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90_SB0801eng
215 ILCS 5/Art. VIII rep.
Amends the Illinois Insurance Code. Repeals Article VIII
of the Code, which regulates the investments of domestic
insurance companies.
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1 AN ACT concerning investment practices of insurance
2 companies.
3 Be it enacted by the People of the State of Illinois,
4 represented in the General Assembly:
5 Section 5. The Illinois Insurance Code is amended by
6 adding Sections 126.1, 126.2, 126.3, 126.4, 126.5, 126.6,
7 126.7, 126.8, 126.9, 126.10, 126.11, 126.12, 126.13, 126.14,
8 126.15, 126.16, 126.17, 126.18, 126.19, 126.20, 126.21,
9 126.22, 126.23, 126.24, 126.25, 126.26, 126.27, 126.28,
10 126.29, 126.30, 126.31, and 126.32 and headings for Parts 1,
11 2, and 3 of Article VIII as follows:
12 (215 ILCS 5/Art. VIII, Part 1, heading new)
13 1. GENERAL PROVISIONS
14 (215 ILCS 5/126.1 new)
15 Sec. 126.1. Purpose and scope.
16 A. Purpose. The purpose of this Article is to protect
17 the interests of insureds by promoting insurer solvency and
18 financial strength. This will be accomplished through the
19 application of investment standards that facilitate a
20 reasonable balance of the following objectives:
21 (1) To preserve principal;
22 (2) To assure reasonable diversification as to type of
23 investment, issuer and credit quality; and
24 (3) To allow insurers to allocate investments in a
25 manner consistent with principles of prudent investment
26 management to achieve an adequate return so that obligations
27 to insureds are adequately met and financial strength is
28 sufficient to cover reasonably foreseeable contingencies.
29 B. Scope. This Article shall apply only to investments
30 and investment practices of domestic insurers and United
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1 States branches of alien insurers entered through this State.
2 This Article shall not apply to separate accounts of an
3 insurer except to the extent that the provisions of Article
4 XIV 1/2 so provide.
5 (215 ILCS 5/126.2 new)
6 Sec. 126.2. Definitions. For purposes of this Article:
7 A. "Acceptable collateral" means:
8 (1) As to securities lending transactions, and for the
9 purpose of calculating counterparty exposure amount, cash,
10 cash equivalents, letters of credit, direct obligations of,
11 or securities that are fully guaranteed as to principal and
12 interest by, the government of the United States or any
13 agency of the United States, or by the Federal National
14 Mortgage Association or the Federal Home Loan Mortgage
15 Corporation, and as to lending foreign securities, sovereign
16 debt rated 1 by the SVO;
17 (2) As to repurchase transactions, cash, cash
18 equivalents and direct obligations of, or securities that are
19 fully guaranteed as to principal and interest by, the
20 government of the United States or an agency of the United
21 States, or by the Federal National Mortgage Association or
22 the Federal Home Loan Mortgage Corporation; and
23 (3) As to reverse repurchase transactions, cash and cash
24 equivalents.
25 B. "Acceptable private mortgage insurance" means
26 insurance written by a private insurer protecting a mortgage
27 lender against loss occasioned by a mortgage loan default and
28 issued by a licensed mortgage insurance company, with an SVO
29 1 designation or a rating issued by a nationally recognized
30 statistical rating organization equivalent to an SVO 1
31 designation, that covers losses to an 80% loan-to-value
32 ratio.
33 C. "Accident and health insurance" means protection
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1 which provides payment of benefits for covered sickness or
2 accidental injury, excluding credit insurance, disability
3 insurance, accidental death and dismemberment insurance and
4 long-term care insurance.
5 D. "Accident and health insurer" means a licensed life
6 or health insurer or health service corporation whose
7 insurance premiums and required statutory reserves for
8 accident and health insurance constitute at least 95% of
9 total premium considerations or total statutory required
10 reserves, respectively.
11 E. "Admitted assets" means assets defined by Section 3.1
12 of this Code permitted to be reported as admitted assets on
13 the statutory financial statement of the insurer most
14 recently required to be filed with the Director, but
15 excluding assets of separate accounts, the investments of
16 which are not subject to the provisions of this Article
17 except to the extent that the provisions of Article XIV 1/2
18 so provide.
19 F. "Affiliate" means, as to any person, another person
20 that, directly or indirectly through one or more
21 intermediaries, controls, is controlled by, or is under
22 common control with the person.
23 G. "Asset-backed security" means a security or other
24 instrument, excluding shares in a mutual fund, evidencing an
25 interest in, or the right to receive payments from, or
26 payable from distributions on, an asset, a pool of assets or
27 specifically divisible cash flows which are legally
28 transferred to a trust or another special purpose
29 bankruptcy-remote business entity, on the following
30 conditions:
31 (1) The trust or other business entity is established
32 solely for the purpose of acquiring specific types of assets
33 or rights to cash flows, issuing securities and other
34 instruments representing an interest in or right to receive
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1 cash flows from those assets or rights, and engaging in
2 activities required to service the assets or rights and any
3 credit enhancement or support features held by the trust or
4 other business entity; and
5 (2) The assets of the trust or other business entity
6 consist solely of interest bearing obligations or other
7 contractual obligations representing the right to receive
8 payment from the cash flows from the assets or rights.
9 However, the existence of credit enhancements, such as
10 letters of credit or guarantees, or support features such as
11 swap agreements, shall not cause a security or other
12 instrument to be ineligible as an asset-backed security.
13 H. "Business entity" includes a sole proprietorship,
14 corporation, limited liability company, association,
15 partnership, joint stock company, joint venture, mutual fund,
16 trust, joint tenancy or other similar form of business
17 organization, whether organized for profit or not for profit.
18 I. "Cap" means an agreement obligating the seller to
19 make payments to the buyer, with each payment based on the
20 amount by which a reference price or level or the performance
21 or value of one or more underlying interests exceeds a
22 predetermined number, sometimes called the strike rate or
23 strike price.
24 J. "Capital and surplus" means the sum of the capital
25 and surplus of the insurer required to be shown on the
26 statutory financial statement of the insurer most recently
27 required to be filed with the Director.
28 K. "Cash equivalents" means short-term, highly rated and
29 highly liquid investments or securities readily convertible
30 to known amounts of cash without penalty and so near maturity
31 that they present insignificant risk of change in value. Cash
32 equivalents include government money market mutual funds and
33 class one money market mutual funds. For purposes of this
34 definition:
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1 (1) "Short-term" means investments with a remaining term
2 to maturity of 90 days or less; and
3 (2) "Highly rated" means an investment rated "P-1" by
4 Moody's Investors Service, Inc., or "A-1" by Standard and
5 Poor's division of The McGraw Hill Companies, Inc. or its
6 equivalent rating by a nationally recognized statistical
7 rating organization recognized by the SVO.
8 L. "Class one bond mutual fund" means a mutual fund that
9 at all times qualifies for investment using the bond class
10 one reserve factor under the Purposes and Procedures of the
11 Securities Valuation Office or any successor publication.
12 M. "Class one money market mutual fund" means a money
13 market mutual fund that at all times qualifies for investment
14 using the bond class one reserve factor under the Purposes
15 and Procedures of the Securities Valuation Office or any
16 successor publication.
17 N. "Code" means the Illinois Insurance Code.
18 O. "Collar" means an agreement to receive payments as
19 the buyer of an option, cap or floor and to make payments as
20 the seller of a different option, cap or floor.
21 P. "Commercial mortgage loan" means a mortgage loan,
22 other than a residential mortgage loan.
23 Q. "Construction loan" means a loan of less than 3 years
24 in term, made for financing the cost of construction of a
25 building or other improvement to real estate, that is secured
26 by the real estate.
27 R. "Control" means the possession, directly or
28 indirectly, of the power to direct or cause the direction of
29 the management and policies of a person, whether through the
30 ownership of voting securities, by contract (other than a
31 commercial contract for goods or nonmanagement services), or
32 otherwise, unless the power is the result of an official
33 position with or corporate office held by the person. Control
34 shall be presumed to exist if a person, directly or
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1 indirectly, owns, controls, holds with the power to vote or
2 holds proxies representing 10% or more of the voting
3 securities of another person. This presumption may be
4 rebutted by a showing that control does not exist in fact.
5 The Director may determine, after furnishing all interested
6 persons notice and an opportunity to be heard and making
7 specific findings of fact to support the determination, that
8 control exists in fact, notwithstanding the absence of a
9 presumption to that effect.
10 S. "Counterparty exposure amount" means:
11 (1) The amount of credit risk attributable to a
12 derivative instrument entered into with a business entity
13 other than through a qualified exchange, qualified foreign
14 exchange, or cleared through a qualified clearinghouse
15 ("over-the-counter derivative instrument"). The amount of
16 credit risk equals:
17 (a) The market value of the over-the-counter derivative
18 instrument if the liquidation of the derivative instrument
19 would result in a final cash payment to the insurer; or
20 (b) Zero if the liquidation of the derivative instrument
21 would not result in a final cash payment to the insurer.
22 (2) If over-the-counter derivative instruments are
23 entered into under a written master agreement which provides
24 for netting of payments owed by the respective parties, and
25 the domicile of the counterparty is either within the United
26 States or if not within the United States, within a foreign
27 jurisdiction listed in the Purposes and Procedures of the
28 Securities Valuation Office as eligible for netting, the net
29 amount of credit risk shall be the greater of zero or the net
30 sum of:
31 (a) The market value of the over-the-counter derivative
32 instruments entered into under the agreement, the liquidation
33 of which would result in a final cash payment to the insurer;
34 and
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1 (b) The market value of the over-the-counter derivative
2 instruments entered into under the agreement, the liquidation
3 of which would result in a final cash payment by the insurer
4 to the business entity.
5 (3) For open transactions, market value shall be
6 determined at the end of the most recent quarter of the
7 insurer's fiscal year and shall be reduced by the market
8 value of acceptable collateral held by the insurer or placed
9 in escrow by one or both parties.
10 T. "Covered" means that an insurer owns or can
11 immediately acquire, through the exercise of options,
12 warrants or conversion rights already owned, the underlying
13 interest in order to fulfill or secure its obligations under
14 a call option, cap or floor it has written, or has set aside,
15 pursuant to a custodial or escrow agreement, cash or cash
16 equivalents with a market value equal to the amount required
17 to fulfill its obligations under a put option it has written,
18 in an income generation transaction.
19 U. "Credit tenant loan" means a mortgage loan which is
20 made primarily in reliance on the credit standing of a major
21 tenant, structured with an assignment of the rental payments
22 to the lender with real estate pledged as collateral in the
23 form of a first lien.
24 V. (1) "Derivative instrument" means an agreement,
25 option, instrument or a series or combination thereof:
26 (a) To make or take delivery of, or assume or
27 relinquish, a specified amount of one or more underlying
28 interests, or to make a cash settlement in lieu thereof; or
29 (b) That has a price, performance, value or cash flow
30 based primarily upon the actual or expected price, level,
31 performance, value or cash flow of one or more underlying
32 interests.
33 (2) Derivative instruments include options, warrants
34 used in a hedging transaction and not attached to another
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1 financial instrument, caps, floors, collars, swaps, forwards,
2 futures and any other agreements, options or instruments
3 substantially similar thereto or any series or combination
4 thereof and any agreements, options or instruments permitted
5 under rules adopted under Section 126.8. Derivative
6 instruments shall not include an investment authorized by
7 Sections 126.11 through 126.17, 126.19 and 126.24 through
8 126.30.
9 W. "Derivative transaction" means a transaction
10 involving the use of one or more derivative instruments.
11 X. "Direct" or "directly," when used in connection with
12 an obligation, means the designated obligor is primarily
13 liable on the instrument representing the obligation.
14 Y. "Dollar roll transaction" means 2 simultaneous
15 transactions with settlement dates no more than 96 days
16 apart, so that in one transaction an insurer sells to a
17 business entity, and in the other transaction the insurer is
18 obligated to purchase from the same business entity,
19 substantially similar securities of the following types:
20 (1) Asset-backed securities issued, assumed or
21 guaranteed by the Government National Mortgage Association,
22 the Federal National Mortgage Association or the Federal Home
23 Loan Mortgage Corporation or their respective successors; and
24 (2) Other asset-backed securities referred to in Section
25 106 of Title I of the Secondary Mortgage Market Enhancement
26 Act of 1984 (15 U.S.C. 77r1), as amended.
27 Z. "Domestic jurisdiction" means the United States,
28 Canada, any state, any province of Canada or any political
29 subdivision of any of the foregoing.
30 AA. "Equity interest" means any of the following that
31 are not rated credit instruments: common stock; preferred
32 stock; trust certificate; equity investment in an investment
33 company other than a money market mutual fund or a class one
34 bond mutual fund; investment in a common trust fund of a bank
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1 regulated by a federal or state agency; an ownership interest
2 in minerals, oil or gas, the rights to which have been
3 separated from the underlying fee interest in the real estate
4 where the minerals, oil or gas are located; instruments which
5 are mandatorily, or at the option of the issuer, convertible
6 to equity; limited partnership interests and those general
7 partnership interests authorized under Section 126.5(D);
8 member interests in limited liability companies; warrants or
9 other rights to acquire equity interests that are created by
10 the person that owns or would issue the equity to be
11 acquired; or instruments that would be rated credit
12 instruments except for the provisions of subsection RRR(2) of
13 this Section.
14 BB. "Equivalent securities" means:
15 (1) In a securities lending transaction, securities that
16 are identical to the loaned securities in all features
17 including the amount of the loaned securities, except as to
18 certificate number if held in physical form, but if any
19 different security shall be exchanged for a loaned security
20 by recapitalization, merger, consolidation or other corporate
21 action, the different security shall be deemed to be the
22 loaned security;
23 (2) In a repurchase transaction, securities that are
24 identical to the purchased securities in all features
25 including the amount of the purchased securities, except as
26 to the certificate number if held in physical form; or
27 (3) In a reverse repurchase transaction, securities that
28 are identical to the sold securities in all features
29 including the amount of the sold securities, except as to the
30 certificate number if held in physical form.
31 CC. "Floor" means an agreement obligating the seller to
32 make payments to the buyer in which each payment is based on
33 the amount by which a predetermined number, sometimes called
34 the floor rate or price, exceeds a reference price, a level,
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1 or the performance or value of one or more underlying
2 interests.
3 DD. "Foreign currency" means a currency other than that
4 of a domestic jurisdiction.
5 EE. (1) "Foreign investment" means an investment in a
6 foreign jurisdiction, or an investment in a person, real
7 estate or asset domiciled in a foreign jurisdiction, that is
8 substantially of the same type as those eligible for
9 investment under this Article, other than under Sections
10 126.17 and 126.30. An investment shall not be deemed to be
11 foreign if the issuing person, qualified primary credit
12 source or qualified guarantor is a domestic jurisdiction or a
13 person domiciled in a domestic jurisdiction, unless:
14 (a) The issuing person is a shell business entity; and
15 (b) The investment is not assumed, accepted, guaranteed,
16 or insured or otherwise backed by a domestic jurisdiction or
17 a person, that is not a shell business entity, domiciled in a
18 domestic jurisdiction.
19 (2) For purposes of this definition:
20 (a) "Shell business entity" means a business entity
21 having no economic substance, except as a vehicle for owning
22 interests in assets issued, owned or previously owned by a
23 person domiciled in a foreign jurisdiction;
24 (b) "Qualified guarantor" means a guarantor against
25 which an insurer has a direct claim for full and timely
26 payment, evidenced by a contractual right for which an
27 enforcement action can be brought in a domestic jurisdiction;
28 and
29 (c) "Qualified primary credit source" means the credit
30 source to which an insurer looks for payment as to an
31 investment and against which an insurer has a direct claim
32 for full and timely payment, evidenced by a contractual right
33 for which an enforcement action can be brought in a domestic
34 jurisdiction.
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1 FF. "Foreign jurisdiction" means a jurisdiction other
2 than a domestic jurisdiction.
3 GG. "Forward" means an agreement (other than a future)
4 to make or take delivery of, or effect a cash settlement
5 based on the actual or expected price, level, performance or
6 value of, one or more underlying interests.
7 HH. "Future" means an agreement, traded on a qualified
8 exchange or qualified foreign exchange, to make or take
9 delivery of, or effect a cash settlement based on the actual
10 or expected price, level, performance or value of, one or
11 more underlying interests and includes an insurance future.
12 II. "Government money market mutual fund" means a money
13 market mutual fund that at all times:
14 (1) Invests only in obligations issued, guaranteed, or
15 insured by the federal government of the United States or
16 collateralized repurchase agreements composed of these
17 obligations; and
18 (2) Qualifies for investment without a reserve under the
19 Purposes and Procedures of the Securities Valuation Office or
20 any successor publication.
21 JJ. "Government sponsored enterprise" means a:
22 (1) Governmental agency; or
23 (2) Corporation, limited liability company, association,
24 partnership, joint stock company, joint venture, trust or
25 other entity or instrumentality organized under the laws of
26 any domestic jurisdiction to accomplish a public policy or
27 other governmental purpose.
28 KK. "Guaranteed or insured," when used in connection
29 with an obligation acquired under this Article, means the
30 guarantor or insurer has agreed to:
31 (1) Perform or insure the obligation of the obligor or
32 purchase the obligation; or
33 (2) Be unconditionally obligated until the obligation is
34 repaid to maintain in the obligor a minimum net worth, fixed
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1 charge coverage, stockholders' equity or sufficient liquidity
2 to enable the obligor to pay the obligation in full.
3 LL. "Hedging transaction" means:
4 (1) A derivative transaction that is entered into and
5 maintained to reduce:
6 (a) the risk of a change in the value, yield,
7 price, cash flow, or quantity of assets or liabilities
8 that the insurer has acquired or incurred or anticipates
9 acquiring or incurring; or
10 (b) the currency exchange rate risk or the degree
11 of exposure as to assets or liabilities that the insurer
12 has acquired or incurred or anticipates acquiring or
13 incurring; or
14 (2) Such other derivative transactions as may be
15 specified to constitute hedging transactions in rules adopted
16 pursuant to Section 126.8.
17 MM. "High grade investment" means a rated credit
18 instrument; rated 1, 2, P1, P2, PSF1 or PSF2 by the SVO.
19 NN. "Income" means, as to a security, interest, accrual
20 of discount, dividends or other distributions, such as
21 rights, tax or assessment credits, warrants and distributions
22 in kind.
23 OO. "Income generation transaction" means (1) a
24 derivative transaction involving the writing of covered call
25 options, covered put options, covered caps or covered floors
26 that is intended to generate income or enhance return, or (2)
27 such other derivative transactions as may be specified to
28 constitute income generation transactions in rules adopted
29 pursuant to Section 126.8.
30 PP. "Initial margin" means the amount of cash,
31 securities or other consideration initially required to be
32 deposited to establish a futures position.
33 QQ. "Insurance future" means a future relating to an
34 index or pool that is based on insurance-related items.
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1 RR. "Insurance futures option" means an option on an
2 insurance future.
3 SS. "Investment company" means an investment company as
4 defined in Section 3(a) of the Investment Company Act of 1940
5 (15 U.S.C. 80a-1 et seq.), as amended, and a person
6 described in Section 3(c) of that Act.
7 TT. "Investment company series" means an investment
8 portfolio of an investment company that is organized as a
9 series company and to which assets of the investment company
10 have been specifically allocated.
11 UU. "Investment practices" means transactions of the
12 types described in Section 126.16, 126.18, 126.29 or 126.31.
13 VV. "Investment subsidiary" means a subsidiary of an
14 insurer engaged or organized to engage exclusively in the
15 ownership and management of assets authorized as investments
16 for the insurer if such subsidiary agrees to limit its
17 investment in any asset so that its investments will not
18 cause the amount of the total investment of the insurer to
19 exceed any of the investment limitations or avoid any other
20 provisions of this Article applicable to the insurer. As used
21 in this subsection, the total investment of the insurer shall
22 include:
23 (1) Direct investment by the insurer in an asset; and
24 (2) The insurer's proportionate share of an investment
25 in an asset by an investment subsidiary of the insurer, which
26 shall be calculated by multiplying the amount of the
27 subsidiary's investment by the percentage of the insurer's
28 ownership interest in the subsidiary.
29 WW. "Investment strategy" means the techniques and
30 methods used by an insurer to meet its investment objectives,
31 such as active bond portfolio management, passive bond
32 portfolio management, interest rate anticipation, growth
33 investing and value investing.
34 XX. "Letter of credit" means a clean, irrevocable and
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1 unconditional letter of credit issued or confirmed by, and
2 payable and presentable at, a financial institution on the
3 list of financial institutions meeting the standards for
4 issuing letters of credit under the Purposes and Procedures
5 of the Securities Valuation Office or any successor
6 publication. To constitute acceptable collateral for the
7 purposes of Sections 126.16 and 126.29, a letter of credit
8 must have an expiration date beyond the term of the subject
9 transaction.
10 YY. "Limited liability company" means a business
11 organization, excluding partnerships and ordinary business
12 corporations, organized or operating under the laws of the
13 United States or any state thereof that limits the personal
14 liability of investors to the equity investment of the
15 investor in the business entity.
16 ZZ. "Lower grade investment" means a rated credit
17 instrument rated 4, 5, 6, P4, P5, P6, PSF4, PSF5, or PSF6 by
18 the SVO.
19 AAA. "Market value" means:
20 (1) As to cash and letters of credit, the amounts
21 thereof; and
22 (2) As to a security as of any date, the price for the
23 security on that date obtained from a generally recognized
24 source or the most recent quotation from such a source or, to
25 the extent no generally recognized source exists, the price
26 for the security as determined in good faith by the insurer,
27 plus accrued but unpaid income thereon to the extent not
28 included in the price as of that date.
29 BBB. "Medium grade investment" means a rated credit
30 instrument rated 3, P3, or PSF 3 by the SVO.
31 CCC. "Money market mutual fund" means a mutual fund that
32 meets the conditions of 17 Code of Federal Regulations Par.
33 270.2a-7, under the Investment Company Act of 1940 (15 U.S.C.
34 80a-1 et seq.), as amended or renumbered.
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1 DDD. "Mortgage loan" means an obligation secured by a
2 mortgage, deed of trust, trust deed or other consensual lien
3 on real estate.
4 EEE. "Multilateral development bank" means an
5 international development organization of which the United
6 States is a member.
7 FFF. "Mutual fund" means an investment company or, in
8 the case of an investment company that is organized as a
9 series company, an investment company series, that, in either
10 case, is registered with the United States Securities and
11 Exchange Commission under the Investment Company Act of 1940
12 (15 U.S.C. 80a-1 et seq.), as amended.
13 GGG. "NAIC" means the National Association of Insurance
14 Commissioners.
15 HHH. "Obligation" means a bond, note, debenture, trust
16 certificate including an equipment trust certificate,
17 production payment, negotiable bank certificate of deposit,
18 bankers' acceptance, credit tenant loan, loan secured by
19 financing net leases and other evidence of indebtedness for
20 the payment of money (or participations, certificates or
21 other evidences of an interest in any of the foregoing),
22 whether constituting a general obligation of the issuer or
23 payable only out of certain revenues or certain funds pledged
24 or otherwise dedicated for payment.
25 III. "Option" means an agreement giving the buyer the
26 right to buy or receive (a "call option"), sell or deliver (a
27 "put option"), enter into, extend or terminate or effect a
28 cash settlement based on the actual or expected price, level,
29 performance or value of one or more underlying interests and
30 includes an insurance futures option.
31 JJJ. "Person" means an individual, a business entity, a
32 multilateral development bank or a government or quasi
33 governmental body, such as a political subdivision or a
34 government sponsored enterprise.
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1 KKK. "Potential exposure" means the amount determined in
2 accordance with the NAIC Annual Statement Instructions.
3 LLL. "Preferred stock" means preferred, preference or
4 guaranteed stock of a business entity authorized to issue the
5 stock, that has a preference in liquidation over the common
6 stock of the business entity.
7 MMM. "Qualified bank" means:
8 (1) A national bank, state bank or trust company that at
9 all times is no less than adequately capitalized as
10 determined by standards adopted by United States banking
11 regulators and that either is regulated by state banking laws
12 or is a member of the Federal Reserve System; or
13 (2) A bank or trust company incorporated or organized
14 under the laws of a country other than the United States that
15 is regulated as a bank or trust company by that country's
16 government or an agency thereof and that at all times is no
17 less than adequately capitalized as determined by the
18 standards adopted by international banking authorities.
19 NNN. "Qualified business entity" means a business entity
20 that is:
21 (1) An issuer of obligations or preferred stock that are
22 rated 1 or 2 by the SVO or an issuer of obligations,
23 preferred stock or derivative instruments that are rated the
24 equivalent of 1 or 2 by the SVO or by a nationally recognized
25 statistical rating organization recognized by the SVO; or
26 (2) A primary dealer in United States government
27 securities, recognized by the Federal Reserve Bank of New
28 York.
29 OOO. "Qualified clearinghouse" means a clearinghouse
30 for, and subject to the rules of, a qualified exchange or a
31 qualified foreign exchange, which provides clearing services,
32 including acting as a counterparty to each of the parties to
33 a transaction such that the parties no longer have credit
34 risk as to each other.
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1 PPP. "Qualified exchange" means:
2 (1) A securities exchange registered as a national
3 securities exchange, or a securities market regulated under
4 the Securities Exchange Act of 1934 (15 U.S.C. 78 et seq.),
5 as amended;
6 (2) A board of trade or commodities exchange designated
7 as a contract market by the Commodity Futures Trading
8 Commission or any successor thereof;
9 (3) Private Offerings, Resales and Trading through
10 Automated Linkages (PORTAL);
11 (4) A designated offshore securities market as defined
12 in Securities Exchange Commission Regulation S, 17 C.F.R.
13 Part 230, as amended; or
14 (5) A qualified foreign exchange.
15 QQQ. "Qualified foreign exchange" means a foreign
16 exchange, board of trade or contract market located outside
17 the United States, its territories or possessions:
18 (1) That has received regulatory comparability relief
19 under Commodity Futures Trading Commission (CFTC) Rule 30.10
20 (as set forth in Appendix C to Part 30 of the CFTC's
21 Regulations, 17 C.F.R. Part 30);
22 (2) That is, or its members are, subject to the
23 jurisdiction of a foreign futures authority that has received
24 regulatory comparability relief under CFTC Rule 30.10 (as set
25 forth in Appendix C to Part 30 of the CFTC's Regulations, 17
26 C.F.R. Part 30) as to futures transactions in the
27 jurisdiction where the exchange, board of trade or contract
28 market is located; or
29 (3) Upon which foreign stock index futures contracts are
30 listed that are the subject of no-action relief issued by the
31 CFTC's Office of General Counsel, provided that an exchange,
32 board of trade or contract market that qualifies as a
33 "qualified foreign exchange" only under this subsection shall
34 only be a "qualified foreign exchange" as to foreign stock
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1 index futures contracts that are the subject of no-action
2 relief.
3 RRR. (1) "Rated credit instrument" means an obligation
4 or other instrument which gives its holder a contractual
5 right to receive cash or another rated credit instrument from
6 another entity, if the instrument:
7 (a) Is rated or required to be rated by the SVO;
8 (b) In the case of an instrument with a maturity of 397
9 days or less, is issued, guaranteed, or insured by an entity
10 that is rated by, or another instrument of such entity is
11 rated by, the SVO or by a nationally recognized statistical
12 rating organization recognized by the SVO;
13 (c) In the case of an instrument with a maturity of 90
14 days or less, the instrument has been issued, assumed,
15 accepted, guaranteed, or insured by a qualified bank;
16 (d) Is a share of a class one bond mutual fund; or
17 (e) Is a share of a money market mutual fund.
18 (2) However, "rated credit instrument" does not mean:
19 (a) An instrument that is mandatorily, or at the option
20 of the issuer, convertible to an equity interest; or
21 (b) A security that has a par value and whose terms
22 provide that the issuer's net obligation to repay all or part
23 of the security's par value is determined by reference to the
24 performance of an equity, a commodity, a foreign currency or
25 an index of equities, commodities, foreign currencies or
26 combinations thereof.
27 SSS. "Real estate" means:
28 (1) (a) Real property;
29 (b) Interests in real property, such as leaseholds,
30 minerals and oil and gas that have not been separated from
31 the underlying fee interest;
32 (c) Improvements and fixtures located on or in real
33 property; and
34 (d) The seller's equity in a contract providing for a
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1 deed of real estate.
2 (2) As to a mortgage on a leasehold estate, real estate
3 shall include the leasehold estate only if it has an
4 unexpired term (including renewal options exercisable at the
5 option of the lessee) extending beyond the scheduled maturity
6 date of the obligation that is secured by a mortgage on the
7 leasehold estate by a period equal to at least 20% of the
8 original term of the obligation or 10 years, whichever is
9 greater.
10 TTT. "Replication transaction" means a derivative
11 transaction that is intended to replicate the performance of
12 one or more assets that an insurer is authorized to acquire
13 under this Article. A derivative transaction that is entered
14 into as a hedging transaction shall not be considered a
15 replication transaction.
16 UUU. "Repurchase transaction" means a transaction in
17 which an insurer purchases securities from a business entity
18 that is obligated to repurchase the purchased securities or
19 equivalent securities from the insurer at a specified price,
20 either within a specified period of time or upon demand.
21 VVV. "Required liabilities" means total liabilities
22 required to be reported on the statutory financial statement
23 of the insurer most recently required to be filed with the
24 Director.
25 WWW. "Residential mortgage loan" means a loan primarily
26 secured by a mortgage on real estate improved with a one to
27 four family residence.
28 XXX. "Reverse repurchase transaction" means a
29 transaction in which an insurer sells securities to a
30 business entity and is obligated to repurchase the sold
31 securities or equivalent securities from the business entity
32 at a specified price, either within a specified period of
33 time or upon demand.
34 YYY. "Secured location" means the contiguous real estate
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1 owned by one person.
2 ZZZ. "Securities lending transaction" means a
3 transaction in which securities are loaned by an insurer to a
4 business entity that is obligated to return the loaned
5 securities or equivalent securities to the insurer, either
6 within a specified period of time or upon demand.
7 AAAA. "Series company" means an investment company that
8 is organized as a series company, as defined in Rule 18f-2(a)
9 adopted under the Investment Company Act of 1940 (15 U.S.C.
10 80a-1 et seq.), as amended.
11 BBBB. "Sinking fund stock" means preferred stock that:
12 (1) Is subject to a mandatory sinking fund or similar
13 arrangement that will provide for the redemption (or open
14 market purchase) of the entire issue over a period not longer
15 than 40 years from the date of acquisition; and
16 (2) Provides for mandatory sinking fund installments (or
17 open market purchases) commencing not more than 10.5 years
18 from the date of issue, with the sinking fund installments
19 providing for the purchase or redemption, on a cumulative
20 basis commencing 10 years from the date of issue, of at least
21 2.5% per year of the original number of shares of that issue
22 of preferred stock.
23 CCCC. "Special rated credit instrument" means a rated
24 credit instrument that is:
25 (1) An instrument that is structured so that, if it is
26 held until retired by or on behalf of the issuer, its rate of
27 return, based on its purchase cost and any cash flow stream
28 possible under the structure of the transaction, may become
29 negative due to reasons other than the credit risk associated
30 with the issuer of the instrument; however, a rated credit
31 instrument shall not be a special rated credit instrument
32 under this subsection if it is:
33 (a) A share in a class one bond mutual fund;
34 (b) An instrument, other than an asset-backed security,
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1 with payments of par value fixed as to amount and timing, or
2 callable but in any event payable only at par or greater, and
3 interest or dividend cash flows that are based on either a
4 fixed or variable rate determined by reference to a specified
5 rate or index;
6 (c) An instrument, other than an asset-backed security,
7 that has a par value and is purchased at a price no greater
8 than 110% of par;
9 (d) An instrument, including an asset-backed security,
10 whose rate of return would become negative only as a result
11 of a prepayment due to casualty, condemnation or economic
12 obsolescence of collateral or change of law;
13 (e) An asset-backed security that relies on collateral
14 that meets the requirements of subparagraph (b) of this
15 paragraph, the par value of which collateral:
16 (i) Is not permitted to be paid sooner than one half of
17 the remaining term to maturity from the date of acquisition;
18 (ii) Is permitted to be paid prior to maturity only at a
19 premium sufficient to provide a yield to maturity for the
20 investment, considering the amount prepaid and reinvestment
21 rates at the time of early repayment, at least equal to the
22 yield to maturity of the initial investment; or
23 (iii) Is permitted to be paid prior to maturity at a
24 premium at least equal to the yield of a treasury issue of
25 comparable remaining life; or
26 (f) An asset-backed security that relies on cash flows
27 from assets that are not prepayable at any time at par, but
28 is not otherwise governed by subparagraph (e) of this
29 paragraph, if the asset-backed security has a par value
30 reflecting principal payments to be received if held until
31 retired by or on behalf of the issuer and is purchased at a
32 price no greater than 105% of such par amount.
33 (2) An asset-backed security that:
34 (a) Relies on cash flows from assets that are prepayable
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1 at par at any time;
2 (b) Does not make payments of par that are fixed as to
3 amount and timing; and
4 (c) Has a negative rate of return at the time of
5 acquisition if a prepayment threshold assumption is used with
6 such prepayment threshold assumption defined as either:
7 (i) Two (2) times the prepayment expectation reported by
8 a recognized, publicly available source as being the median
9 of expectations contributed by broker dealers or other
10 entities, except insurers, engaged in the business of selling
11 or evaluating such securities or assets. The prepayment
12 expectation used in this calculation shall be, at the
13 insurer's election, the prepayment expectation for
14 pass-through securities of the Federal National Mortgage
15 Association, the Federal Home Loan Mortgage Corporation, the
16 Government National Mortgage Association, or for other assets
17 of the same type as the assets that underlie the asset-
18 backed security, in either case with a gross weighted average
19 coupon comparable to the gross weighted average coupon of the
20 assets that underlie the asset-backed security; or
21 (ii) Another prepayment threshold assumption specified
22 by the Director by rule promulgated under Section 126.8.
23 (3) For purposes of subparagraph 2 of this subsection,
24 if the asset-backed security is purchased in combination with
25 one or more other asset-backed securities that are supported
26 by identical underlying collateral, the insurer may calculate
27 the rate of return for these specific combined asset-backed
28 securities in combination. The insurer must maintain
29 documentation demonstrating that such securities were
30 acquired and are continuing to be held in combination.
31 DDDD. "State" means a state, territory or possession of
32 the United States of America, the District of Columbia or the
33 Commonwealth of Puerto Rico.
34 EEEE. "Substantially similar securities" means
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1 securities that meet all criteria for substantially similar
2 specified in the NAIC Accounting Practices and Procedures
3 Manual, as amended, and in an amount that constitutes good
4 delivery form as determined from time to time by the PSA The
5 Bond Market Trade Association.
6 FFFF. "Subsidiary" means, as to any person, an affiliate
7 controlled by such person, directly or indirectly through one
8 or more intermediaries.
9 GGGG. "SVO" means the Securities Valuation Office of the
10 NAIC or any successor office established by the NAIC.
11 HHHH. "Swap" means an agreement to exchange or to net
12 payments at one or more times based on the actual or expected
13 price, level, performance or value of one or more underlying
14 interests.
15 IIII. "Underlying interest" means the assets,
16 liabilities, other interests or a combination thereof
17 underlying a derivative instrument, such as any one or more
18 securities, currencies, rates, indices, commodities or
19 derivative instruments.
20 JJJJ. "Unrestricted surplus" means the amount by which
21 total admitted assets exceed 125% of the insurer's required
22 liabilities.
23 KKKK. "Warrant" means an instrument that gives the
24 holder the right to purchase an underlying financial
25 instrument at a given price and time or at a series of prices
26 and times outlined in the warrant agreement. Warrants may be
27 issued alone or in connection with the sale of other
28 securities, for example, as part of a merger or
29 recapitalization agreement, or to facilitate divestiture of
30 the securities of another business entity.
31 (215 ILCS 5/126.3 new)
32 Sec. 126.3. General investment qualifications.
33 A. Insurers may acquire, hold or invest in investments
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1 or engage in investment practices as set forth in this
2 Article. Insurers may also acquire, hold or invest in
3 investments not conforming to the requirements of this
4 Article that are not otherwise prohibited by this Code.
5 Investments not conforming to this Article shall not be
6 admitted assets unless they are acquired under other
7 authority of this Code.
8 B. Subject to subsection C of this Section, an insurer
9 shall not acquire or hold an investment as an admitted asset
10 unless at the time of acquisition it is:
11 (1) Eligible for the payment or accrual of interest or
12 discount (whether in cash or other forms of income or
13 securities), eligible to receive dividends or other
14 distributions or is otherwise income producing; or
15 (2) Acquired under Section 126.15B, 126.15C, 126.16,
16 126.18, 126.20, 126.28C, 126.29, 126.31, or 126.32 or under
17 the authority of Sections of the Code other than this
18 Article.
19 C. An insurer may acquire or hold as admitted assets
20 investments that do not otherwise qualify as provided in this
21 Article if the insurer has not acquired them for the purpose
22 of circumventing any limitations contained in this Article,
23 if the insurer acquires the investments in the following
24 circumstances and the insurer complies with the provisions of
25 Sections 126.5 and 126.7 as to the investments:
26 (1) As payment on account of existing indebtedness or in
27 connection with the refinancing, restructuring or workout of
28 existing indebtedness, if taken to protect the insurer's
29 interest in that investment;
30 (2) As realization on collateral for indebtedness;
31 (3) In connection with an otherwise qualified investment
32 or investment practice, as interest on or a dividend or other
33 distribution related to the investment or investment practice
34 or in connection with the refinancing of the investment, in
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1 each case for no additional or only nominal consideration;
2 (4) Under a lawful and bona fide agreement of
3 recapitalization or voluntary or involuntary reorganization
4 in connection with an investment held by the insurer; or
5 (5) Under a bulk reinsurance, merger or consolidation
6 transaction approved by the Director if the assets constitute
7 admissible investments for the ceding, merged or consolidated
8 companies.
9 D. An investment or portion of an investment acquired by
10 an insurer under subsection C of this Section shall become a
11 nonadmitted asset 3 years (or 5 years in the case of mortgage
12 loans and real estate) from the date of its acquisition,
13 unless within that period the investment has become a
14 qualified investment under a Section of this Article other
15 than subsection C of this Section, but an investment acquired
16 under an agreement of bulk reinsurance, merger or
17 consolidation may be qualified for a longer period if so
18 provided in the plan for reinsurance, merger or consolidation
19 as approved by the Director. Upon application by the insurer
20 and a showing that the nonadmission of an asset held under
21 subsection C of this Section would injure the interests of
22 the insurer, the Director may extend the period for
23 admissibility for an additional reasonable period of time.
24 E. Except as provided in subsections F and H of this
25 Section, an investment shall qualify under this Article if,
26 on the date the insurer committed to acquire the investment
27 or on the date of its acquisition, it would have qualified
28 under this Article. For the purposes of determining
29 limitations contained in this Article, an insurer shall give
30 appropriate recognition to any commitments to acquire
31 investments.
32 F. (1) An investment held as an admitted asset by an
33 insurer on the effective date of this amendatory Act of 1997
34 which qualified immediately prior to the effective date
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1 of this amendatory Act of 1997 shall remain qualified as an
2 admitted asset under this Article.
3 (2) Each specific transaction constituting an investment
4 practice of the type described in this Article immediately
5 prior to the effective date of this amendatory Act of 1997
6 that was lawfully entered into by an insurer and was in
7 effect on the effective date of this amendatory Act of 1997
8 shall continue to be permitted under this Article until its
9 expiration or termination under its terms.
10 G. Unless otherwise specified, an investment limitation
11 computed on the basis of an insurer's admitted assets or
12 capital and surplus shall relate to the amount required to be
13 shown on the statutory balance sheet of the insurer most
14 recently required to be filed (annual or last quarter) with
15 the Director. Solely for purposes of computing any limitation
16 under this Article based upon admitted assets, the insurer
17 shall deduct from the amount of its admitted assets the
18 amount of the liability recorded on such statutory balance
19 sheet for:
20 (1) The return of acceptable collateral received in a
21 reverse repurchase transaction or a securities lending
22 transaction;
23 (2) Cash received in a dollar roll transaction; and
24 (3) The amount reported as borrowed money in such
25 statutory balance sheet to the extent not included in
26 paragraphs (1) and (2) of this subsection.
27 H. An investment qualified, in whole or in part, for
28 acquisition or holding as an admitted asset may be qualified
29 or requalified at the time of acquisition or a later date, in
30 whole or in part, under any other Section, if the relevant
31 conditions contained in the other Section are satisfied at
32 the time of qualification or requalification.
33 I. An insurer shall maintain documentation demonstrating
34 that investments were acquired in accordance with this
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1 Article, and specifying the Section of this Article under
2 which they were acquired.
3 J. An insurer shall not enter into an agreement to
4 purchase securities in advance of their issuance for resale
5 to the public as part of a distribution of the securities by
6 the issuer or otherwise guarantee the distribution, except
7 that an insurer may acquire privately placed securities with
8 registration rights.
9 K. Notwithstanding the provisions of this Article, the
10 Director, for good cause, may order an insurer to nonadmit,
11 limit, dispose of, withdraw from or discontinue an investment
12 or investment practice in accordance with Article XXIV. The
13 authority of the Director under this subsection is in
14 addition to any other authority of the Director.
15 (215 ILCS 5/126.4 new)
16 Sec. 126.4. Authorization of investments by the board of
17 directors.
18 A. Within 3 months after the effective date of this
19 amendatory Act of 1997, an insurer's board of directors shall
20 adopt a written plan for acquiring and holding investments
21 and for engaging in investment practices that specifies
22 guidelines as to the quality, maturity and diversification of
23 investments and other specifications including investment
24 strategies intended to assure that the investments and
25 investment practices are appropriate for the business
26 conducted by the insurer, its liquidity needs and its capital
27 and surplus. The board shall review and assess the insurer's
28 technical investment and administrative capabilities and
29 expertise before adopting a written plan concerning an
30 investment strategy or investment practice.
31 B. Investments acquired and held under this Article
32 shall be acquired and held under the supervision and
33 direction of the board of directors of the insurer. The board
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1 of directors shall evidence by formal resolution, at least
2 annually, that it has determined whether all investments have
3 been made in accordance with delegations, standards,
4 limitations and investment objectives prescribed by the board
5 or a committee of the board charged with the responsibility
6 to direct its investments.
7 C. On no less than a quarterly basis, and more often if
8 deemed appropriate, an insurer's board of directors or
9 committee of the board of directors shall:
10 (1) Receive and review a summary report on the insurer's
11 investment portfolio, its investment activities and
12 investment practices engaged in under delegated authority, in
13 order to determine whether the investment activity of the
14 insurer is consistent with its written plan; and
15 (2) Review and revise, as appropriate, the written plan.
16 D. In discharging its duties under this Section, the
17 board of directors shall require that records of any
18 authorizations or approvals, other documentation as the board
19 may require and reports of any action taken under authority
20 delegated under the plan referred to in subsection A of this
21 Section shall be made available on a regular basis to the
22 board of directors.
23 E. In discharging their duties under this Section, the
24 directors of an insurer shall perform their duties in good
25 faith and with that degree of care that ordinarily prudent
26 individuals in like positions would use under similar
27 circumstances.
28 F. If an insurer does not have a board of directors, all
29 references to the board of directors in this Article shall be
30 deemed to be references to the governing body of the insurer
31 having authority equivalent to that of a board of directors.
32 (215 ILCS 5/126.5 new)
33 Sec. 126.5. Prohibited investments. An insurer shall
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1 not, directly or indirectly:
2 A. Invest in an obligation or security or make a
3 guarantee for the benefit of or in favor of an officer or
4 director of the insurer, except as provided in Section 126.6;
5 B. Invest in an obligation or security, make a guarantee
6 for the benefit of or in favor of, or make other investments
7 in a business entity of which 10% or more of the voting
8 securities or equity interests are owned directly or
9 indirectly by or for the benefit of one or more officers or
10 directors of the insurer, except pursuant to a transaction
11 entered into in compliance with Section 131.20a of this Code
12 or provided in Section 126.6;
13 C. Engage on its own behalf or through one or more
14 affiliates in a transaction or series of transactions
15 designed to evade the prohibitions of this Article;
16 D. (1) Invest in a partnership as a general partner,
17 except that an insurer may make an investment as a general
18 partner:
19 (a) If all other partners in the partnership are
20 subsidiaries of the insurer or other insurance company
21 affiliates of the insurer;
22 (b) For the purpose of:
23 (i) Meeting cash calls committed to prior to the
24 effective date of this amendatory Act of 1997;
25 (ii) Completing those specific projects or activities of
26 the partnership in which the insurer was a general partner as
27 of the effective date of this amendatory Act of 1997 that had
28 been undertaken as of that date; or
29 (iii) Making capital improvements to property owned by
30 the partnership on the effective date of this amendatory Act
31 of 1997 if the insurer was a general partner as of that date;
32 or
33 (c) In accordance with Section 126.3C;
34 (2) This subsection shall not prohibit a subsidiary or
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1 other affiliate of the insurer from becoming a general
2 partner; or
3 E. Invest in or lend its funds upon the security of
4 shares of its own stock, except as authorized by other
5 provisions of this Code. However, no such shares shall be
6 admitted assets of the insurer.
7 (215 ILCS 5/126.6 new)
8 Sec. 126.6. Loans to officers and directors.
9 A. (1) Except as provided in Section 126.6B, an insurer
10 shall not directly or indirectly, unless it has notified the
11 Director in writing of its intention to enter into the
12 transaction at least 30 days prior thereto, or any shorter
13 period as the Director may permit, and the Director has not
14 disapproved it within that period:
15 (a) Make a loan to or other investment in an officer or
16 director of the insurer or a person in which the officer or
17 director has any direct or indirect financial interest;
18 (b) Make a guarantee for the benefit of or in favor of
19 an officer or director of the insurer or a person in which
20 the officer or director has any direct or indirect financial
21 interest; or
22 (c) Enter into an agreement for the purchase or sale of
23 property from or to an officer or director of the insurer or
24 a person in which the officer or director has any direct or
25 indirect financial interest.
26 (2) For purposes of this Section, an officer or director
27 shall not be deemed to have a financial interest by reason of
28 an interest that is held directly or indirectly through the
29 ownership of equity interests representing less than 2% of
30 all outstanding equity interests issued by a person that is a
31 party to the transaction, or solely by reason of that
32 individual's position as a director or officer of a person
33 that is a party to the transaction.
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1 (3) This subsection does not permit an investment that
2 is prohibited by Section 126.5.
3 (4) This subsection does not apply to a transaction
4 between an insurer and any of its subsidiaries or affiliates
5 that is entered into in compliance with Section 131.20a of
6 this Code, other than a transaction between an insurer and
7 its officer or director.
8 B. An insurer may make, without the prior written
9 approval of the Director:
10 (1) Policy loans in accordance with the terms of the
11 policy or contract and Section 126.19;
12 (2) Advances to officers or directors for expenses
13 reasonably expected to be incurred in the ordinary course of
14 the insurer's business or guarantees associated with credit
15 or charge cards issued or credit extended for the purpose of
16 financing these expenses;
17 (3) Loans secured by the principal residence of an
18 existing or new officer of the insurer made in connection
19 with the officer's relocation at the insurer's request, if
20 the loans comply with the requirements of Section 126.15 or
21 126.28 and the terms and conditions otherwise are the same as
22 those generally available from unaffiliated third parties;
23 (4) Secured loans to an existing or new officer of the
24 insurer made in connection with the officer's relocation at
25 the insurer's request, if the loans:
26 (a) Do not have a term exceeding 2 years;
27 (b) Are required to finance mortgage loans outstanding
28 at the same time on the prior and new residences of the
29 officer;
30 (c) Do not exceed an amount equal to the equity of the
31 officer in the prior residence; and
32 (d) Are required to be fully repaid upon the earlier of
33 the end of the 2 year period or the sale of the prior
34 residence; and
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1 (5) Loans and advances to officers or directors made in
2 compliance with state or federal law specifically related to
3 the loans and advances by a regulated non-insurance
4 subsidiary or affiliate of the insurer in the ordinary course
5 of business and on terms no more favorable than available to
6 other customers of the entity.
7 (215 ILCS 5/126.7 new)
8 Sec. 126.7. Valuation of investments. For the purposes
9 of this Article, the value or amount of an investment
10 acquired or held, or an investment practice engaged in, under
11 this Article, unless otherwise specified in this Code, shall
12 be the value at which assets of an insurer are required to be
13 reported for statutory accounting purposes as determined in
14 accordance with procedures prescribed in published accounting
15 and valuation standards of the NAIC, including the Purposes
16 and Procedures of the Securities Valuation Office, the
17 Valuation of Securities manual, the Accounting Practices and
18 Procedures manual, the Annual Statement Instructions or any
19 successor valuation procedures officially adopted by the
20 NAIC. The Director shall promulgate rules for determining
21 and calculating values to be used in financial statements
22 submitted to the Department for investments not subject to
23 published National Association of Insurance Commissioners
24 valuation standards.
25 (215 ILCS 5/126.8 new)
26 Sec. 126.8. Rules. The Director may, in accordance with
27 Section 401 of this Code, promulgate rules implementing the
28 provisions of this Article.
29 (215 ILCS 5/Art. VIII, Part 2 heading new)
30 2. LIFE AND HEALTH INSURERS
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1 (215 ILCS 5/126.9 new)
2 Sec. 126.9. Applicability. This Part shall apply to the
3 investments and investment practices of companies authorized
4 to transact business under Class 1 of Section 4 of this Code
5 and other companies whose investments and investment
6 practices are regulated as life insurers under this Code,
7 subject to the provisions of Section 126.1B.
8 (215 ILCS 5/126.10 new)
9 Sec. 126.10. General 3% diversification, medium and
10 lower grade investments, and Canadian investments.
11 A. General 3% diversification.
12 (1) Except as otherwise specified in this Article, an
13 insurer shall not acquire, directly or indirectly through an
14 investment subsidiary, an investment under this Article if,
15 as a result of and after giving effect to the investment, the
16 insurer would hold more than 3% of its admitted assets in
17 investments of all kinds issued, assumed, accepted,
18 guaranteed, or insured by a single person.
19 (2) This 3% limitation shall not apply to the aggregate
20 amounts insured by a single financial guaranty insurer with
21 the highest generic rating issued by a nationally recognized
22 statistical rating organization.
23 (3) Asset-backed securities shall not be subject to the
24 limitations of paragraph (1) of this subsection, however,
25 except as permitted by subsection A(4) of this Section, an
26 insurer shall not acquire an asset-backed security if, as a
27 result of and after giving effect to the investment, the
28 aggregate amount of asset-backed securities secured by or
29 evidencing an interest in a single asset or single pool of
30 assets held by a trust or other business entity, then held by
31 the insurer would exceed 3% of its admitted assets.
32 (4) A company's investments in mortgage related
33 securities, as defined by the Secondary Mortgage Market
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1 Enhancement Act of 1984 (United States Public Law 98-440) [12
2 U.S.C. 24, 1451, 1454 et seq.], that are backed by any single
3 pool of mortgages and made pursuant to the authority of that
4 Act, shall not exceed 5% of its admitted assets.
5 B. Medium and lower grade investments.
6 (1) An insurer shall not acquire, directly or indirectly
7 through an investment subsidiary, an investment under
8 Sections 126.11, 126.14, and 126.17 or counterparty exposure
9 under Section 126.18D if, as a result of and after giving
10 effect to the investment:
11 (a) The aggregate amount of medium and lower grade
12 investments then held by the insurer would exceed 20% of its
13 admitted assets;
14 (b) The aggregate amount of lower grade investments then
15 held by the insurer would exceed 10% of its admitted assets;
16 (c) The aggregate amount of investments rated 5 or 6 by
17 the SVO then held by the insurer would exceed 3% of its
18 admitted assets;
19 (d) The aggregate amount of investments rated 6 by the
20 SVO then held by the insurer would exceed 1% of its admitted
21 assets; or
22 (e) The aggregate amount of lower grade investments then
23 held by the insurer that receive as cash income less than the
24 equivalent yield for Treasury issues with a comparative
25 average life, would exceed 1% of its admitted assets.
26 (2) An insurer shall not acquire, directly or indirectly
27 through an investment subsidiary, an investment under
28 Sections 126.11, 126.14, and 126.17 or counterparty exposure
29 under Section 126.18D if, as a result of and after giving
30 effect to the investment:
31 (a) The aggregate amount of medium and lower grade
32 investments issued, assumed, accepted, guaranteed, or insured
33 by any one person or, as to asset-backed securities secured
34 by or evidencing an interest in a single asset or pool of
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1 assets, then held by the insurer would exceed 1% of its
2 admitted assets; or
3 (b) The aggregate amount of lower grade investments
4 issued, assumed, accepted, guaranteed, or insured by any one
5 person or, as to asset-backed securities secured by or
6 evidencing an interest in a single asset or pool of assets,
7 then held by the insurer would exceed 0.5% of its admitted
8 assets.
9 (3) If an insurer attains or exceeds the limit of any
10 one rating category referred to in this subsection, the
11 insurer shall not thereby be precluded from acquiring
12 investments in other rating categories subject to the
13 specific and multi-category limits applicable to those
14 investments.
15 C. Canadian investments.
16 (1) An insurer shall not acquire, directly or indirectly
17 through an investment subsidiary, a Canadian investment
18 authorized by this Article, if as a result of and after
19 giving effect to the investment, the aggregate amount of
20 these investments then held by the insurer would exceed 40%
21 of its admitted assets, or if the aggregate amount of
22 Canadian investments not acquired under Section 126.11B then
23 held by the insurer would exceed 25% of its admitted assets.
24 (2) However, as to an insurer that is authorized to do
25 business in Canada or that has outstanding insurance, annuity
26 or reinsurance contracts on lives or risks resident or
27 located in Canada and denominated in Canadian currency, the
28 limitations of paragraph (1) of this subsection shall be
29 increased by the greater of:
30 (a) The amount the insurer is required by Canadian law
31 to invest in Canada or to be denominated in Canadian
32 currency; or
33 (b) 115% of the amount of its reserves and other
34 obligations under contracts on lives or risks resident or
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1 located in Canada.
2 (215 ILCS 5/126.11 new)
3 Sec. 126.11. Rated credit instruments. Subject to the
4 limitations of subsection F of this Section, an insurer may
5 acquire rated credit instruments:
6 A. Subject to the limitations of Section 126.10B, but
7 not to the limitations of Section 126.10A, except for that of
8 subsection (4) of Section 126.10A, an insurer may acquire
9 rated credit instruments issued, assumed, guaranteed, or
10 insured by:
11 (1) The United States; or
12 (2) A government sponsored enterprise of the United
13 States, if the instruments of the government sponsored
14 enterprise are assumed, guaranteed, or insured by the United
15 States or are otherwise backed or supported by the full faith
16 and credit of the United States.
17 B. (1) Subject to the limitations of Section 126.10B,
18 but not to the limitations of Section 126.10A, an insurer may
19 acquire rated credit instruments issued, assumed, guaranteed,
20 or insured by:
21 (a) Canada; or
22 (b) A government sponsored enterprise of Canada, if the
23 instruments of the government sponsored enterprise are
24 assumed, guaranteed, or insured by Canada or are otherwise
25 backed or supported by the full faith and credit of Canada;
26 (2) However, an insurer shall not acquire an instrument
27 under this subsection if, as a result of and after giving
28 effect to the investment, the aggregate amount of investments
29 then held by the insurer under this subsection would exceed
30 40% of its admitted assets.
31 C. (1) Subject to the limitations of Section 126.10B,
32 but not to the limitations of Section 126.10A, an insurer may
33 acquire rated credit instruments, excluding asset-backed
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1 securities:
2 (a) Issued by a government money market mutual fund, a
3 class one money market mutual fund or a class one bond mutual
4 fund;
5 (b) Issued, assumed, guaranteed, or insured by a
6 government sponsored enterprise of the United States other
7 than those eligible under subsection A of this Section;
8 (c) Issued, assumed, guaranteed, or insured by a state,
9 if the instruments are general obligations of the state; or
10 (d) Issued by a multilateral development bank;
11 (2) However, an insurer shall not acquire an instrument
12 of any one fund, any one enterprise or entity or any one
13 state under this subsection if, as a result of and after
14 giving effect to the investment, the aggregate amount of
15 investments then held by the insurer in any one fund,
16 enterprise, entity, or state under this subsection would
17 exceed 10% of its admitted assets.
18 D. Subject to the limitations of Section 126.10, an
19 insurer may acquire preferred stocks that are not foreign
20 investments and that meet the requirements of rated credit
21 instruments if, as a result of and after giving effect to the
22 investment:
23 (1) The aggregate amount of preferred stocks then held
24 by the insurer under this subsection does not exceed 33 1/3%
25 of its admitted assets; and
26 (2) The aggregate amount of preferred stocks then held
27 by the insurer under this subsection which are not sinking
28 fund stocks or rated P1 or P2 by the SVO does not exceed 15%
29 of its admitted assets.
30 E. Subject to the limitations of Section 126.10, in
31 addition to those investments eligible under subsections A,
32 B, C and D of this Section, an insurer may acquire rated
33 credit instruments that are not foreign investments.
34 F. An insurer shall not acquire special rated credit
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1 instruments under this Section if, as a result of and after
2 giving effect to the investment, the aggregate amount of
3 special rated credit instruments then held by the insurer
4 would exceed 5% of its admitted assets. The Director may, by
5 rule, identify certain special rated credit instruments that
6 will be exempt from the limitation imposed by this
7 subsection.
8 (215 ILCS 5/126.12 new)
9 Sec. 126.12. Insurer investment pools.
10 A. An insurer may acquire investments in investment
11 pools that:
12 (1) Invest only in:
13 (a) Obligations that are rated 1 or 2 by the SVO or have
14 an equivalent of an SVO 1 or 2 rating (or, in the absence of
15 a 1 or 2 rating or equivalent rating, the issuer has
16 outstanding obligations with an SVO 1 or 2 or equivalent
17 rating) by a nationally recognized statistical rating
18 organization recognized by the SVO and have:
19 (i) A remaining maturity of 397 days or less or a put
20 that entitles the holder to receive the principal amount of
21 the obligation which put may be exercised through maturity at
22 specified intervals not exceeding 397 days; or
23 (ii) A remaining maturity of 3 years or less and a
24 floating interest rate that resets no less frequently than
25 quarterly on the basis of a current short-term index (federal
26 funds, prime rate, treasury bills, London InterBank Offered
27 Rate (LIBOR) or commercial paper) and is subject to no
28 maximum limit, if the obligations do not have an interest
29 rate that varies inversely to market interest rate changes;
30 (b) Government money market mutual funds or class one
31 money market mutual funds; or
32 (c) Securities lending, repurchase, and reverse
33 repurchase transactions that meet all the requirements of
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1 Section 126.16, except the quantitative limitations of
2 Section 126.16D; or
3 (2) Invest only in investments which an insurer may
4 acquire under this Article, if the insurer's proportionate
5 interest in the amount invested in these investments when
6 combined with amount of such investments made directly or
7 indirectly through an investment subsidiary or other insurer
8 investment pool permitted under this subsection A(2) does not
9 exceed the applicable limits of this Article for such
10 investments.
11 B. For an investment in an investment pool to be
12 qualified under this Article, the investment pool shall not:
13 (1) Acquire securities issued, assumed, guaranteed or
14 insured by the insurer or an affiliate of the insurer;
15 (2) Borrow or incur any indebtedness for borrowed money,
16 except for securities lending and reverse repurchase
17 transactions that meet the requirements of Section 126.16
18 except the quantitative limitations of Section 126.16D; or
19 (3) Acquire an investment if, as a result of such
20 transaction, the aggregate value of securities then loaned or
21 sold to, purchased from or invested in any one business
22 entity under this Section would exceed 10% of the total
23 assets of the investment pool.
24 C. The limitations of Section 126.10A shall not apply to
25 an insurer's investment in an investment pool, however an
26 insurer shall not acquire an investment in an investment pool
27 under this Section if, as a result of and after giving effect
28 to the investment, the aggregate amount of investments then
29 held by the insurer under this Section:
30 (1) In all investment pools investing in investments
31 permitted under subsection A(2) of this Section would exceed
32 25% of its admitted assets; or
33 (2) In all investment pools would exceed 35% of its
34 admitted assets.
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1 D. For an investment in an investment pool to be
2 qualified under this Article, the manager of the investment
3 pool shall:
4 (1) Be organized under the laws of the United States or
5 a state and designated as the pool manager in a pooling
6 agreement;
7 (2) Be the insurer, an affiliated insurer or a business
8 entity affiliated with the insurer, a qualified bank, a
9 business entity registered under the Investment Advisors Act
10 of 1940 (15 U.S.C. 80a-1 et seq.), as amended or, in the
11 case of a reciprocal insurer or interinsurance exchange, its
12 attorney-in-fact, or in the case of a United States branch of
13 an alien insurer, its United States manager or an affiliate
14 or subsidiary of its United States manager;
15 (3) Be responsible for the compilation and maintenance
16 of detailed accounting records setting forth:
17 (a) The cash receipts and disbursements reflecting each
18 participant's proportionate investment in the investment
19 pool;
20 (b) A complete description of all underlying assets of
21 the investment pool (including amount, interest rate,
22 maturity date (if any) and other appropriate designations);
23 and
24 (c) Other records which, on a daily basis, allow third
25 parties to verify each participant's investment in the
26 investment pool; and
27 (4) Maintain the assets of the investment pool in one or
28 more accounts, in the name of or on behalf of the investment
29 pool, under a custody agreement with a qualified bank. The
30 custody agreement shall:
31 (a) State and recognize the claims and rights of each
32 participant;
33 (b) Acknowledge that the underlying assets of the
34 investment pool are held solely for the benefit of each
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1 participant in proportion to the aggregate amount of its
2 investments in the investment pool; and
3 (c) Contain an agreement that the underlying assets of
4 the investment pool shall not be commingled with the general
5 assets of the custodian qualified bank or any other person.
6 E. The pooling agreement for each investment pool shall
7 be in writing and shall provide that:
8 (1) An insurer and its affiliated insurers or, in the
9 case of an investment pool investing solely in investments
10 permitted under subsection A(1) of this Section, the insurer
11 and its subsidiaries, affiliates or any pension or profit
12 sharing plan of the insurer, its subsidiaries and affiliates
13 or, in the case of a United States branch of an alien
14 insurer, affiliates or subsidiaries of its United States
15 manager, shall, at all times, hold 100% of the interests in
16 the investment pool;
17 (2) The underlying assets of the investment pool shall
18 not be commingled with the general assets of the pool manager
19 or any other person;
20 (3) In proportion to the aggregate amount of each pool
21 participant's interest in the investment pool:
22 (a) Each participant owns an undivided interest in the
23 underlying assets of the investment pool; and
24 (b) The underlying assets of the investment pool are
25 held solely for the benefit of each participant;
26 (4) A participant, or in the event of the participant's
27 insolvency, bankruptcy or receivership, its trustee, receiver
28 or other successor-in-interest, may withdraw all or any
29 portion of its investment from the investment pool under the
30 terms of the pooling agreement;
31 (5) Withdrawals may be made on demand without penalty or
32 other assessment on any business day, but settlement of funds
33 shall occur within a reasonable and customary period
34 thereafter not to exceed 10 business days. Distributions
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1 under this paragraph shall be calculated in each case net of
2 all then applicable fees and expenses of the investment pool.
3 The pooling agreement shall provide that the pool manager
4 shall distribute to a participant, at the discretion of the
5 pool manager:
6 (a) In cash, the then fair market value of the
7 participant's pro rata share of each underlying asset of the
8 investment pool;
9 (b) In kind, a pro rata share of each underlying asset;
10 or
11 (c) In a combination of cash and in kind distributions,
12 a pro rata share in each underlying asset; and
13 (6) The pool manager shall make the records of the
14 investment pool available for inspection by the Director.
15 F. Except for the formation of the investment pool,
16 transactions and between a domestic insurer and an affiliated
17 insurer investment pool shall not be subject to the
18 requirements of Section 131.20a of this Code.
19 (215 ILCS 5/126.13 new)
20 Sec. 126.13. Equity interests.
21 A. Subject to the limitations of Section 126.10, an
22 insurer may acquire directly or indirectly through an
23 investment subsidiary, equity interests in business entities
24 organized under the laws of any domestic jurisdiction.
25 B. An insurer shall not acquire directly or indirectly
26 through an investment subsidiary an investment under this
27 Section if, as a result of and after giving effect to the
28 investment, the aggregate amount of investments then held by
29 the insurer under this Section would exceed 20% of its
30 admitted assets or, except for mutual funds, the amount of
31 equity interests then held by the insurer that are not listed
32 on a qualified exchange would exceed 5% of its admitted
33 assets. An accident and health insurer shall not be subject
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1 to this Section but shall be subject to the same aggregate
2 limitation on equity interests as a property and casualty
3 insurer under Section 126.26 and also to the provisions of
4 Section 126.22 of this Article.
5 C. An insurer shall not acquire under this Section any
6 investments that the insurer may acquire under Section
7 126.15.
8 D. An insurer shall not short sell equity interests
9 unless the insurer covers the short sale by owning the equity
10 interest or an unrestricted right to the equity interest
11 exercisable within 6 months of the short sale.
12 (215 ILCS 5/126.14 new)
13 Sec. 126.14. Tangible personal property under lease.
14 A. (1) Subject to the limitations of Section 126.10, an
15 insurer may acquire tangible personal property or equity
16 interests therein located or used wholly or in part within a
17 domestic jurisdiction either directly or indirectly through
18 limited partnership interests and general partnership
19 interests not otherwise prohibited by Section 126.5D, joint
20 ventures, stock of an investment subsidiary or membership
21 interests in a limited liability company, trust certificates,
22 or other similar instruments.
23 (2) Investments acquired under paragraph (1) of this
24 subsection shall be eligible only if:
25 (a) The property is subject to a lease or other
26 agreement with a person whose rated credit instruments in the
27 amount of the purchase price of the personal property the
28 insurer could then acquire under Section 126.11; and
29 (b) The lease or other agreement provides the insurer
30 the right to receive rental, purchase or other fixed payments
31 for the use or purchase of the property, and the aggregate
32 value of the payments, together with the estimated residual
33 value of the property at the end of its useful life and the
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1 estimated tax benefits to the insurer resulting from
2 ownership of the property, shall be adequate to return the
3 cost of the insurer's investment in the property, plus a
4 return deemed adequate by the insurer.
5 B. The insurer shall compute the amount of each
6 investment under this Section on the basis of the out of
7 pocket purchase price and applicable related expenses paid by
8 the insurer for the investment, net of each borrowing made to
9 finance the purchase price and expenses, to the extent the
10 borrowing is without recourse to the insurer.
11 C. An insurer shall not acquire directly or indirectly
12 through an investment subsidiary an investment under this
13 Section if, as a result of and after giving effect to the
14 investment, the aggregate amount of all investments then held
15 by the insurer under this Section would exceed:
16 (1) 2% of its admitted assets; or
17 (2) 0.5% of its admitted assets as to any single item of
18 tangible personal property.
19 D. For purposes of determining compliance with the
20 limitations of Section 126.10, investments acquired by an
21 insurer under this Section shall be aggregated with those
22 acquired under Section 126.11, and each lessee of the
23 property under a lease referred to in this Section shall be
24 deemed the issuer of an obligation in the amount of the
25 investment of the insurer in the property determined as
26 provided in subsection B of this Section.
27 E. Nothing in this Section is applicable to tangible
28 personal property lease arrangements between an insurer and
29 its subsidiaries and affiliates under a cost sharing
30 arrangement or agreement permitted under Section
31 131.20a(1)(a)(iv).
32 (215 ILCS 5/126.15 new)
33 Sec. 126.15. Mortgage loans and real estate.
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1 A. Mortgage loans.
2 (l) Subject to the limitations of Section 126.10, an
3 insurer may acquire, either directly or indirectly through
4 limited partnership interests and general partnership
5 interests not otherwise prohibited by Section 126.5D, joint
6 ventures, stock of an investment subsidiary or membership
7 interests in a limited liability company, trust certificates,
8 or other similar instruments, obligations secured by
9 mortgages on real estate situated within a domestic
10 jurisdiction, but a mortgage loan which is secured by other
11 than a first lien shall not be acquired under this subsection
12 (1) unless the insurer is the holder of the first lien. The
13 obligations held by the insurer and any obligations with an
14 equal lien priority, shall not, at the time of acquisition of
15 the obligation, exceed:
16 (a) 90% of the fair market value of the real estate, if
17 the mortgage loan is secured by a purchase money mortgage or
18 like security received by the insurer upon disposition of the
19 real estate;
20 (b) 80% of the fair market value of the real estate, if
21 the mortgage loan requires immediate scheduled payment in
22 periodic installments of principal and interest, has an
23 amortization period of 30 years or less and periodic payments
24 made no less frequently than annually. Each periodic payment
25 shall be sufficient to assure that at all times the
26 outstanding principal balance of the mortgage loan shall be
27 not greater than the outstanding principal balance that would
28 be outstanding under a mortgage loan with the same original
29 principal balance, with the same interest rate and requiring
30 equal payments of principal and interest with the same
31 frequency over the same amortization period. Mortgage loans
32 permitted under this subsection are permitted notwithstanding
33 the fact that they provide for a payment of the principal
34 balance prior to the end of the period of amortization of the
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1 loan. For residential mortgage loans, the 80% limitation may
2 be increased to 97% if acceptable private mortgage insurance
3 has been obtained; or
4 (c) 75% of the fair market value of the real estate for
5 mortgage loans that do not meet the requirements of
6 subparagraph (a) or (b) of this paragraph.
7 (2) For purposes of paragraph (1) of this subsection,
8 the amount of an obligation required to be included in the
9 calculation of the loan-to-value ratio may be reduced to the
10 extent the obligation is insured by the Federal Housing
11 Administration or guaranteed by the Administrator of Veterans
12 Affairs, or their successors.
13 (3) Subject to the limitations of Section 126.10, an
14 insurer may acquire, either directly or indirectly through
15 limited partnership interests and general partnership
16 interests not otherwise prohibited by Section 126.5D, joint
17 ventures, stock of an investment subsidiary or membership
18 interests in a limited liability company, trust certificates,
19 or other similar instruments, obligations secured by a second
20 mortgage on real estate situated within a domestic
21 jurisdiction, other than as authorized in subsection (1) of
22 this Section 126.15. The obligation held by the insurer
23 shall be the sole second lien priority obligation and shall
24 not, at the time of acquisition of the obligation, exceed 70%
25 of the amount by which the fair market value of the real
26 estate exceeds the amount outstanding under the first
27 mortgage.
28 (4) A mortgage loan that is held by an insurer under
29 Section 126.3F or acquired under this Section and is
30 restructured in a manner that meets the requirements of a
31 restructured mortgage loan in accordance with the NAIC
32 Accounting Practices and Procedures Manual or successor
33 publication shall continue to qualify as a mortgage loan
34 under this Article.
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1 (5) Subject to the limitations of Section 126.10, credit
2 lease transactions that do not qualify for investment under
3 Section 126.11 with the following characteristics shall be
4 exempt from the provisions of paragraph (1) of this
5 subsection:
6 (a) The loan amortizes over the initial fixed lease term
7 at least in an amount sufficient so that the loan balance at
8 the end of the lease term does not exceed the original
9 appraised value of the real estate;
10 (b) The lease payments cover or exceed the total debt
11 service over the life of the loan;
12 (c) A tenant or its affiliated entity, whose rated
13 credit instruments have a SVO 1 or 2 designation or a
14 comparable rating from a nationally recognized statistical
15 rating organization recognized by the SVO, has a full faith
16 and credit obligation to make the lease payments;
17 (d) The insurer holds or is the beneficial holder of a
18 first lien mortgage on the real estate;
19 (e) The expenses of the real estate are passed through
20 to the tenant, excluding exterior, structural, parking and
21 heating, ventilation and air conditioning replacement
22 expenses, unless annual escrow contributions, from cash flows
23 derived from the lease payments, cover the expense shortfall;
24 and
25 (f) There is a perfected assignment of the rents due
26 pursuant to the lease to, or for the benefit of, the insurer.
27 B. Income producing real estate.
28 (1) An insurer may acquire, manage and dispose of real
29 estate situated in a domestic jurisdiction either directly or
30 indirectly through limited partnership interests and general
31 partnership interests not otherwise prohibited by Section
32 126.5D, joint ventures, stock of an investment subsidiary or
33 membership interests in a limited liability company, trust
34 certificates, or other similar instruments. The real estate
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1 shall be income producing or intended for improvement or
2 development for investment purposes under an existing program
3 (in which case the real estate shall be deemed to be income
4 producing).
5 (2) The real estate may be subject to mortgages, liens
6 or other encumbrances, the amount of which shall, to the
7 extent that the obligations secured by the mortgages, liens
8 or encumbrances are without recourse to the insurer, be
9 deducted from the amount of the investment of the insurer in
10 the real estate for purposes of determining compliance with
11 subsections D(2) and D(3) of this Section.
12 C. Real estate for the accommodation of business.
13 An insurer may acquire, manage, and dispose of real
14 estate for the convenient accommodation of the insurer's
15 (which may include its affiliates) business operations,
16 including home office, branch office and field office
17 operations.
18 (1) Real estate acquired under this subsection may
19 include excess space for rent to others, if the excess space,
20 valued at its fair market value, would otherwise be a
21 permitted investment under subsection B of this Section and
22 is so qualified by the insurer;
23 (2) The real estate acquired under this subsection may
24 be subject to one or more mortgages, liens or other
25 encumbrances, the amount of which shall, to the extent that
26 the obligations secured by the mortgages, liens or
27 encumbrances are without recourse to the insurer, be deducted
28 from the amount of the investment of the insurer in the real
29 estate for purposes of determining compliance with subsection
30 D(4) of this Section; and
31 (3) For purposes of this subsection, business operations
32 shall not include that portion of real estate used for the
33 direct provision of health care services by an accident and
34 health insurer for its insureds. An insurer may acquire real
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1 estate used for these purposes under subsection B of this
2 Section.
3 D. Quantitative limitations.
4 (1) An insurer shall not acquire an investment under
5 subsection A of this Section if, as a result of and after
6 giving effect to the investment, the aggregate amount of all
7 investments then held by the insurer under subsection A of
8 this Section would exceed:
9 (a) 1% of its admitted assets in mortgage loans covering
10 any one secured location;
11 (b) 0.25% of its admitted assets in construction loans
12 covering any one secured location; or
13 (c) 2% of its admitted assets in construction loans in
14 the aggregate.
15 (2) An insurer shall not acquire an investment under
16 subsection B of this Section if, as a result of and after
17 giving effect to the investment and any outstanding
18 guarantees made by the insurer in connection with the
19 investment, the aggregate amount of investments then held by
20 the insurer under subsection B of this Section plus the
21 guarantees then outstanding would exceed:
22 (a) 1% of its admitted assets in one parcel or group of
23 contiguous parcels of real estate, except that this
24 limitation shall not apply to that portion of real estate
25 used for the direct provision of health care services by an
26 accident and health insurer for its insureds, such as
27 hospitals, medical clinics, medical professional buildings or
28 other health facilities used for the purpose of providing
29 health services; or
30 (b) 15% of its admitted assets in the aggregate, but not
31 more than 5% of its admitted assets in real estate to be
32 improved or developed.
33 (3) An insurer shall not acquire an investment under
34 subsections A or B of this Section if, as a result of and
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1 after giving effect to the investment and any guarantees made
2 by the insurer in connection with the investment, the
3 aggregate amount of all investments then held by the insurer
4 under subsections A and B of this Section plus the guarantees
5 then outstanding would exceed 45% of its admitted assets.
6 However, an insurer may exceed this limitation by no more
7 than 30% of its admitted assets if:
8 (a) This increased amount is invested only in
9 residential mortgage loans;
10 (b) The insurer has no more than 10% of its admitted
11 assets invested in mortgage loans other than residential
12 mortgage loans;
13 (c) The loan-to-value ratio of each residential mortgage
14 loan does not exceed 60% at the time the mortgage loan is
15 qualified under this increased authority, and the fair market
16 value is supported by an appraisal no more than 2 years old,
17 prepared by an independent appraiser;
18 (d) A single mortgage loan qualified under this
19 increased authority shall not exceed 0.5% of its admitted
20 assets;
21 (e) The insurer files with the Director, and receives
22 approval from the Director for, a plan that is designed to
23 result in a portfolio of residential mortgage loans that is
24 sufficiently geographically diversified; and
25 (f) The insurer agrees to file annually with the
26 Director records that demonstrate that its portfolio of
27 residential mortgage loans is geographically diversified in
28 accordance with the plan.
29 (4) The limitations of Section 126.10 shall not apply to
30 an insurer's acquisition of real estate under subsection C of
31 this Section. An insurer shall not acquire real estate under
32 subsection C of this Section if, as a result of and after
33 giving effect to the acquisition, the aggregate amount of
34 real estate then held by the insurer under subsection C of
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1 this Section would exceed 10% of its admitted assets. With
2 the permission of the Director, additional amounts of real
3 estate may be acquired under subsection C of this Section.
4 (215 ILCS 5/126.16 new)
5 Sec. 126.16. Securities lending and repurchase, reverse
6 repurchase, and dollar roll transactions. An insurer may
7 enter into securities lending, repurchase, reverse
8 repurchase, and dollar roll transactions with business
9 entities, subject to the following requirements:
10 A. The insurer's board of directors shall adopt a
11 written plan that is consistent with the requirements of the
12 written plan in Section 126.4A that specifies guidelines and
13 objectives to be followed, such as:
14 (1) A description of how cash received will be invested
15 or used for general corporate purposes of the insurer;
16 (2) Operational procedures to manage interest rate risk,
17 counterparty default risk, the conditions under which
18 proceeds from reverse repurchase transactions may be used in
19 the ordinary course of business and the use of acceptable
20 collateral in a manner that reflects the liquidity needs of
21 the transaction; and
22 (3) The extent to which the insurer may engage in these
23 transactions.
24 B. The insurer shall enter into a written agreement for
25 all transactions authorized in this Section other than dollar
26 roll transactions. The written agreement shall require that
27 each transaction terminate no more than one year from its
28 inception or upon the earlier demand of the insurer. The
29 agreement shall be with the business entity counterparty, but
30 for securities lending transactions, the agreement may be
31 with an agent acting on behalf of the insurer, if the agent
32 is a qualified business entity, and if the agreement:
33 (1) Requires the agent to enter into separate agreements
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1 with each counterparty that are consistent with the
2 requirements of this Section; and
3 (2) Prohibits securities lending transactions pursuant
4 to the agreement with the agent or its affiliates.
5 C. Cash received in a transaction under this Section
6 shall be invested in accordance with this Article and in a
7 manner that recognizes the liquidity needs of the transaction
8 or used by the insurer for its general corporate purposes.
9 For so long as the transaction remains outstanding, the
10 insurer, its agent or custodian shall maintain, as to
11 acceptable collateral received in a transaction under this
12 Section, either physically or through the book entry systems
13 of the Federal Reserve, Depository Trust Company,
14 Participants Trust Company or other securities depositories
15 approved by the Director:
16 (1) Possession of the acceptable collateral;
17 (2) A perfected security interest in the acceptable
18 collateral; or
19 (3) In the case of a jurisdiction outside of the United
20 States, title to, or rights of a secured creditor to, the
21 acceptable collateral.
22 D. The limitations of Sections 126.10 and 126.17 shall
23 not apply to the business entity counterparty exposure
24 created by transactions under this Section. For purposes of
25 calculations made to determine compliance with this
26 subsection, no effect will be given to the insurer's future
27 obligation to resell securities, in the case of a repurchase
28 transaction, or to repurchase securities, in the case of a
29 reverse repurchase transaction. An insurer shall not enter
30 into a transaction under this Section if, as a result of and
31 after giving effect to the transaction:
32 (1) The aggregate amount of securities then loaned or
33 sold to, or purchased from, any one business entity
34 counterparty under this Section would exceed 5% of its
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1 admitted assets. In calculating the amount sold to or
2 purchased from a business entity counterparty under
3 repurchase or reverse repurchase transactions, effect may be
4 given to netting provisions under a master written agreement;
5 or
6 (2) The aggregate amount of all securities then loaned,
7 sold to or purchased from all business entities under this
8 Section would exceed 40% of its admitted assets.
9 E. In a dollar roll transaction, the insurer shall
10 receive cash in an amount at least equal to the market value
11 of the securities transferred by the insurer in the
12 transaction as of the transaction date.
13 F. The Director may promulgate reasonable rules for
14 investments and transactions under this Section including,
15 but not limited to, rules which impose financial solvency
16 standards, valuation standards, and reporting requirements.
17 (215 ILCS 5/126.17 new)
18 Sec. 126.17. Foreign investments and foreign currency
19 exposure.
20 A. Subject to the limitations of Section 126.10, an
21 insurer may acquire directly or indirectly through an
22 investment subsidiary, foreign investments, or engage in
23 investment practices with persons of or in foreign
24 jurisdictions, of substantially the same types as those that
25 an insurer is permitted to acquire under this Article, other
26 than of the type permitted under Section 126.12, if, as a
27 result and after giving effect to the investment:
28 (1) The aggregate amount of foreign investments then
29 held by the insurer under this subsection does not exceed 20%
30 of its admitted assets; and
31 (2) The aggregate amount of foreign investments then
32 held by the insurer under this subsection in a single foreign
33 jurisdiction does not exceed 10% of its admitted assets as to
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1 a foreign jurisdiction that has a sovereign debt rating of
2 SVO 1 or 3% of its admitted assets as to any other foreign
3 jurisdiction.
4 B. Subject to the limitations of Section 126.10, an
5 insurer may acquire investments, or engage in investment
6 practices denominated in foreign currencies, whether or not
7 they are foreign investments acquired under subsection A of
8 this Section, or additional foreign currency exposure as a
9 result of the termination or expiration of a hedging
10 transaction with respect to investments denominated in a
11 foreign currency, if, as a result of and after giving effect
12 to the transaction:
13 (1) The aggregate amount of investments then held by the
14 insurer under this subsection denominated in foreign
15 currencies does not exceed 10% of its admitted assets; and
16 (2) The aggregate amount of investments then held by the
17 insurer under this subsection denominated in the foreign
18 currency of a single foreign jurisdiction does not exceed 10%
19 of its admitted assets as to a foreign jurisdiction that has
20 a sovereign debt rating of SVO 1 or 3% of its admitted assets
21 as to any other foreign jurisdiction.
22 (3) However, an investment shall not be considered
23 denominated in a foreign currency if the acquiring insurer
24 enters into one or more contracts in transactions permitted
25 under Section 126.18 in which the business entity
26 counterparty agrees to exchange, or grants to the insurer the
27 option to exchange, all payments made on the foreign currency
28 denominated investment (or amounts equivalent to the payments
29 that are or will be due to the insurer in accordance with the
30 terms of such investment) for United States currency during
31 the period the contract or contracts are in effect to
32 insulate the insurer against loss caused by diminution of the
33 value of payments owed to the insurer due to future changes
34 in currency exchange rates.
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1 C. In addition to investments permitted under
2 subsections A and B of this Section, an insurer that is
3 authorized to do business in a foreign jurisdiction, and that
4 has outstanding insurance, annuity or reinsurance contracts
5 on lives or risks resident or located in that foreign
6 jurisdiction and denominated in foreign currency of that
7 jurisdiction, may acquire foreign investments respecting that
8 foreign jurisdiction, and may acquire investments denominated
9 in the currency of that jurisdiction, subject to the
10 limitations of Section 126.10. However, investments made
11 under this subsection in obligations of foreign governments,
12 their political subdivisions and government sponsored
13 enterprises shall not be subject to the limitations of
14 Section 126.10 if those investments carry an SVO rating of 1
15 or 2. The aggregate amount of investments acquired by the
16 insurer under this subsection shall not exceed the greater
17 of:
18 (1) The amount the insurer is required by the law of the
19 foreign jurisdiction to invest in the foreign jurisdiction;
20 or
21 (2) 115% of the amount of its reserves, net of
22 reinsurance, and other obligations under the contracts on
23 lives or risks resident or located in the foreign
24 jurisdiction.
25 D. In addition to investments permitted under
26 subsections A and B of this Section, an insurer that is not
27 authorized to do business in a foreign jurisdiction, but
28 which has outstanding insurance, annuity or reinsurance
29 contracts on lives or risks resident or located in that
30 foreign jurisdiction and denominated in foreign currency of
31 that jurisdiction, may acquire foreign investments respecting
32 that foreign jurisdiction, and may acquire investments
33 denominated in the currency of that jurisdiction subject to
34 the limitations of Section 126.10. However, investments made
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1 under this subsection in obligations of foreign governments,
2 their political subdivisions and government sponsored
3 enterprises shall not be subject to the limitations of
4 Section 126.10 if those investments carry an SVO rating of 1
5 or 2. The aggregate amount of investments acquired by the
6 insurer under this subsection shall not exceed 105% of the
7 amount of its reserves, net of reinsurance, and other
8 obligations under the contracts on lives or risks resident or
9 located in the foreign jurisdiction.
10 E. Investments acquired under this Section shall be
11 aggregated with investments of the same types made under all
12 other Sections of this Article, and in a similar manner, for
13 purposes of determining compliance with the limitations, if
14 any, contained in the other Sections. Investments in
15 obligations of foreign governments, their political
16 subdivisions and government sponsored enterprises of these
17 persons, except for those exempted under subsections C and D
18 of this Section, shall be subject to the limitations of
19 Section 126.10.
20 (215 ILCS 5/126.18 new)
21 Sec. 126.18. Derivative transactions. An insurer may,
22 directly or indirectly through an investment subsidiary,
23 engage in derivative transactions under this Section under
24 the following conditions:
25 A. General conditions.
26 (1) An insurer may use derivative instruments under this
27 Section to engage in hedging transactions and income
28 generation transactions.
29 (2) An insurer may use derivative instruments for
30 replication transactions only after the Director promulgates
31 reasonable rules that set forth methods of disclosure,
32 reserving for risk-based capital, and determining the asset
33 valuation reserve for these investments. Any asset being
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1 replicated is subject to all the provisions and limitations
2 on the making thereof specified in this Article with respect
3 to investments by the insurer as if the transaction
4 constituted a direct investment by the insurer in the
5 replicated asset.
6 (3) With respect to all hedging transactions, an insurer
7 shall be able to demonstrate to the Director the intended
8 hedging characteristics and the ongoing effectiveness of the
9 derivative transaction or combination of the transactions
10 through cash flow testing or other appropriate analyses.
11 (4) The Director may promulgate reasonable rules for
12 investments and transactions under this Section including,
13 but not limited to, rules which impose financial solvency
14 standards, valuation standards, and reporting requirements.
15 B. Limitations on hedging transactions.
16 An insurer may enter into hedging transactions under this
17 Section if, as a result of and after giving effect to the
18 transaction:
19 (1) The aggregate statement value of options, caps,
20 floors and warrants not attached to another financial
21 instrument purchased and used in hedging transactions then
22 engaged in by the insurer does not exceed 7.5% of its
23 admitted assets;
24 (2) The aggregate statement value of options, caps and
25 floors written in hedging transactions then engaged in by the
26 insurer does not exceed 3% of its admitted assets; and
27 (3) The aggregate potential exposure of collars, swaps,
28 forwards and futures used in hedging transactions then
29 engaged in by the insurer does not exceed 6.5% of its
30 admitted assets.
31 C. Limitations on income generation transactions.
32 An insurer may enter into the following types of income
33 generation transactions subject to the quantitative limits of
34 subsection C(5):
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1 (1) Sales of covered call options on noncallable fixed
2 income securities, callable fixed income securities if the
3 option expires by its terms prior to the end of the
4 noncallable period or derivative instruments based on fixed
5 income securities;
6 (2) Sales of covered call options on equity securities,
7 if the insurer holds in its portfolio, or can immediately
8 acquire through the exercise of options, warrants or
9 conversion rights already owned, the equity securities
10 subject to call during the complete term of the call option
11 sold;
12 (3) Sales of covered puts on investments that the
13 insurer is permitted to acquire under this Article, if the
14 insurer has escrowed, or entered into a custodian agreement
15 segregating, cash or cash equivalents with a market value
16 equal to the amount of its purchase obligations under the put
17 during the complete term of the put option sold; or
18 (4) Sales of covered caps or floors, if the insurer
19 holds in its portfolio the investments generating the cash
20 flow to make the required payments under the caps or floors
21 during the complete term that the cap or floor is
22 outstanding.
23 (5) If as a result of and after giving effect to the
24 transactions, the aggregate statement value of the fixed
25 income assets that are subject to call or that generate the
26 cash flows for payments under the caps or floors, plus the
27 face value of fixed income securities underlying a derivative
28 instrument subject to call, plus the amount of the purchase
29 obligations under the puts, does not exceed 10% of its
30 admitted assets.
31 D. Counterparty exposure. An insurer shall include all
32 counterparty exposure amounts in determining compliance with
33 the limitations of Section 126.10.
34 E. Additional transactions. Pursuant to rules
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1 promulgated under Section 126.8, the Director may approve
2 additional transactions involving the use of derivative
3 instruments in excess of the limits of subsection B of this
4 Section or for other risk management purposes.
5 (215 ILCS 5/126.19 new)
6 Sec. 126.19. Policy loans. A life insurer may lend to a
7 policyholder on the security of the cash surrender value of
8 the policyholder's policy a sum not exceeding the legal
9 reserve that the insurer is required to maintain on the
10 policy.
11 (215 ILCS 5/126.20 new)
12 Sec. 126.20. Additional investment authority.
13 A. Solely for the purpose of acquiring investments that
14 exceed the quantitative limitations of Sections 126.10
15 through 126.17, an insurer may acquire under this subsection
16 an investment, or engage in investment practices described in
17 Section 126.16, but an insurer shall not acquire an
18 investment, or engage in investment practices described in
19 Section 126.16, under this subsection if, as a result of and
20 after giving effect to the transaction:
21 (1) The aggregate amount of investments then held by an
22 insurer under this subsection would exceed 3% of its admitted
23 assets; or
24 (2) The aggregate amount of investments as to one
25 limitation in Sections 126.10 through 126.17 then held by the
26 insurer under this subsection would exceed 1% of its admitted
27 assets.
28 B. (1) In addition to the authority provided under
29 subsection A of this Section, an insurer may acquire under
30 this subsection an investment of any kind, or engage in
31 investment practices described in Section 126.16, that are
32 not specifically prohibited by this Article, without regard
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1 to the categories, conditions, standards or other limitations
2 of Sections 126.10 through 126.17 if, as a result of and
3 after giving effect to the transaction, the aggregate amount
4 of investments then held under this subsection would not
5 exceed the lesser of:
6 (a) 10% of its admitted assets; or
7 (b) 75% of its capital and surplus.
8 (2) However, an insurer shall not acquire any investment
9 or engage in any investment practice under this subsection
10 if, as a result of and after giving effect to the
11 transaction, the aggregate amount of all investments in any
12 one person then held by the insurer under this subsection
13 would exceed 3% of its admitted assets.
14 C. In addition to the investments acquired under
15 subsections A and B of this Section, an insurer may acquire
16 under this subsection an investment of any kind, or engage in
17 investment practices described in Section 126.16, that are
18 not specifically prohibited by this Article without regard to
19 any limitations of Sections 126.10 through 126.17 if:
20 (1) The Director grants prior approval;
21 (2) The insurer demonstrates that its investments are
22 being made in a prudent manner and that the additional
23 amounts will be invested in a prudent manner; and
24 (3) As a result of and after giving effect to the
25 transaction the aggregate amount of investments then held by
26 the insurer under this subsection does not exceed the greater
27 of:
28 (a) 25% of its capital and surplus; or
29 (b) 100% of capital and surplus less 10% of its admitted
30 assets.
31 D. Under this Section, an insurer shall not acquire or
32 engage in an investment practice prohibited under Section
33 126.5 or an investment that is a derivative transaction.
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1 (215 ILCS 5 Art. VII, Part 3 heading new)
2 3. PROPERTY AND CASUALTY INSURERS
3 (215 ILCS 5/126.21 new)
4 Sec. 126.21. Applicability. This Part 3 shall apply to
5 the investments and investment practices of property and
6 casualty insurers authorized to transact the kinds of
7 insurance in either or both Class 2 or Class 3 of Section 4
8 of this Code, subject to the provisions of Section 126.1B.
9 (215 ILCS 5/126.22 new)
10 Sec. 126.22. Reserve requirements.
11 A. Reserve requirements.
12 (1) Subject to all other limitations and requirements
13 of this Article, a property and casualty insurer shall
14 maintain an amount at least equal to the lesser of
15 $500,000,000 or 100% of adjusted loss reserves and loss
16 adjustment expense reserves, 100% of adjusted unearned
17 premium reserves and 100% of statutorily required policy and
18 contract reserves in:
19 (a) Cash and cash equivalents;
20 (b) High and medium grade investments that qualify under
21 Sections 126.24 or 126.25;
22 (c) Equity interests that qualify under Section 126.26
23 and that are traded on a qualified exchange;
24 (d) Investments of the type set forth in Section 126.30
25 if the investments are rated in the highest generic rating
26 category by a nationally recognized statistical rating
27 organization recognized by the SVO for rating foreign
28 jurisdictions and if any foreign currency exposure is
29 effectively hedged through the maturity date of the
30 investments;
31 (e) Qualifying investments of the type set forth in
32 subparagraphs (b), (c) or (d) of this paragraph that are
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1 acquired under Section 126.32;
2 (f) Interest and dividends receivable on qualifying
3 investments of the type set forth in subparagraphs (a)
4 through (e) of this subsection; or
5 (g) Reinsurance recoverable on paid losses.
6 (2) Reserve Requirement Amount:
7 (a) For purposes of determining the amount of assets to
8 be maintained under this subsection, the calculation of
9 adjusted loss reserves and loss adjustment expense reserves,
10 adjusted unearned premium reserves and statutorily required
11 policy and contract reserves shall be based on the amounts
12 reported as of the most recent annual or quarterly statement
13 date.
14 (b) Adjusted loss reserves and loss adjustment expense
15 reserves shall be equal to the sum of the amounts derived
16 from the following calculations:
17 (i) The result of each amount reported by the insurer as
18 losses and loss adjustment expenses unpaid for each accident
19 year for each individual line of business; multiplied by
20 (ii) The discount factor that is applicable to the line
21 of business and accident year published by the Internal
22 Revenue Service under Internal Revenue Code Section 846 (26
23 U.S.C. 846), as amended, for the calendar year that
24 corresponds to the most recent annual statement of the
25 insurer; minus
26 (iii) Accrued retrospective premiums discounted by an
27 average discount factor. The discount factor shall be
28 calculated by dividing the losses and loss adjustment
29 expenses unpaid after discounting (the product of Items (i)
30 and (ii) in this subparagraph) by loss and loss adjustment
31 expense reserves before discounting Item (i) of this
32 subparagraph.
33 (iv) For purposes of these calculations, the losses and
34 loss adjustment expenses unpaid shall be determined net of
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1 anticipated salvage and subrogation, and gross of any
2 discount for the time value of money or tabular discount.
3 (c) Adjusted unearned premium reserves shall be equal to
4 the result of the following calculation:
5 (i) The amount reported by the insurer as unearned
6 premium reserves; minus
7 (ii) The admitted asset amounts reported by the insurer
8 as:
9 (I) Premiums in and agents' balances in the course of
10 collection, accident and health premiums due and unpaid and
11 uncollected premiums for accident and health premiums;
12 (II) Premiums, agents' balances and installments booked
13 but deferred and not yet due;
14 (III) Bills receivable, taken for premium; and
15 (IV) Equities and deposits in pools and associations.
16 (d) Statutorily required policy and contract reserves
17 shall also include contingency reserves required for mortgage
18 guaranty insurers, municipal bond insurers, and other
19 financial guaranty insurers.
20 B. Monitoring and reporting. A property and casualty
21 insurer shall supplement its annual statement with a
22 reconciliation and summary of its assets and reserve
23 requirements as required in subsection A of this Section. A
24 reconciliation and summary showing that an insurer's assets
25 as required in subsection A of this Section are greater than
26 or equal to its undiscounted reserves referred to in
27 subsection A of this Section shall be sufficient to satisfy
28 this requirement. Upon prior notification, the Director may
29 require an insurer to submit such a reconciliation and
30 summary with any quarterly statement filed during the
31 calendar year.
32 C. Notification requirements and mandatory safeguards.
33 If a property and casualty insurer's assets and reserves do
34 not comply with subsection A of this Section, the insurer
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1 shall notify the Director immediately of the amount by which
2 the reserve requirements exceed the annual statement value of
3 the qualifying assets, explain why the deficiency exists and
4 within 30 days of the date of the notice propose a plan of
5 action to remedy the deficiency.
6 D. Authority of the Director.
7 (1) If the Director determines that an insurer is not in
8 compliance with subsection A of this Section, the Director
9 shall require the insurer to eliminate the condition causing
10 the noncompliance within a specified time from the date the
11 notice of the Director's requirement is mailed or delivered
12 to the insurer.
13 (2) If an insurer fails to comply with the Director's
14 requirement under paragraph (1) of this subsection, the
15 insurer is deemed to be in hazardous financial condition, and
16 the Director shall take one or more of the actions authorized
17 by law as to insurers in hazardous financial condition.
18 E. An insurer subject to this Section must comply with
19 the requirements of this Section after December 31, 1997.
20 (215 ILCS 5/126.23 new)
21 Sec. 126.23. General 5% diversification, medium and
22 lower grade investments, and Canadian investments.
23 A. General 5% diversification.
24 (1) Except as otherwise specified in this Article, an
25 insurer shall not acquire directly or indirectly through an
26 investment subsidiary an investment under this Article if, as
27 a result of and after giving effect to the investment, the
28 insurer would hold more than 5% of its admitted assets in
29 investments of all kinds issued, assumed, accepted,
30 guaranteed, or insured by a single person.
31 (2) This 5% limitation shall not apply to the aggregate
32 amounts insured by a single financial guaranty insurer with
33 the highest generic rating issued by a nationally recognized
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1 statistical rating organization.
2 (3) Asset-backed securities shall not be subject to the
3 limitations of paragraph (1) of this subsection, however,
4 except as permitted by subsection A(4) of this Section, an
5 insurer shall not acquire an asset-backed security if, as a
6 result of and after giving effect to the investment, the
7 aggregate amount of asset-backed securities secured by or
8 evidencing an interest in a single asset or single pool of
9 assets held by a trust or other business entity, then held by
10 the insurer would exceed 5% of its admitted assets.
11 (4) A company's investments in mortgage related
12 securities, as defined by the Secondary Mortgage Market
13 Enhancement Act of 1984 (United States Public Law 98-440, 12
14 U.S.C. 24, 1451, 1454 et seq.), that are backed by any single
15 pool of mortgages and made pursuant to the authority of that
16 Act, shall not exceed 5% of its admitted assets.
17 B. Medium and lower grade investments.
18 (1) An insurer shall not acquire, directly or indirectly
19 through an investment subsidiary, an investment under
20 Sections 126.24, 126.27, and 126.30 or counterparty exposure
21 under Section 126.31D if, as a result of and after giving
22 effect to the investment:
23 (a) The aggregate amount of all medium and lower grade
24 investments then held by the insurer would exceed 20% of its
25 admitted assets;
26 (b) The aggregate amount of lower grade investments then
27 held by the insurer would exceed 10% of its admitted assets;
28 (c) The aggregate amount of investments rated 5 or 6 by
29 the SVO then held by the insurer would exceed 5% of its
30 admitted assets;
31 (d) The aggregate amount of investments rated 6 by the
32 SVO then held by the insurer would exceed 1% of its admitted
33 assets; or
34 (e) The aggregate amount of lower grade investments then
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1 held by the insurer that receive as cash income less than the
2 equivalent yield for Treasury issues with a comparative
3 average life, would exceed 1% of its admitted assets.
4 (2) An insurer shall not acquire, directly or indirectly
5 through an investment subsidiary, an investment under
6 Sections 126.24, 126.27, and 126.30 or counterparty exposure
7 under Section 126.31D if, as a result of and after giving
8 effect to the investment:
9 (a) The aggregate amount of medium and lower grade
10 investments issued, assumed, accepted, guaranteed, or insured
11 by any one person or, as to asset-backed securities secured
12 by or evidencing an interest in a single asset or pool of
13 assets, then held by the insurer would exceed 1% of its
14 admitted assets; or
15 (b) The aggregate amount of lower grade investments
16 issued, assumed, accepted, guaranteed, or insured by any one
17 person or, as to asset-backed securities secured by or
18 evidencing an interest in a single asset or pool of assets,
19 then held by the insurer would exceed 0.5% of its admitted
20 assets.
21 (3) If an insurer attains or exceeds the limit of any
22 one rating category referred to in this subsection, the
23 insurer shall not thereby be precluded from acquiring
24 investments in other rating categories subject to the
25 specific and multi-category limits applicable to those
26 investments.
27 C. Canadian investments.
28 (1) An insurer shall not acquire, directly or indirectly
29 through an investment subsidiary, any Canadian investments
30 authorized by this Article, if as a result of and after
31 giving effect to the investment, the aggregate amount of
32 these investments then held by the insurer would exceed 40%
33 of its admitted assets, or if the aggregate amount of
34 Canadian investments not acquired under Section 126.24B then
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1 held by the insurer would exceed 25% of its admitted assets.
2 (2) However, as to an insurer that is authorized to do
3 business in Canada or that has outstanding insurance, annuity
4 or reinsurance contracts on lives or risks resident or
5 located in Canada and denominated in Canadian currency, the
6 limitations of paragraph (1) of this subsection shall be
7 increased by the greater of:
8 (a) The amount the insurer is required by Canadian law
9 to invest in Canada or to be denominated in Canadian
10 currency; or
11 (b) 125% of the amount of its reserves and other
12 obligations under contracts on risks resident or located in
13 Canada.
14 (215 ILCS 5/126.24 new)
15 Sec. 126.24. Rated credit instruments. Subject to the
16 limitations of subsection F of this Section, an insurer may
17 acquire rated credit instruments:
18 A. Subject to the limitations of Section 126.23B, but
19 not to the limitations of Section 126.23A except for the
20 limitation of subsection (4) of Section 126.23A, an insurer
21 may acquire rated credit instruments issued, assumed,
22 guaranteed, or insured by:
23 (1) The United States; or
24 (2) A government sponsored enterprise of the United
25 States, if the instruments of the government sponsored
26 enterprise are assumed, guaranteed, or insured by the United
27 States or are otherwise backed or supported by the full faith
28 and credit of the United States.
29 B. (1) Subject to the limitations of Section 126.23B,
30 but not to the limitations of Section 126.23A, an insurer may
31 acquire rated credit instruments issued, assumed, guaranteed,
32 or insured by:
33 (a) Canada; or
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1 (b) A government sponsored enterprise of Canada, if the
2 instruments of the government sponsored enterprise are
3 assumed, guaranteed, or insured by Canada or are otherwise
4 backed or supported by the full faith and credit of Canada;
5 (2) However, an insurer shall not acquire an instrument
6 under this subsection if, as a result of and after giving
7 effect to the investment, the aggregate amount of investments
8 then held by the insurer under this subsection would exceed
9 40% of its admitted assets.
10 C. (1) Subject to the limitations of Section 126.23B,
11 but not to the limitations of Section 126.23A, an insurer may
12 acquire rated credit instruments, excluding asset-backed
13 securities:
14 (a) Issued by a government money market mutual fund, a
15 class one money market mutual fund or a class one bond mutual
16 fund;
17 (b) Issued, assumed, guaranteed, or insured by a
18 government sponsored enterprise of the United States other
19 than those eligible under subsection A of this Section;
20 (c) Issued, assumed, guaranteed, or insured by a state,
21 if the instruments are general obligations of the state; or
22 (d) Issued by a multilateral development bank.
23 (2) However, an insurer shall not acquire an instrument
24 of any one fund, any one enterprise or entity, or any one
25 state under this subsection if, as a result of and after
26 giving effect to the investment, the aggregate amount of
27 investments then held by the insurer in any one fund,
28 enterprise, entity, or state under this subsection would
29 exceed 10% of its admitted assets.
30 D. Subject to the limitations of Section 126.23, an
31 insurer may acquire preferred stocks that are not foreign
32 investments and that meet the requirements of rated credit
33 instruments if, as a result of and after giving effect to the
34 investment:
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1 (1) The aggregate amount of preferred stocks then held
2 by the insurer under this subsection does not exceed 33 1/3%
3 of its admitted assets; and
4 (2) The aggregate amount of preferred stocks then held
5 by the insurer under this subsection which are not sinking
6 fund stocks or rated P1 or P2 by the SVO does not exceed 15%
7 of its admitted assets.
8 E. Subject to the limitations of Section 126.23 in
9 addition to those investments eligible under subsections A,
10 B, C and D of this Section, an insurer may acquire rated
11 credit instruments that are not foreign investments.
12 F. An insurer shall not acquire special rated credit
13 instruments under this Section if, as a result of and after
14 giving effect to the investment, the aggregate amount of
15 special rated credit instruments then held by the insurer
16 would exceed 5% of its admitted assets. The Director may, by
17 rule, identify certain special rated credit instruments that
18 are exempt from the limitation imposed by this subsection.
19 (215 ILCS 5/126.25 new)
20 Sec. 126.25. Insurer investment pools.
21 A. An insurer may acquire investments in investment
22 pools that:
23 (1) Invest only in:
24 (a) Obligations that are rated 1 or 2 by the SVO or have
25 an equivalent of an SVO 1 or 2 rating (or, in the absence of
26 a 1 or 2 rating or equivalent rating, the issuer has
27 outstanding obligations with an SVO 1 or 2 or equivalent
28 rating) by a nationally recognized statistical rating
29 organization recognized by the SVO and have:
30 (i) A remaining maturity of 397 days or less or a put
31 that entitles the holder to receive the principal amount of
32 the obligation which put may be exercised through maturity at
33 specified intervals not exceeding 397 days; or
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1 (ii) A remaining maturity of 3 years or less and a
2 floating interest rate that resets no less frequently than
3 quarterly on the basis of a current short-term index (federal
4 funds, prime rate, treasury bills, London InterBank Offered
5 Rate (LIBOR) or commercial paper) and is subject to no
6 maximum limit, if the obligations do not have an interest
7 rate that varies inversely to market interest rate changes;
8 (b) Government money market mutual funds or class one
9 money market mutual funds; or
10 (c) Securities lending, repurchase, and reverse
11 repurchase, transactions that meet all the requirements of
12 Section 126.29, except the quantitative limitations of
13 Section 126.29D; or
14 (2) Invest only in investments which an insurer may
15 acquire under this Article, if the insurer's proportionate
16 interest in the amount invested in these investments when
17 combined with amounts of such investments made directly or
18 indirectly through an investment subsidiary or other insurer
19 investment pool permitted under this subsection A(2) does not
20 exceed the applicable limits of this Article for such
21 investments.
22 B. For an investment in an investment pool to be
23 qualified under this Article, the investment pool shall not:
24 (1) Acquire securities issued, assumed, guaranteed, or
25 insured by the insurer or an affiliate of the insurer;
26 (2) Borrow or incur any indebtedness for borrowed money,
27 except for securities lending and reverse repurchase
28 transactions that meet the requirements of Section 126.29
29 except the quantitative limitations of Section 126.29D; or
30 (3) Acquire an investment if, as a result of such
31 transaction, the aggregate value of securities then loaned or
32 sold to, purchased from or invested in any one business
33 entity under this Section would exceed 10% of the total
34 assets of the investment pool.
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1 C. The limitations of Section 126.23A shall not apply to
2 an insurer's investment in an investment pool, however an
3 insurer shall not acquire an investment in an investment pool
4 under this Section if, as a result of and after giving effect
5 to the investment, the aggregate amount of investments then
6 held by the insurer under this Section:
7 (1) In all investment pools investing in investments
8 permitted under subsection A(2) of this Section would exceed
9 25% of its admitted assets; or
10 (2) In all investment pools would exceed 40% of its
11 admitted assets.
12 D. For an investment in an investment pool to be
13 qualified under this Article, the manager of the investment
14 pool shall:
15 (1) Be organized under the laws of the United States or
16 a state and designated as the pool manager in a pooling
17 agreement;
18 (2) Be the insurer, an affiliated insurer or a business
19 entity affiliated with the insurer, a qualified bank, a
20 business entity registered under the Investment Advisors Act
21 of 1940 (15 U.S.C. 80a-1 et seq.), as amended or, in the
22 case of a reciprocal insurer or interinsurance exchange, its
23 attorney-in-fact, or in the case of a United States branch of
24 an alien insurer, its United States manager or an affiliate
25 or subsidiary of its United States manager;
26 (3) Be responsible for the compilation and maintenance
27 of detailed accounting records setting forth:
28 (a) The cash receipts and disbursements reflecting each
29 participant's proportionate investment in the investment
30 pool;
31 (b) A complete description of all underlying assets of
32 the investment pool (including amount, interest rate,
33 maturity date (if any) and other appropriate designations);
34 and
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1 (c) Other records which, on a daily basis, allow third
2 parties to verify each participant's investment in the
3 investment pool; and
4 (4) Maintain the assets of the investment pool in one or
5 more accounts, in the name of or on behalf of the investment
6 pool, under a custody agreement with a qualified bank. The
7 custody agreement shall:
8 (a) State and recognize the claims and rights of each
9 participant;
10 (b) Acknowledge that the underlying assets of the
11 investment pool are held solely for the benefit of each
12 participant in proportion to the aggregate amount of its
13 investments in the investment pool; and
14 (c) Contain an agreement that the underlying assets of
15 the investment pool shall not be commingled with the general
16 assets of the custodian qualified bank or any other person.
17 E. The pooling agreement for each investment pool shall
18 be in writing and shall provide that:
19 (1) An insurer and its affiliated insurers or, in the
20 case of an investment pool investing solely in investments
21 permitted under subsection A(1) of this Section, the insurer
22 and its subsidiaries, affiliates or any pension or profit
23 sharing plan of the insurer, its subsidiaries and affiliates
24 or, in the case of a United States branch of an alien
25 insurer, affiliates or subsidiaries of its United States
26 manager, shall, at all times, hold 100% of the interests in
27 the investment pool;
28 (2) The underlying assets of the investment pool shall
29 not be commingled with the general assets of the pool manager
30 or any other person;
31 (3) In proportion to the aggregate amount of each pool
32 participant's interest in the investment pool:
33 (a) Each participant owns an undivided interest in the
34 underlying assets of the investment pool; and
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1 (b) The underlying assets of the investment pool are
2 held solely for the benefit of each participant;
3 (4) A participant, or in the event of the participant's
4 insolvency, bankruptcy or receivership, its trustee, receiver
5 or other successor-in-interest, may withdraw all or any
6 portion of its investment from the investment pool under the
7 terms of the pooling agreement;
8 (5) Withdrawals may be made on demand without penalty or
9 other assessment on any business day, but settlement of funds
10 shall occur within a reasonable and customary period
11 thereafter not to exceed 10 business days. Distributions
12 under this paragraph shall be calculated in each case net of
13 all then applicable fees and expenses of the investment pool.
14 The pooling agreement shall provide that the pool manager
15 shall distribute to a participant, at the discretion of the
16 pool manager:
17 (a) In cash, the then fair market value of the
18 participant's pro rata share of each underlying asset of the
19 investment pool;
20 (b) In kind, a pro rata share of each underlying asset;
21 or
22 (c) In a combination of cash and in kind distributions,
23 a pro rata share in each underlying asset; and
24 (6) The pool manager shall make the records of the
25 investment pool available for inspection by the Director.
26 F. Except for the formation of the investment pool,
27 transactions between a domestic insurer and an affiliated
28 insurer investment pool shall not be subject to the
29 requirements of Section 131.20a of this Code.
30 (215 ILCS 5/126.26 new)
31 Sec. 126.26. Equity Interests.
32 A. Subject to the limitations of Section 126.23, an
33 insurer may acquire directly, or indirectly through an
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1 investment subsidiary, equity interests in business entities
2 organized under the laws of any domestic jurisdiction.
3 B. An insurer shall not acquire directly, or indirectly
4 through an investment subsidiary, an investment under this
5 Section if, as a result of and after giving effect to the
6 investment, the aggregate amount of investments then held by
7 the insurer under this Section would exceed the greater of
8 25% of its admitted assets or 100% of its surplus as regards
9 policyholders.
10 C. An insurer shall not acquire under this Section any
11 investments that the insurer may acquire under Section
12 126.28.
13 D. An insurer shall not short sell equity interests
14 unless the insurer covers the short sale by owning the equity
15 interest or an unrestricted right to the equity interest
16 exercisable within 6 months of the short sale.
17 (215 ILCS 5/126.27 new)
18 Sec. 126.27. Tangible personal property under lease.
19 A. (1) Subject to the limitations of Section 126.23, an
20 insurer may acquire tangible personal property or equity
21 interests therein located or used wholly or in part within a
22 domestic jurisdiction either directly or indirectly through
23 limited partnership interests and general partnership
24 interests not otherwise prohibited by Section 126.5D, joint
25 ventures, stock of an investment subsidiary or membership
26 interests in a limited liability company, trust certificates,
27 or other similar instruments.
28 (2) Investments acquired under paragraph (1) of this
29 subsection shall be eligible only if:
30 (a) The property is subject to a lease or other
31 agreement with a person whose rated credit instruments in the
32 amount of the purchase price of the personal property the
33 insurer could then acquire under Section 126.24; and
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1 (b) The lease or other agreement provides the insurer
2 the right to receive rental, purchase or other fixed payments
3 for the use or purchase of the property, and the aggregate
4 value of the payments, together with the estimated residual
5 value of the property at the end of its useful life and the
6 estimated tax benefits to the insurer resulting from
7 ownership of the property, shall be adequate to return the
8 cost of the insurer's investment in the property, plus a
9 return deemed adequate by the insurer.
10 B. The insurer shall compute the amount of each
11 investment under this Section on the basis of the out of
12 pocket purchase price and applicable related expenses paid by
13 the insurer for the investment, net of each borrowing made to
14 finance the purchase price and expenses, to the extent the
15 borrowing is without recourse to the insurer.
16 C. An insurer shall not acquire directly or indirectly
17 through an investment subsidiary an investment under this
18 Section if, as a result of and after giving effect to the
19 investment, the aggregate amount of all investments then held
20 by the insurer under this Section would exceed:
21 (1) 2% of its admitted assets; or
22 (2) 0.5% of its admitted assets as to any single item of
23 tangible personal property.
24 D. For purposes of determining compliance with the
25 limitations of Section 126.23, investments acquired by an
26 insurer under this Section shall be aggregated with those
27 acquired under Section 126.24, and each lessee of the
28 property under a lease referred to in this Section shall be
29 deemed the issuer of an obligation in the amount of the
30 investment of the insurer in the property determined as
31 provided in subsection B of this Section.
32 E. Nothing in this Section is applicable to tangible
33 personal property lease arrangements between an insurer and
34 its subsidiaries and affiliates under a cost sharing
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1 arrangement or agreement permitted under Section
2 131.20a(1)(a)(iv) of this Code.
3 (215 ILCS 5/126.28 new)
4 Sec. 126.28. Mortgage loans and real estate.
5 A. Mortgage loans.
6 (l) Subject to the limitations of Section 126.23, an
7 insurer may acquire, either directly or indirectly through
8 limited partnership interests and general partnership
9 interests not otherwise prohibited by Section 126.5D, joint
10 ventures, stock of an investment subsidiary or membership
11 interests in a limited liability company, trust certificates,
12 or other similar instruments, obligations secured by
13 mortgages on real estate situated within a domestic
14 jurisdiction, but a mortgage loan which is secured by other
15 than a first lien shall not be acquired under this subsection
16 (1) unless the insurer is the holder of the first lien. The
17 obligations held by the insurer and any obligations with an
18 equal lien priority, shall not, at the time of acquisition of
19 the obligation, exceed:
20 (a) 90% of the fair market value of the real estate, if
21 the mortgage loan is secured by a purchase money mortgage or
22 like security received by the insurer upon disposition of the
23 real estate;
24 (b) 80% of the fair market value of the real estate, if
25 the mortgage loan requires immediate scheduled payment in
26 periodic installments of principal and interest, has an
27 amortization period of 30 years or less and periodic payments
28 made no less frequently than annually. Each periodic payment
29 shall be sufficient to assure that at all times the
30 outstanding principal balance of the mortgage loan shall be
31 not greater than the outstanding principal balance which
32 would be outstanding under a mortgage loan with the same
33 original principal balance, with the same interest rate and
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1 requiring equal payments of principal and interest with the
2 same frequency over the same amortization period. Mortgage
3 loans permitted under this subsection are permitted
4 notwithstanding the fact that they provide for a payment of
5 the principal balance prior to the end of the period of
6 amortization of the loan. For residential mortgage loans, the
7 80% limitation may be increased to 97% if acceptable private
8 mortgage insurance has been obtained; or
9 (c) 75% of the fair market value of the real estate for
10 mortgage loans that do not meet the requirements of
11 subparagraph (a) or (b) of this paragraph.
12 (2) For purposes of paragraph (1) of this subsection,
13 the amount of an obligation required to be included in the
14 calculation of the loan-to-value ratio may be reduced to the
15 extent the obligation is insured by the Federal Housing
16 Administration or guaranteed by the Administrator of Veterans
17 Affairs, or their successors.
18 (3) Subject to the limitations of Section 126.23, an
19 insurer may acquire, either directly or indirectly through
20 limited partnership interests and general partnership
21 interests not otherwise prohibited by Section 126.5D, joint
22 ventures, stock of an investment subsidiary or membership
23 interests in a limited liability company, trust certificates,
24 or other similar instruments, obligations secured by a second
25 mortgage on real estate situated within a domestic
26 jurisdiction, other than as authorized in subsection (1) of
27 this Section 126.28. The obligation held by the insurer shall
28 be the sole second lien priority obligation and shall not, at
29 the time of acquisition of the obligation, exceed 70% of the
30 amount by which the fair market value of the real estate
31 exceeds the amount outstanding under the first mortgage.
32 (4) A mortgage loan that is held by an insurer under
33 Section 126.3F or acquired under this Section and is
34 restructured in a manner that meets the requirements of a
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1 restructured mortgage loan in accordance with the NAIC
2 Accounting Practices and Procedures Manual or successor
3 publication shall continue to qualify as a mortgage loan
4 under this Article.
5 (5) Subject to the limitations of Section 126.23, credit
6 lease transactions that do not qualify for investment under
7 Section 126.24 with the following characteristics shall be
8 exempt from the provisions of paragraph (1) of this
9 subsection:
10 (a) The loan amortizes over the initial fixed lease term
11 at least in an amount sufficient so that the loan balance at
12 the end of the lease term does not exceed the original
13 appraised value of the real estate;
14 (b) The lease payments cover or exceed the total debt
15 service over the life of the loan;
16 (c) A tenant or its affiliated entity, whose rated
17 credit instruments have a SVO 1 or 2 designation or a
18 comparable rating from a nationally recognized statistical
19 rating organization recognized by the SVO, has a full faith
20 and credit obligation to make the lease payments;
21 (d) The insurer holds or is the beneficial holder of a
22 first lien mortgage on the real estate;
23 (e) The expenses of the real estate are passed through
24 to the tenant, excluding exterior, structural, parking and
25 heating, ventilation and air conditioning replacement
26 expenses, unless annual escrow contributions, from cash flows
27 derived from the lease payments, cover the expense shortfall;
28 and
29 (f) There is a perfected assignment of the rents due
30 pursuant to the lease to, or for the benefit of, the insurer.
31 B. Income producing real estate.
32 (1) An insurer may acquire, manage and dispose of real
33 estate situated in a domestic jurisdiction either directly or
34 indirectly through limited partnership interests and general
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1 partnership interests not otherwise prohibited by Section
2 126.5D, joint ventures, stock of an investment subsidiary or
3 membership interests in a limited liability company, trust
4 certificates, or other similar instruments. The real estate
5 shall be income producing or intended for improvement or
6 development for investment purposes under an existing program
7 (in which case the real estate shall be deemed to be income
8 producing).
9 (2) The real estate may be subject to mortgages, liens
10 or other encumbrances, the amount of which shall, to the
11 extent that the obligations secured by the mortgages, liens
12 or encumbrances are without recourse to the insurer, be
13 deducted from the amount of the investment of the insurer in
14 the real estate for purposes of determining compliance with
15 subsections D(2) and D(3) of this Section.
16 C. Real estate for the accommodation of business.
17 An insurer may acquire, manage, and dispose of real
18 estate for the convenient accommodation of the insurer's
19 (which may include its affiliates) business operations,
20 including home office, branch office and field office
21 operations.
22 (1) Real estate acquired under this subsection may
23 include excess space for rent to others, if the excess space,
24 valued at its fair market value, would otherwise be a
25 permitted investment under subsection B of this Section and
26 is so qualified by the insurer;
27 (2) The real estate acquired under this subsection may
28 be subject to one or more mortgages, liens or other
29 encumbrances, the amount of which shall, to the extent that
30 the obligations secured by the mortgages, liens or
31 encumbrances are without recourse to the insurer, be deducted
32 from the amount of the investment of the insurer in the real
33 estate for purposes of determining compliance with subsection
34 D(4) of this Section; and
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1 (3) For purposes of this subsection, business operations
2 shall not include that portion of real estate used for the
3 direct provision of health care services by an insurer whose
4 insurance premiums and required statutory reserves for
5 accident and health insurance constitute at least 95% of
6 total premium considerations or total statutory required
7 reserves, respectively. An insurer may acquire real estate
8 used for these purposes under subsection B of this Section.
9 D. Quantitative limitations.
10 (1) An insurer shall not acquire an investment under
11 subsection A of this Section if, as a result of and after
12 giving effect to the investment, the aggregate amount of all
13 investments then held by the insurer under subsection A of
14 this Section would exceed:
15 (a) 1% of its admitted assets in mortgage loans covering
16 any one secured location;
17 (b) 0.25% of its admitted assets in construction loans
18 covering any one secured location; or
19 (c) 1% of its admitted assets in construction loans in
20 the aggregate.
21 (2) An insurer shall not acquire an investment under
22 subsection B of this Section if, as a result of and after
23 giving effect to the investment and any outstanding
24 guarantees made by the insurer in connection with the
25 investment, the aggregate amount of investments then held by
26 the insurer under subsection B of this Section plus the
27 guarantees then outstanding would exceed:
28 (a) 1% of its admitted assets in any one parcel or group
29 of contiguous parcels of real estate, except that this
30 limitation shall not apply to that portion of real estate
31 used for the direct provision of health care services by an
32 insurer whose insurance premiums and required statutory
33 reserves for accident and health insurance constitute at
34 least 95% of total premium considerations or total statutory
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1 required reserves, respectively, such as hospitals, medical
2 clinics, medical professional buildings or other health
3 facilities used for the purpose of providing health services;
4 or
5 (b) The lesser of 10% of its admitted assets or 40% of
6 its surplus as regards policyholders in the aggregate, except
7 for an insurer whose insurance premiums and required
8 statutory reserves for accident and health insurance
9 constitute at least 95% of total premium considerations or
10 total statutory required reserves, respectively, this
11 limitation shall be increased to 15% of its admitted assets
12 in the aggregate.
13 (3) An insurer shall not acquire an investment under
14 subsection A or B of this Section if, as a result of and
15 after giving effect to the investment and any guarantees it
16 has made in connection with the investment, the aggregate
17 amount of all investments then held by the insurer under
18 subsections A and B of this Section plus the guarantees then
19 outstanding would exceed 25% of its admitted assets.
20 (4) The limitations of Section 126.23 shall not apply to
21 an insurer's acquisition of real estate under subsection C of
22 this Section. An insurer shall not acquire real estate under
23 subsection C of this Section if, as a result of and after
24 giving effect to the acquisition, the aggregate amount of all
25 real estate then held by the insurer under subsection C of
26 this Section would exceed 10% of its admitted assets. With
27 the permission of the Director, additional amounts of real
28 estate may be acquired under subsection C of this Section.
29 (215 ILCS 5/126.29 new)
30 Sec. 126.29. Securities lending and repurchase, reverse
31 repurchase, and dollar roll transactions. An insurer may
32 enter into securities lending, repurchase, reverse
33 repurchase, and dollar roll transactions with business
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1 entities, subject to the following requirements:
2 A. The insurer's board of directors shall adopt a
3 written plan that is consistent with the requirements of the
4 written plan in Section 126.4A that specifies guidelines and
5 objectives to be followed, such as:
6 (1) A description of how cash received will be invested
7 or used for general corporate purposes of the insurer;
8 (2) Operational procedures to manage interest rate risk,
9 counterparty default risk, the conditions under which
10 proceeds from reverse repurchase transactions may be used in
11 the ordinary course of business and the use of acceptable
12 collateral in a manner that reflects the liquidity needs of
13 the transaction; and
14 (3) The extent to which the insurer may engage in these
15 transactions.
16 B. The insurer shall enter into a written agreement for
17 all transactions authorized in this Section other than dollar
18 roll transactions. The written agreement shall require that
19 each transaction terminate no more than one year from its
20 inception or upon the earlier demand of the insurer. The
21 agreement shall be with the business entity counterparty, but
22 for securities lending transactions, the agreement may be
23 with an agent acting on behalf of the insurer, if the agent
24 is a qualified business entity, and if the agreement:
25 (1) Requires the agent to enter into separate agreements
26 with each counterparty that are consistent with the
27 requirements of this Section; and
28 (2) Prohibits securities lending transactions pursuant
29 to the agreement with the agent or its affiliates.
30 C. Cash received in a transaction under this Section
31 shall be invested in accordance with this Article and in a
32 manner that recognizes the liquidity needs of the transaction
33 or used by the insurer for its general corporate purposes.
34 For so long as the transaction remains outstanding, the
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1 insurer, its agent or custodian shall maintain, as to
2 acceptable collateral received in a transaction under this
3 Section, either physically or through the book entry systems
4 of the Federal Reserve, Depository Trust Company,
5 Participants Trust Company or other securities depositories
6 approved by the Director:
7 (1) Possession of the acceptable collateral;
8 (2) A perfected security interest in the acceptable
9 collateral; or
10 (3) In the case of a jurisdiction outside of the United
11 States, title to, or rights of a secured creditor to, the
12 acceptable collateral.
13 D. The limitations of Sections 126.23 and 126.30 shall
14 not apply to the business entity counterparty exposure
15 created by transactions under this Section. For purposes of
16 calculations made to determine compliance with this
17 subsection, no effect will be given to the insurer's future
18 obligation to resell securities, in the case of a repurchase
19 transaction, or to repurchase securities, in the case of a
20 reverse repurchase transaction. An insurer shall not enter
21 into a transaction under this Section if, as a result of and
22 after giving effect to the transaction:
23 (1) The aggregate amount of securities then loaned or
24 sold to, or purchased from, any one business entity
25 counterparty under this Section would exceed 5% of its
26 admitted assets. In calculating the amount sold to or
27 purchased from a business entity counterparty under
28 repurchase or reverse repurchase transactions, effect may be
29 given to netting provisions under a master written agreement;
30 or
31 (2) The aggregate amount of all securities then loaned,
32 sold to or purchased from all business entities under this
33 Section would exceed 40% of its admitted assets but the
34 limitation of this subsection shall not apply to reverse
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1 repurchase transactions for so long as the borrowing is used
2 to meet operational liquidity requirements resulting from an
3 officially declared catastrophe and subject to a plan
4 approved by the Director.
5 E. In a dollar roll transaction, the insurer shall
6 receive cash in an amount at least equal to the market value
7 of the securities transferred by the insurer in the
8 transaction as of the transaction date.
9 F. The Director may promulgate reasonable rules for
10 investments and transactions under this Section including,
11 but not limited to, rules which impose financial solvency
12 standards, valuation standards, and reporting requirements.
13 (215 ILCS 5/126.30 new)
14 Sec. 126.30. Foreign investments and foreign currency
15 exposure.
16 A. Subject to the limitations of Section 126.23, an
17 insurer may acquire directly or indirectly through an
18 investment subsidiary, foreign investments, or engage in
19 investment practices with persons of or in foreign
20 jurisdictions, of substantially the same types as those that
21 an insurer is permitted to acquire under this Article, other
22 than of the type permitted under Section 126.25, if, as a
23 result and after giving effect to the investment:
24 (1) The aggregate amount of foreign investments then
25 held by the insurer under this subsection does not exceed 20%
26 of its admitted assets; and
27 (2) The aggregate amount of foreign investments then
28 held by the insurer under this subsection in a single foreign
29 jurisdiction does not exceed 10% of its admitted assets as to
30 a foreign jurisdiction that has a sovereign debt rating of
31 SVO 1 or 5% of its admitted assets as to any other foreign
32 jurisdiction.
33 B. Subject to the limitations of Section 126.23, an
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1 insurer may acquire investments, or engage in investment
2 practices denominated in foreign currencies, whether or not
3 they are foreign investments acquired under subsection A of
4 this Section, or additional foreign currency exposure as a
5 result of the termination or expiration of a hedging
6 transaction with respect to investments denominated in a
7 foreign currency, if, as a result of and after giving effect
8 to the transaction:
9 (1) The aggregate amount of investments then held by the
10 insurer under this subsection denominated in foreign
11 currencies does not exceed 15% of its admitted assets; and
12 (2) The aggregate amount of investments then held by the
13 insurer under this subsection denominated in the foreign
14 currency of a single foreign jurisdiction does not exceed 10%
15 of its admitted assets as to a foreign jurisdiction that has
16 a sovereign debt rating of SVO 1 or 5% of its admitted assets
17 as to any other foreign jurisdiction.
18 (3) However, an investment shall not be considered
19 denominated in a foreign currency if the acquiring insurer
20 enters into one or more contracts in transactions permitted
21 under Section 126.31 in which the business entity
22 counterparty agrees to exchange, or grants to the insurer the
23 option to exchange, all payments made on the foreign currency
24 denominated investment (or amounts equivalent to the payments
25 that are or will be due to the insurer in accordance with the
26 terms of such investment) for United States currency during
27 the period the contract or contracts are in effect to
28 insulate the insurer against loss caused by diminution of the
29 value of payments owed to the insurer due to future changes
30 in currency exchange rates.
31 C. In addition to investments permitted under
32 subsections A and B of this Section, an insurer that is
33 authorized to do business in a foreign jurisdiction, and that
34 has outstanding insurance, annuity or reinsurance contracts
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1 on lives or risks resident or located in that foreign
2 jurisdiction and denominated in foreign currency of that
3 jurisdiction, may acquire foreign investments respecting that
4 foreign jurisdiction, and may acquire investments denominated
5 in the currency of that jurisdiction, subject to the
6 limitations of Section 126.23. However, investments made
7 under this subsection in obligations of foreign governments,
8 their political subdivisions and government sponsored
9 enterprises shall not be subject to the limitations of
10 Section 126.23 if those investments carry an SVO rating of 1
11 or 2. The aggregate amount of investments acquired by the
12 insurer under this subsection shall not exceed the greater
13 of:
14 (1) The amount the insurer is required by law to invest
15 in the foreign jurisdiction; or
16 (2) 125% of the amount of its reserves, net of
17 reinsurance, and other obligations under the contracts.
18 D. In addition to investments permitted under
19 subsections A and B of this Section, an insurer that is not
20 authorized to do business in a foreign jurisdiction but which
21 has outstanding insurance, annuity or reinsurance contracts
22 on lives or risks resident or located in a foreign
23 jurisdiction and denominated in foreign currency of that
24 jurisdiction, may acquire foreign investments respecting that
25 foreign jurisdiction, and may acquire investments denominated
26 in the currency of that jurisdiction subject to the
27 limitations set forth of Section 126.24. However, investments
28 made under this subsection in obligations of foreign
29 governments, their political subdivisions and government
30 sponsored enterprises shall not be subject to the limitations
31 of Section 126.23 if those investments carry an SVO rating of
32 1 or 2. The aggregate amount of investments acquired by the
33 insurer under this subsection shall not exceed 105% of the
34 amount of its reserves, net of reinsurance, and other
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1 obligations under the contracts on risks resident or located
2 in the foreign jurisdiction.
3 E. Investments acquired under this Section shall be
4 aggregated with investments of the same types made under all
5 other Sections of this Article, and in a similar manner, for
6 purposes of determining compliance with the limitations, if
7 any, contained in the other Sections. Investments in
8 obligations of foreign governments, their political
9 subdivisions and government sponsored enterprises of these
10 persons, except for those exempted under subsections C and D
11 of this Section, shall be subject to the limitations of
12 Section 126.23.
13 (215 ILCS 5/126.31 new)
14 Sec. 126.31. Derivative transactions. An insurer may,
15 directly or indirectly through an investment subsidiary,
16 engage in derivative transactions under this Section under
17 the following conditions:
18 A. General conditions.
19 (1) An insurer may use derivative instruments under this
20 Section to engage in hedging transactions and income
21 generation transactions.
22 (2) An insurer may use derivative instruments for
23 replication transactions only after the Director promulgates
24 reasonable rules that set forth methods of disclosure,
25 reserving for risk-based capital, and determining the asset
26 valuation reserve for these investments. Any asset being
27 replicated is subject to all the provisions and limitations
28 on the making thereof specified in this Article with respect
29 to investments by the insurer as if the transaction
30 constituted a direct investment by the insurer in the
31 replicated asset.
32 (3) With respect to all hedging transactions, an insurer
33 shall be able to demonstrate to the Director the intended
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1 hedging characteristics and the ongoing effectiveness of the
2 derivative transaction or combination of transactions through
3 cash flow testing or other appropriate analyses.
4 (4) The Director may promulgate reasonable rules for
5 investments and transactions under this Section including,
6 but not limited to, rules which impose financial solvency
7 standards, valuation standards, and reporting requirements.
8 B. Limitations on hedging transactions.
9 An insurer may enter into hedging transactions under this
10 Section if, as a result of and after giving effect to the
11 transaction:
12 (1) The aggregate statement value of options, caps,
13 floors and warrants not attached to another financial
14 instrument purchased and used in hedging transactions then
15 engaged in by the insurer does not exceed 7.5% of its
16 admitted assets;
17 (2) The aggregate statement value of options, caps and
18 floors written in hedging transactions then engaged in by the
19 insurer does not exceed 3% of its admitted assets; and
20 (3) The aggregate potential exposure of collars, swaps,
21 forwards and futures used in hedging transactions then
22 engaged in by the insurer does not exceed 6.5% of its
23 admitted assets.
24 C. Limitations on income generation transactions.
25 An insurer may enter into the following types of income
26 generation transactions subject to the quantitative limits of
27 subsection C(4):
28 (1) Sales of covered call options on noncallable fixed
29 income securities, callable fixed income securities if the
30 option expires by its terms prior to the end of the
31 noncallable period or derivative instruments based on fixed
32 income securities;
33 (2) Sales of covered call options on equity securities,
34 if the insurer holds in its portfolio, or can immediately
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1 acquire through the exercise of options, warrants or
2 conversion rights already owned, the equity securities
3 subject to call during the complete term of the call option
4 sold; or
5 (3) Sales of covered puts on investments that the
6 insurer is permitted to acquire under this Article, if the
7 insurer has escrowed, or entered into a custodian agreement
8 segregating, cash or cash equivalents with a market value
9 equal to the amount of its purchase obligations under the put
10 during the complete term of the put option sold.
11 (4) If as a result of and after giving effect to the
12 transactions, the aggregate statement value of the fixed
13 income assets that are subject to call plus the face value of
14 fixed income securities underlying a derivative instrument
15 subject to call, plus the amount of the purchase obligations
16 under the puts, does not exceed 10% of its admitted assets.
17 D. Counterparty exposure. An insurer shall include all
18 counterparty exposure amounts in determining compliance with
19 the limitations of Section 126.23.
20 E. Additional transactions. Pursuant to rules
21 promulgated under Section 126.8, the Director may approve
22 additional transactions involving the use of derivative
23 instruments in excess of the limits of subsection B of this
24 Section or for other risk management purposes.
25 (215 ILCS 5/126.32 new)
26 Sec. 126.32. Additional investment authority.
27 A. Under this Section, an insurer may acquire
28 investments or engage in investment practices of any kind
29 that are not specifically prohibited by Section 126.5 and are
30 not derivative instruments without regard to any limitation
31 in Sections 126.23 through 126.30, but an insurer shall not
32 acquire an investment or engage in an investment practice
33 under this Section if, as a result of and after giving effect
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1 to the transaction, the aggregate amount of the investments
2 then held by the insurer under this Section would exceed the
3 greater of:
4 (1) Its unrestricted surplus; or
5 (2) The lesser of:
6 (a) 10% of its admitted assets; or
7 (b) 50% of its surplus as regards policyholders.
8 B. An insurer shall not acquire any investment or engage
9 in any investment practice under subsection A(2) of this
10 Section if, as a result of and after giving effect to the
11 transaction the aggregate amount of all investments in any
12 one person then held by the insurer under that subsection
13 would exceed 5% of its admitted assets.
14 (215 ILCS 5/124 rep. through 125.24a rep.)
15 Section 10. The Illinois Insurance Code is amended by
16 repealing Sections 124 through 125.24a.
17 Section 15. The Illinois Insurance Code is amended by
18 changing Sections 3.1, 26, 53, 74, 111, 131.3, 136, and
19 245.21 as follows:
20 (215 ILCS 5/3.1) (from Ch. 73, par. 615.1)
21 Sec. 3.1. Definitions of admitted assets. "Admitted
22 Assets" includes the investments authorized or permitted by
23 this Code, the credit for reinsurance allowed by this Code,
24 and in addition thereto, only the following:
25 (a) Petty cash and other cash funds in the company's
26 principal or any official branch office and under the control
27 of the company.
28 (b) Immediately withdrawable funds on deposit in demand
29 accounts, in a bank or trust company as defined in Section
30 126.2MMM(1) 124.7c or like funds actually in the principal or
31 any official branch office at statement date, and, in transit
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1 to such bank or trust company with authentic deposit credit
2 given prior to the close of business on the fifth bank
3 working day following the statement date.
4 (c) The amount fairly estimated as recoverable on cash
5 deposited in a closed bank or trust company, if qualifying
6 under the provisions of this Section prior to the suspension
7 of such bank or trust company.
8 (d) Bills and accounts receivable collateralized by
9 securities of the kind in which the company is authorized to
10 invest.
11 (e) Bills receivable not past due covering uncollected
12 premiums taken by a company in the transaction of business
13 described in Class 3 of Section 4, in an amount not to exceed
14 the unearned premium reserve liability calculated on each
15 respective policy.
16 (f) For in force insurance coverages written by fire,
17 casualty, and reciprocal companies, excluding group accident
18 and health business, premium deposits, gross premiums, and
19 agents' balances (net of related commissions) not more than
20 90 days past due; installments booked but deferred and not
21 yet due (net of related commissions), provided that all
22 amounts having become due from the insured are not more than
23 90 days past due; and audit and retrospective premium to the
24 extent permitted to be admitted pursuant to the Annual
25 Statement Instructions and the Accounting Practices and
26 Procedures Manual for Property and Casualty Insurers
27 published by the National Association of Insurance
28 Commissioners, unless the Director prescribes otherwise.
29 However, audit and retrospective premiums that represent
30 anticipated additional premiums on policies for which the
31 policy period has not yet expired may not be admitted.
32 (g) Net amount of uncollected premiums on group life and
33 group accident and health policies, not more than 90 days
34 past due.
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1 (h) Due and uncollected accident and health premiums on
2 in force individual policies, on insurance written by Class
3 1, Section 4 companies, less commissions due thereon to
4 agents; not exceeding in the aggregate the premium reserve
5 liability computed on such business.
6 (i) Premium notes, policy loans and liens, and the net
7 amount of uncollected and deferred premiums on individual
8 life insurance policies, not in excess of the liability for
9 the legal reserves specified in Section 223 or 281 of this
10 Code on such individual life insurance policies.
11 (j) Premium and assessment notes, certificate loans and
12 liens, and the gross amount less loading, of premiums or
13 assessments actually collected by subordinate lodges not yet
14 turned over to the Supreme Lodge on individual life insurance
15 certificates not in excess of the liability for the legal
16 reserves specified in Section 297.1 or 305.1 on such
17 individual life insurance certificates.
18 (k) Mortuary assessments due and unpaid on last call
19 made within 60 days, on insurance in force and for which
20 notices have been issued, not in excess of the liability for
21 the unpaid claims which are to be paid by the proceeds.
22 (l) Amounts fairly estimated as recoverable from
23 advances made on contracts under surety bonds.
24 (m) Amounts receivable from insurance companies
25 authorized to do business in this State and from associations
26 or bureaus owned or controlled by 5 or more separate and
27 nonaffiliated, by ownership or management, insurance
28 companies of which a majority thereof are authorized to
29 transact business in this State. The amount of those
30 receivables allowed as admitted assets may not exceed the
31 lesser of 5% of the company's total admitted assets or 10% of
32 the company's surplus as regards policyholders. Amounts
33 receivable from insurance companies or associations or
34 bureaus not meeting the preceding standards of this Section
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1 if collateralized in the manner prescribed by Section 173.1.
2 (n) Tax refunds due from the United States or any state,
3 the Government of Canada or any province, or the Commonwealth
4 of Puerto Rico or amounts due to a subsidiary from a parent
5 under a tax allocation agreement that conforms with rules
6 adopted by the Director.
7 (o) The interest accrued on mortgage loans conforming to
8 this Code, not exceeding an aggregate amount on an individual
9 loan of one year's total due and accrued interest.
10 (p) The rents accrued and owing to the company on real
11 and personal property, directly or beneficially owned, not
12 exceeding on each individual property the amount of one
13 year's total due and accrued rent.
14 (q) Interest or rents accrued on conditional sales
15 agreements, security interests, chattel mortgages and real or
16 personal property under lease to other corporations, all
17 conforming to this Code, and not exceeding on any individual
18 investment, the amount of one year's total due and accrued
19 interest or rent.
20 (r) The fixed and required interest due and accrued on
21 bonds and other like evidences of indebtedness, conforming to
22 this Code, and not in default.
23 (s) Dividends receivable on shares of stock conforming
24 to this Code; provided that the market price taken for
25 valuation purposes does not include the value of the
26 dividend.
27 (t) The interest or dividends due and payable, but not
28 credited, on deposits in banks and trust companies or on
29 accounts with savings and loan associations.
30 (u) Interest accrued on secured loans conforming to this
31 Code, not exceeding the amount of one year's interest on any
32 loan.
33 (v) Interest accrued on tax anticipation warrants.
34 (w) The value of electronic computer or data processing
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1 machines or systems purchased for use in connection with the
2 business of the company, if such machines or systems whenever
3 purchased have an aggregate original cost to the company of
4 at least $75,000. The amortized value of such machines or
5 systems at the end of any calendar year shall not be greater
6 than the original purchase price less 10% for each completed
7 year, or pro rata portion for any fraction thereof, after
8 such purchase, with the total admissible value at any
9 statement date to be limited to an amount not exceeding 2% of
10 the company's admitted assets at such statement date.
11 (x) Amounts, other than premium, receivable from
12 affiliates, not outstanding for more than 3 months, and
13 arising under, management contracts or service agreements
14 which meet the requirements of Section 141.1 of the Illinois
15 Insurance Code to the extent that the affiliate has liquid
16 assets sufficient to pay the balance. The amount of those
17 receivables included in admitted assets may not exceed the
18 lesser of 5% of the company's admitted assets or 10% of the
19 company's surplus as regards policyholders. For purposes of
20 this subsection, "affiliate" has the meaning given that term
21 in Article VIII 1/2 of the Illinois Insurance Code.
22 (y) Property and liability guaranty fund or guaranty
23 association assessments paid in any state, but only to the
24 extent it is probable the company will be able to offset
25 those assessments against present or future premium taxes or
26 income taxes payable in the state in which the assessments
27 were paid. The amount of those assessments allowed as
28 admitted assets may not exceed the lesser of 5% of the
29 company's total admitted assets or 10% of the company's
30 surplus as regards policyholders. The Director may disallow
31 any such assessment as an admitted asset to the extent he
32 determines a company is unlikely to realize a present or
33 future premium tax or income tax offset as a result of the
34 assessment.
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1 (Source: P.A. 88-364; 88-535; 88-627, eff. 9-9-94; 89-97,
2 eff. 7-7-95; 89-669, eff. 1-1-97.)
3 (215 ILCS 5/26) (from Ch. 73, par. 638)
4 Sec. 26. Deposit. Every company subject to the provisions
5 of this Article shall make and maintain with the Director for
6 the protection of all creditors, policyholders and policy
7 obligations of the company, a deposit of securities which are
8 authorized investments under Section 126.11A(1), 126.11A(2),
9 126.24A(1), or 126.24A(2) Sections 125.1a and 125.2a having a
10 fair market value equal to the minimum capital and surplus
11 required to be maintained under Section 13.
12 (Source: P.A. 88-364.)
13 (215 ILCS 5/53) (from Ch. 73, par. 665)
14 Sec. 53. Deposit. Each company subject to the provisions
15 of this Article shall make and maintain with the Director for
16 the protection of all creditors, policyholders and policy
17 obligations of the company, a deposit of securities which are
18 authorized investments under Section 126.11A(1), 126.11A(2),
19 126.24A(1), or 126.24A(2) Sections 125.1a and 125.2a having a
20 fair market value equal to the minimum surplus required to be
21 maintained under Section 43.
22 (Source: P.A. 88-364.)
23 (215 ILCS 5/74) (from Ch. 73, par. 686)
24 Sec. 74. Deposit.
25 (1) Each domestic reciprocal subject to the provisions
26 of this Article shall make and maintain with the Director
27 for the protection of all creditors, policyholders and policy
28 obligations of such reciprocal, a deposit of securities which
29 are authorized investments under Section 126.11A(1),
30 126.11A(2), 126.24A(1), or 126.24A(2) Sections 125.1a and
31 125.2a having a fair market value equal to the surplus
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1 required to be maintained under Section 66.
2 (Source: P.A. 88-364.)
3 (215 ILCS 5/111) (from Ch. 73, par. 723)
4 Sec. 111. Conditions of issuance of certificate of
5 authority.
6 (1) Before a certificate of authority to transact
7 business in this State is issued to a foreign or alien
8 company, such company shall satisfy the Director that:
9 (a) the company is duly organized under the laws of
10 the state or country under whose laws it professes to be
11 organized and authorized to do the business it is
12 transacting or proposes to transact;
13 (b) its name is not the same as, or deceptively
14 similar to, the name of any domestic company, or of any
15 foreign or alien company authorized to transact business
16 in this State;
17 (c) if a company transacting business of the kind
18 or kinds enumerated in Class 1 of Section 4, it is not
19 engaging in practices in any state which if engaged in
20 this State, would constitute a violation of Section 237;
21 and it is not transacting any kinds of business other
22 than those enumerated in Class 1 of Section 4;
23 (d) if a stock company, it has a paid up capital
24 and surplus at least equal to the capital and original
25 surplus required by this Code for a domestic company
26 doing the same kind or kinds of business or, if a mutual
27 company or reciprocal, it has a surplus and provision for
28 contingent liability of policyholders, at least equal to
29 the original surplus and provision for contingent
30 liability of policyholders required for a similar
31 domestic company doing the same kind or kinds of
32 business, or, if a fraternal benefit society, it meets
33 the requirements prescribed in this Code for the
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1 organization of a domestic company or society, or if a
2 Lloyds it meets the requirements of Article V;
3 (e) its funds are invested in accordance with the
4 laws of its domicile; and
5 (f) in the case of a stock company its minimum
6 capital and surplus and required reserves, or in the case
7 of a mutual company or a reciprocal proposing to issue
8 policies without contingent liability, its minimum
9 surplus and required reserves, or in the case of any
10 other company, all its funds, are invested in securities
11 or property which afford a degree of financial security
12 equal to that required for similar domestic companies,
13 provided that this clause shall not be construed as
14 requiring the application of limitations relating either
15 to the kind or amount of securities prescribed by this
16 Code for the investments of domestic companies.
17 (2) In determining whether an alien company complies
18 with the provisions of subsection (1) of this section the
19 Director shall consider only business transacted in the
20 United States, only the assets described in Section 60j and
21 only liabilities in connection with its United States
22 business.
23 (3) Before a certificate of authority is issued to a
24 foreign or alien company, other than a Lloyds, it shall
25 deposit with the Director securities which are authorized
26 investments for similar domestic companies under Section
27 126.11A(1), 126.11A(2), 126.24A(1), or 126.24A(2) Sections
28 125.1a and 125.2a of the amount, if any, required of a
29 domestic company similarly organized and doing the same kind
30 or kinds of business; or in lieu of such deposit such foreign
31 or alien company shall satisfy the Director that it has on
32 deposit with an official of a state of the United States or a
33 depositary designated or authorized for such purpose by such
34 official, authorized by the law of such state to accept such
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1 deposit, securities of at least a like amount, for the
2 benefit and security of all creditors, policyholders and
3 policy obligations of such company in the United States.
4 (4) Before issuing a certificate of authority to a
5 foreign or alien company, the Director may cause an
6 examination to be made of the condition and affairs of such
7 company.
8 (Source: P.A. 88-364.)
9 (215 ILCS 5/131.3) (from Ch. 73, par. 743.3)
10 Sec. 131.3. (1) Investments in common stock, preferred
11 stock, debt obligations or other securities of subsidiaries
12 made under Section 131.2 of this Article are subject to
13 Sections 126.3, 126.4, 126.5, 126.6, 126.7, 124.1, 124.2,
14 124.3, 124.6, 125a and 133 of this Code but are not subject
15 to any other of the otherwise applicable restrictions or
16 prohibitions contained in this Code applicable to such
17 investments of a domestic company subject to this Code.
18 (2) If a company ceases to control a subsidiary, it must
19 dispose of any investment therein made under this section
20 within 3 years from the time of the cessation of control or
21 within such further time as the Director may prescribe,
22 unless at any time after the investment is made, the
23 investment meets the requirements for investment under any
24 other section of this Code, and the company has notified the
25 Director thereof.
26 (Source: P.A. 84-805.)
27 (215 ILCS 5/136) (from Ch. 73, par. 748)
28 Sec. 136. Annual statement.
29 (1) Every company authorized to do business in this
30 State or accredited by this State shall file with the
31 Director by March 1st in each year 2 copies of its financial
32 statement for the year ending December 31st immediately
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1 preceding on forms prescribed by the Director, which shall
2 conform substantially to the form of statement adopted by the
3 National Association of Insurance Commissioners. Unless the
4 Director provides otherwise, the annual statement is to be
5 prepared in accordance with the annual statement instructions
6 and the Accounting Practices and Procedures Manual adopted by
7 the National Association of Insurance Commissioners. The
8 Director shall have power to make such modifications and
9 additions in this form as he may deem desirable or necessary
10 to ascertain the condition and affairs of the company. The
11 Director shall have authority to extend the time for filing
12 any statement by any company for reasons which he considers
13 good and sufficient. In every statement the admitted assets
14 shall be shown at the actual values as of the last day of the
15 preceding year, in accordance with Section 126.7 124.6. The
16 statement shall be verified by oaths of the president and
17 secretary of the company or, in their absence, by 2 other
18 principal officers. In addition, any company may be required
19 by the Director, when he considers that action to be
20 necessary and appropriate for the protection of
21 policyholders, creditors, shareholders, or claimants, to
22 file, within 60 days after mailing to the company a notice
23 that such is required, a supplemental summary statement as of
24 the last day of any calendar month occurring during the 100
25 days next preceding the mailing of such notice designated by
26 him on forms prescribed and furnished by the Director. The
27 Director may require supplemental summary statements to be
28 certified by an independent actuary deemed competent by the
29 Director or by an independent certified public accountant.
30 (2) The statement of an alien company shall embrace only
31 its condition and transactions in the United States and shall
32 be verified by the oaths of its resident manager or principal
33 representative in the United States, except that in the case
34 of any life company organized under the laws of Canada or any
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1 province thereof, the statement may be verified by the oaths
2 of any of its principal officers designated for that purpose
3 by its board of directors.
4 (3) For the information of the public generally the
5 Director shall cause an abstract of the information contained
6 in the annual statement to be made available to the public as
7 soon as practicable after filing with the Department, by
8 printing those abstracts in pamphlet tabular form for free
9 general distribution by the Department, or by such other
10 publication in the city of Springfield or in the city of
11 Chicago as may be reasonably necessary more fully to inform
12 the public of the financial condition of companies
13 transacting business in this State.
14 (4) Each domestic, foreign, and alien insurer authorized
15 to do business in this State or accredited by this State
16 shall participate in the National Association of Insurance
17 Commissioners' Insurance Regulatory Information System,
18 including the payment of all fees and charges of the system.
19 Each company shall, on or before March 1 of each year, file
20 with the National Association of Insurance Commissioners a
21 copy of its annual financial statement along with any
22 additional filings prescribed by the Director for the
23 preceding year. The statement filed with the National
24 Association of Insurance Commissioners shall be in the same
25 format and scope as that required by this Code and shall
26 include a signed jurat page and actuarial certification. Any
27 amendments and addendums to the annual statement shall also
28 be filed with the National Association of Insurance
29 Commissioners. Each company shall also file with the National
30 Association of Insurance Commissioners annual and quarterly
31 financial statement information in computer readable format
32 as required by the Insurance Regulatory Information System.
33 Failure of a company to file financial statement information
34 in computer readable format shall subject the company to the
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1 provisions of Section 139.
2 (5) All financial analysis ratios and examination
3 synopsis concerning insurance companies that are submitted to
4 the Director by the National Association of Insurance
5 Commissioners' Insurance Regulatory Information System are
6 confidential and may not be disclosed by the Director.
7 (Source: P.A. 87-1090; 88-364.)
8 (215 ILCS 5/245.21) (from Ch. 73, par. 857.21)
9 Sec. 245.21. A domestic life company, including for the
10 purposes of this Article all domestic fraternal beneficiary
11 associations, societies or companies which operate on a legal
12 reserve basis, may establish one or more separate accounts,
13 and may allocate thereto amounts (including without
14 limitation proceeds applied under optional modes of
15 settlement or under dividend options) to provide for life
16 insurance or annuities (and benefits incidental thereto),
17 payable in fixed or variable amounts or both, subject to the
18 following:
19 (1) The income, gains and losses, realized or
20 unrealized, from assets allocated to a separate account must
21 be credited to or charged against the account, without regard
22 to other income, gains or losses of the company.
23 (2) Except as may be provided with respect to reserves
24 for guaranteed benefits and funds referred to in paragraph
25 (3) of this Section (i) amounts allocated to any separate
26 account and accumulations thereon may be invested and
27 reinvested without regard to any requirements or limitations
28 of Part 2 or Part 3 of Article VIII Sections 125a through
29 125.24a of this Code and (ii) the investments in any separate
30 account or accounts may not be taken into account in applying
31 the investment limitations otherwise applicable to the
32 investments of the company.
33 (3) Except with the approval of the Director and under
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1 the conditions as to investments and other matters as he may
2 prescribe, that must recognize the guaranteed nature of the
3 benefits provided, reserves for (i) benefits guaranteed as to
4 dollar amount and duration and (ii) funds guaranteed as to
5 principal amount or stated rate of interest may not be
6 maintained in a separate account.
7 (4) Unless otherwise approved by the Director, assets
8 allocated to a separate account must be valued at their
9 market value on the date of valuation, or if there is no
10 readily available market, then as provided in the contract or
11 the rules or other written agreement applicable to the
12 separate account. Unless otherwise approved by the Director,
13 the portion, if any, of the assets of the separate account
14 equal to the company's reserve liability with regard to the
15 guaranteed benefits and funds referred to in paragraph (3) of
16 this Section must be valued in accordance with the rules
17 otherwise applicable to the company's assets.
18 (5) Amounts allocated to a separate account under this
19 Article are owned by the company, and the company may not be,
20 nor hold itself out to be, a trustee with respect to those
21 amounts. The assets of any separate account equal to the
22 reserves and other contract liabilities with respect to the
23 account may not be charged with liabilities arising out of
24 any other business the company may conduct.
25 (6) No sale, exchange or other transfer of assets may be
26 made by a company between any of its separate accounts or
27 between any other investment account and one or more of its
28 separate accounts unless, in case of a transfer into a
29 separate account, the transfer is made solely to establish
30 the account or to support the operation of the contracts with
31 respect to the separate account to which the transfer is
32 made, and unless the transfer, whether into or from a
33 separate account, is made (i) by a transfer of cash, or (ii)
34 by a transfer of securities having a readily determinable
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1 market value, if the transfer of securities is approved by
2 the Director. The Director may approve other transfers among
3 those accounts if, in his opinion, the transfers would not be
4 inequitable.
5 (7) To the extent a company considers it necessary to
6 comply with any applicable federal or state laws, the
7 company, with respect to any separate account, including
8 without limitation any separate account which is a management
9 investment company or a unit investment trust, may provide
10 for persons having an interest therein appropriate voting and
11 other rights and special procedures for the conduct of the
12 business of the account, including without limitation special
13 rights and procedures relating to investment policy,
14 investment advisory services, selection of independent public
15 accountants, and the selection of a committee, the members of
16 which need not be otherwise affiliated with the company, to
17 manage the business of the account.
18 (Source: P.A. 86-1154; 86-1156.)
19 Section 20. The Housing Development and Construction Act
20 is amended by changing Section 5 as follows:
21 (310 ILCS 20/5) (from Ch. 67 1/2, par. 57)
22 Sec. 5. Any grants paid hereunder to a housing authority
23 shall be deposited in a separate fund and, subject to the
24 approval of the Department of Commerce and Community Affairs,
25 may be used for any or all of the following purposes as the
26 needs of the community may require: the acquisition of land
27 by purchase, gift or condemnation and the improvement
28 thereof, the purchase and installation of temporary housing
29 facilities, the construction of housing units for rent or
30 sale to veterans, the families of deceased servicemen, and
31 for persons and families who by reason of overcrowded housing
32 conditions or displacement by eviction, fires or other
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1 calamities, or slum clearance or other private or public
2 project involving relocation, are in urgent need of safe and
3 sanitary housing, the making of grants in connection with the
4 sale or lease of real property as provided in the following
5 paragraph of this section, and for any and all purposes
6 authorized by the "Housing Authorities Act," approved March
7 19, 1934, as amended, including administrative expenses of
8 the housing authorities in relation to the aforesaid
9 objectives, to the extent and for the purposes authorized and
10 approved by the Department of Commerce and Community Affairs.
11 Each housing authority is vested with power to exercise the
12 right of eminent domain for the purposes authorized by this
13 Act. Condemnation proceedings instituted by any such
14 authority shall be in all respects in the manner provided for
15 the exercise of the right of eminent domain under Article VII
16 of the Code of Civil Procedure, as amended.
17 In addition to the foregoing, and for the purpose of
18 facilitating the development and construction of housing,
19 housing authorities may, with the approval of the Department
20 of Commerce and Community Affairs, enter into contracts and
21 agreements for the sale or lease of real property acquired by
22 the Authority through the use of the grant hereunder, and may
23 sell or lease such property to (1) housing corporations
24 operating under "An Act in relation to housing," approved
25 July 12, 1933, as amended; (2) neighborhood redevelopment
26 corporations operating under the "Neighborhood Redevelopment
27 Corporation Law," approved July 9, 1941; (3) insurance
28 companies operating under Article VIII Section 125 of the
29 "Illinois Insurance Code," approved June 29, 1937, as
30 amended; (4) non-profit corporations organized for the
31 purpose of constructing, managing and operating housing
32 projects and the improvement of housing conditions, including
33 the sale or rental of housing units to persons in need
34 thereof; or (5) to any other individual, association or
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1 corporation, including bona fide housing cooperatives,
2 desiring to engage in a development or redevelopment project.
3 The term "corporation" as used in this section, means a
4 corporation organized under the laws of this or any other
5 state of the United States, or of any country, which may
6 legally make investments in this State of the character
7 herein prescribed, including foreign and alien insurance
8 companies as defined in Section 2 of the "Illinois Insurance
9 Code." No sale or lease shall be made hereunder to any of the
10 aforesaid corporations, associations or individuals unless a
11 plan approved by the Authority has been presented by the
12 purchaser or lessee for the development or redevelopment of
13 such property, together with a bond, with satisfactory
14 sureties, of not less than 10% of the cost of such
15 development or redevelopment, conditioned upon the completion
16 of such development or redevelopment; provided that the
17 requirement of the bond may be waived by the Department of
18 Commerce and Community Affairs if it is satisfied of the
19 financial ability of the purchaser or lessee to complete such
20 development or redevelopment in accordance with the presented
21 plan. To further assure that the real property so sold or
22 leased shall be used in accordance with the plan, the
23 Department of Commerce and Community Affairs may require the
24 purchaser or lessee to execute in writing such undertakings
25 as the Department deems necessary to obligate such purchaser
26 or lessee (1) to use the property for the purposes presented
27 in the plan; (2) to commence and complete the building of the
28 improvements designated in the plan within the periods of
29 time that the Department of Commerce and Community Affairs
30 fixes as reasonable, and (3) to comply with such other
31 conditions as are necessary to carry out the purposes of this
32 Act. Any such property may be sold pursuant to this section
33 for any legal consideration in an amount to be approved by
34 the Department of Commerce and Community Affairs. Subject to
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1 the approval of the Department of Commerce and Community
2 Affairs, a housing authority may pay to any non-profit
3 corporation of the character described in this section from
4 grants made available from state funds, such sum of money
5 which, when added to the value of the land so sold or leased
6 to such non-profit corporation and the value of other assets
7 of such non-profit corporation available for use in the
8 project, will enable such non-profit corporation to obtain
9 Federal Housing Administration insured construction
10 mortgages. Any such authority may also sell, transfer,
11 convey or assign to any such non-profit corporation any
12 personal property, including building materials and supplies,
13 as it deems necessary to facilitate the completion of the
14 development or redevelopment by such non-profit corporation.
15 If the area of operation of a housing authority includes
16 a city, village or incorporated town having a population in
17 excess of 500,000, as determined by the last preceding
18 Federal Census, no real property or interest in real property
19 shall be acquired in such municipality by the housing
20 authority until such time as the housing authority has
21 advised the governing body of such municipality of the
22 description of the real property, or interest therein,
23 proposed to be acquired, and the governing body of the
24 municipality has approved the acquisition thereof by the
25 housing authority.
26 (Source: P.A. 82-783.)
27 Section 25. The Blighted Areas Redevelopment Act of 1947
28 is amended by changing Section 19 as follows:
29 (315 ILCS 5/19) (from Ch. 67 1/2, par. 81)
30 Sec. 19. The Commission may at such times as it deems
31 expedient transfer and sell the fee simple title, or such
32 lesser estate as the Commission may have heretofore acquired
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1 or may hereafter acquire, to all or any part of the real
2 property within the area of a redevelopment project not
3 disposed of in accordance with Sections 17, 18 and 18.1
4 hereof to (1) Neighborhood Redevelopment Corporations
5 operating under the "Neighborhood Redevelopment Corporation
6 Law", approved July 9, 1941, as amended, (2) Insurance
7 Companies operating under Article VIII Section 125.21a of the
8 "Illinois Insurance Code", approved June 29, 1937, as
9 amended, (3) any individual, association, or corporation,
10 organized under the laws of this State or of any other State
11 or country, which may legally make such investments in this
12 State, including foreign and alien insurance companies, as
13 defined in Section 2 of the Illinois Insurance Code, or (4)
14 bodies politic and corporate, public corporations, or any
15 private interests empowered by law to acquire, develop and
16 use such real property for such uses, public or private, as
17 are in accordance with an approved plan; provided, however,
18 that any sale of real property to a Housing Authority shall
19 be made only in accordance with the provisions of Sections 18
20 and 18.1 hereof. To assure that the real property so sold is
21 used in accordance with the approved plan referred to in
22 Section 19.1 hereof, the Commission shall inquire into and
23 satisfy itself concerning the financial ability of the
24 purchaser to complete the redevelopment in accordance with
25 the approved plan and shall require the purchaser to execute
26 in writing such undertakings as the Commission may deem
27 necessary to obligate the purchaser: (1) to use the land for
28 the purposes designated in the approved plan, (2) to commence
29 and complete the building of the improvements within the
30 periods of time which the Commission fixes as reasonable, and
31 (3) to comply with such other conditions as are necessary to
32 carry out the purposes of this Act. Any such area may be sold
33 either as an entirety or in such parcels as the Commission
34 shall deem expedient. It shall not be necessary that title be
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1 acquired to all real property within the area of a
2 redevelopment project before the sale of a part thereof may
3 be made as provided herein. Any real property sold pursuant
4 to the foregoing provisions of this Section shall be sold at
5 its use value (which may be less than its acquisition cost),
6 which represents the value at which the Commission determines
7 such land should be made available in order that it may be
8 developed or redeveloped for the purposes specified in the
9 approved plan.
10 Any real property lying within the area of a
11 redevelopment project which has not been sold by the
12 Commission within 5 years after the Commission has acquired
13 title to all the real property within the area of that
14 redevelopment project, shall be forthwith sold by the
15 Commission at public sale for cash to the highest bidder
16 obligating himself in the manner set forth in the preceding
17 paragraph of this Section to redevelop the property in
18 accordance with the approved plan. Notice of such sale and of
19 the place where the approved plan may be inspected shall be
20 published once in a newspaper having a general circulation in
21 the municipality in which the real property is situated at
22 least 20 days prior to the date of such public sale, and
23 shall contain a description of the real property to be sold.
24 The Commission may reject the bids received if, in the
25 opinion of the Commission, the highest bid does not equal or
26 exceed the use value (as herein above defined) of the land to
27 be sold. At the expiration of six (6) months from the date of
28 rejecting bids, the Commission shall again advertise for sale
29 any real property then remaining unsold. Each publication
30 shall be subject to the same requirements and conditions as
31 the original publication.
32 (Source: P.A. 83-333.)
33 Section 99. Effective date. This Act takes effect upon
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1 becoming law.