined and deemed as high quality under existing | 3 | | insurance law and regulations; under the Division Law, the | 4 | | financial safety and solvency of the new company can be | 5 | | measured using non-admitted assets, assets which are inferior | 6 | | and do not meet the criteria of high quality of admitted | 7 | | assets; the Division Law specifies that non-admitted assets | 8 | | can include, "without limitation", (1) Reinsurance Agreements, | 9 | | (2) Parental Guarantees, (3) Support Agreements, (4) Keep Well | 10 | | Agreements, (5) Capital Maintenance Agreements, (6) Contingent | 11 | | Capital Agreements, and (7) Other; since the original company | 12 | | cannot use such non-admitted assets to support policy holder | 13 | | liabilities, the provision whereby a new unproven resulting | 14 | | company can use such non-admitted assets is inappropriate; and | 15 | | WHEREAS, The Division Law allows a Plan to be filed and | 16 | | approved without notice to the public or to policy holders, | 17 | | without a hearing and without public disclosure of the | 18 | | Division Plan or the documents justifying the Division Plan; | 19 | | the policy holders have no right to opt out of the Plan that | 20 | | segregates their policies from the company they chose as their | 21 | | insurance company; the practical effect of the Division Plan | 22 | | is to have the policies assumed by a new, unproven company | 23 | | without affording policy holders the option of staying with | 24 | | the original company they selected when buying insurance; and |
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| 1 | | WHEREAS, The NAIC has created a group to study Division | 2 | | Plans and other forms of insurance business transfers; | 3 | | provisions in the Illinois Division Law have been heavily | 4 | | criticized by various parties during those proceedings; the | 5 | | concerns are so great among the life insurance industry that | 6 | | the ACLI has adopted principles and guidelines with respect to | 7 | | proposed division laws and actively lobbies against numerous | 8 | | provisions currently contained in the Illinois Division Law; | 9 | | the ACLI Principles and Guidelines specifically provide that | 10 | | all transactions be subject to public notice and public | 11 | | hearing with notice to policy holders, reinsurers, state | 12 | | regulators, Guaranty Associations, and other interested | 13 | | parties; the ACLI provisions include a robust review by the | 14 | | regulator of the entire transaction, its impact on policy | 15 | | holders, the solvency of the new company, asset liability | 16 | | matching, and other significant provisions; an independent | 17 | | expert must be utilized as part of the process before approval | 18 | | of the Division Plan can be made; the independent expert must | 19 | | have access to documents concerning the business purpose of | 20 | | the proposed transaction, capital adequacy and risk-based | 21 | | capital considerations, cash flow and reserve testing, the | 22 | | impact, if any, of concentrations of lines of business | 23 | | following the transaction, business plans, management | 24 | | confidence, experience, and integrity; the Illinois Division | 25 | | Law does not meet even the basic provisions of the ACLI | 26 | | Principles and Guidelines; and |
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| 1 | | WHEREAS, For three legislative sessions, the Illinois Life | 2 | | and Health Insurance Guaranty Association has proposed simple | 3 | | and straightforward amendments to correct the most serious of | 4 | | the problems with the Illinois Division Law; those amendments | 5 | | include addressing the requirement that public notice be | 6 | | given, actual notice given to policy holders, regulators, | 7 | | reinsurers, and Guaranty Associations, and a requirement for a | 8 | | public hearing; the amendments provide for discovery of key | 9 | | financial documents supporting the Division Plan, such as | 10 | | financial analysis and actuarial studies; the amendments also | 11 | | eliminate the use of inferior non-admitted assets to support | 12 | | policy holder liabilities transferred to the resulting | 13 | | company; and
| 14 | | WHEREAS, Since the passage of the Division Law in 2018, | 15 | | the Illinois Life and Health Insurance Guaranty Association | 16 | | representatives have been actively, transparently, and | 17 | | diligently engaged with interested parties to seek resolution | 18 | | of the four proposed amendments: (1) provide notice, (2) | 19 | | provide public hearing, (3) exclude the use of non admitted | 20 | | assets, and (4) provide certain information (i.e. actuarial, | 21 | | financial); and
| 22 | | WHEREAS, The Illinois Division Law contains provisions | 23 | | that are contrary to the interests of Illinois consumers and |
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| 1 | | policy holders; the failure of the Illinois Division Law to | 2 | | require notice of the Division Plan, a public hearing, | 3 | | discovery of key documents, and the use of inferior assets to | 4 | | support policy holder liabilities results in the potential for | 5 | | serious disruption and harm to Illinois consumers; therefore, | 6 | | be it
| 7 | | RESOLVED, BY THE HOUSE OF REPRESENTATIVES OF THE ONE | 8 | | HUNDRED SECOND GENERAL ASSEMBLY OF THE STATE OF ILLINOIS, that | 9 | | we urge the Department of Insurance not to approve of any | 10 | | divisions under the Illinois Division Law without the consumer | 11 | | protections detailed in the above amendments; and be it | 12 | | further
| 13 | | RESOLVED, That a suitable copy of this resolution be | 14 | | delivered to the Illinois Department of Insurance.
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