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90_SB1904sam001
LRB9011424JScdam
1 AMENDMENT TO SENATE BILL 1904
2 AMENDMENT NO. . Amend Senate Bill 1904 by replacing
3 the title with the following:
4 "AN ACT concerning financial management of insurers,
5 amending named Acts."; and
6 by replacing everything after the enacting clause with the
7 following:
8 "Section 5. The Illinois Insurance Code is amended by
9 changing Sections 35A-5, 35A-20, 35A-35, 107.06a, 107.26,
10 111, 121-2.08, 123C-1, 126.2, 143, 191, and 445 and adding
11 Section 445a as follows:
12 (215 ILCS 5/35A-5)
13 Sec. 35A-5. Definitions. As used in this Article, the
14 terms listed in this Section have the meaning given herein.
15 "Adjusted RBC Report" means an RBC Report that has been
16 adjusted by the Director in accordance with subsection (e) of
17 Section 35A-10.
18 "Authorized control level RBC" means the number
19 determined under the risk-based capital formula in accordance
20 with the RBC Instructions.
21 "Company action level RBC" means the product of 2.0 and
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1 the insurer's authorized control level RBC.
2 "Corrective Order" means an order issued by the Director
3 in accordance with Article XII 1/2 specifying corrective
4 actions that the Director determines are required.
5 "Domestic insurer" means any insurance company domiciled
6 in this State under Article II, Article III, Article III 1/2,
7 or Article IV.
8 "Foreign insurer" means any foreign or alien insurance
9 company licensed under Article VI that is not domiciled in
10 this State.
11 "Life, health, or life and health insurer" means an
12 insurance company that has authority to transact the kinds of
13 insurance described in either or both clause (a) or clause
14 (b) of Class 1 of Section 4 or a licensed property and
15 casualty insurer writing only accident and health insurance.
16 "Mandatory control level RBC" means the product of 0.70
17 and the insurer's authorized control level RBC.
18 "NAIC" means the National Association of Insurance
19 Commissioners.
20 "Negative trend" means, with respect to a life, health,
21 or life and health insurer, a negative trend over a period of
22 time, as determined in accordance with the trend test
23 calculation included in the RBC Instructions.
24 "Property and casualty insurer" means an insurance
25 company that has authority to transact the kinds of insurance
26 in either or both Class 2 or Class 3 of Section 4 or a
27 licensed insurer writing only insurance authorized under
28 clause (c) of Class 1, but does not include monoline mortgage
29 guaranty insurers, financial guaranty insurers, and title
30 insurers.
31 "RBC" means risk-based capital.
32 "RBC Instructions" means the RBC Report including
33 risk-based capital instructions adopted by the NAIC as those
34 instructions may be amended by the NAIC from time to time in
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1 accordance with the procedures adopted by the NAIC.
2 "RBC level" means an insurer's company action level RBC,
3 regulatory action level RBC, authorized control level RBC, or
4 mandatory control level RBC.
5 "RBC Plan" means a comprehensive financial plan
6 containing the elements specified in subsection (b) of
7 Section 35A-15.
8 "RBC Report" means the risk-based capital report required
9 under Section 35A-10.
10 "Receivership" means conservation, rehabilitation, or
11 liquidation under Article XIII.
12 "Regulatory action level RBC" means the product of 1.5
13 and the insurer's authorized control level RBC.
14 "Revised RBC Plan" means an RBC Plan rejected by the
15 Director and revised by the insurer with or without the
16 Director's recommendations.
17 "Total adjusted capital" means the sum of (1) an
18 insurer's statutory capital and surplus and (2) any other
19 items that the RBC Instructions may provide.
20 (Source: P.A. 88-364; 89-97, eff. 7-7-95.)
21 (215 ILCS 5/35A-20)
22 Sec. 35A-20. Regulatory action level event.
23 (a) A regulatory action level event means any of the
24 following events:
25 (1) The filing of an RBC Report by the insurer that
26 indicates that the insurer's total adjusted capital is
27 greater than or equal to its authorized control level
28 RBC, but less than its regulatory action level RBC.
29 (2) The notification by the Director to an insurer
30 of an Adjusted RBC Report that indicates the event
31 described in paragraph (1), provided the insurer does not
32 challenge the Adjusted RBC Report under Section 35A-35.
33 (3) The notification by the Director to the insurer
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1 that the Director has, after a hearing, rejected the
2 insurer's challenge under Section 35A-35 to an Adjusted
3 RBC Report that indicates the event described in
4 paragraph (1).
5 (4) The failure of the insurer to file an RBC
6 Report by the filing date, unless the insurer has
7 provided an explanation for the failure that is
8 satisfactory to the Director and has cured the failure
9 within 10 days after the filing date.
10 (5) The failure of the insurer to submit an RBC
11 Plan to the Director within the time period set forth in
12 subsection (c) of Section 35A-15.
13 (6) The notification by the Director to the insurer
14 that the insurer's RBC Plan or revised RBC Plan is, in
15 the judgment of the Director, unsatisfactory and that the
16 notification constitutes a regulatory action level event
17 with respect to the insurer, provided the insurer does
18 not challenge the determination under Section 35A-35.
19 (7) The notification by the Director to the insurer
20 that the Director has, after a hearing, rejected the
21 insurer's challenge under Section 35A-35 to the
22 determination made by the Director under paragraph (6).
23 (8) The notification by the Director to the insurer
24 that the insurer has failed to adhere to its RBC Plan or
25 Revised RBC Plan, but only if that failure has a
26 substantial adverse effect on the ability of the insurer
27 to eliminate the company action level event in accordance
28 with its RBC Plan or Revised RBC Plan and the Director
29 has so stated in the notification, provided the insurer
30 does not challenge the determination under Section
31 35A-35.
32 (9) The notification by the Director to the insurer
33 that the Director has, after a hearing, rejected the
34 insurer's challenge under Section 35A-35 to the
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1 determination made by the Director under paragraph (8).
2 (b) In the event of a regulatory action level event, the
3 Director shall do all of the following:
4 (1) Require the insurer to prepare and submit an
5 RBC Plan or, if applicable, a Revised RBC Plan to the
6 Director within 45 days after the regulatory action level
7 event occurs or within 45 days after the Director
8 notifies the insurer that the Director has, after a
9 hearing, rejected its challenge under Section 35A-35 to
10 either an Adjusted RBC Report or a Revised RBC Plan.
11 However, if the insurer previously prepared and submitted
12 an RBC Plan or a Revised RBC Plan in accordance with any
13 provision of this Article, the Director may determine
14 that the previously prepared RBC Plan or Revised RBC Plan
15 satisfies the requirement of this subsection (b)(1).
16 (2) Perform any examination or analysis of the
17 assets, liabilities, and operations of the insurer,
18 including a review of its RBC Plan or Revised RBC Plan,
19 that the Director deems necessary.
20 (3) After the examination or analysis, issue a
21 Corrective Order specifying the corrective actions the
22 Director determines are required.
23 (c) In determining corrective actions, the Director may
24 take into account any factors the Director deems relevant
25 based upon the examination or analysis of the assets,
26 liabilities, and operations of the insurer including, but not
27 limited to, the results of any sensitivity tests undertaken
28 under the RBC Instructions. The regulatory action level event
29 shall be deemed sufficient grounds for the Director to issue
30 a Corrective Order in accordance with Article XII 1/2. The
31 Director shall have rights, powers, and duties with respect
32 to the insurer that are set forth in Article XII 1/2 and the
33 insurer shall be entitled to the protections afforded
34 insurers under Article XII 1/2. The insurer shall submit the
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1 RBC Plan to the Director within 45 days after the regulatory
2 action level event occurs or within 45 days after the
3 Director notifies the insurer that the Director has, after a
4 hearing, rejected its challenge under Section 35A-35 to
5 either an Adjusted RBC Report or a Revised RBC Plan.
6 (d) The Director may retain actuaries, investment
7 experts, and other consultants necessary to review an
8 insurer's RBC Plan or Revised RBC Plan, examine or analyze
9 the assets, liabilities, and operations of the insurer, and
10 formulate the Corrective Order with respect to the insurer.
11 The fees, costs, and expenses related to the actuaries,
12 investment experts, and other consultants shall be borne by
13 the affected insurer or the party designated by the Director.
14 (Source: P.A. 88-364; 89-97, eff. 7-7-95.)
15 (215 ILCS 5/35A-35)
16 Sec. 35A-35. Hearings.
17 (a) An insurer has the right to an administrative
18 hearing with respect to any of the following:
19 (1) The notification by the Director to the insurer
20 of an Adjusted RBC Report.
21 (2) The notification by the Director to the insurer
22 that the insurer's RBC Plan or Revised RBC Plan is
23 unsatisfactory and that the notification constitutes a
24 regulatory action level event.
25 (3) The notification by the Director to the insurer
26 that the insurer has failed to adhere to its RBC Plan or
27 Revised RBC Plan and that the failure has a substantial
28 adverse effect on the ability of the insurer to eliminate
29 the company action level event in accordance with its RBC
30 Plan or Revised RBC Plan.
31 (4) The notification by the Director to the insurer
32 of a Corrective Order.
33 (b) At the administrative hearing, the insurer may
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1 challenge any determination or action by the Director. The
2 insurer shall notify the Director of its request for a
3 hearing within 5 days after notification by the Director made
4 under subsection (a). Upon receipt of the insurer's request
5 for a hearing, the Director shall set a date for the hearing.
6 The hearing shall be held no fewer than 10 days and no more
7 than 30 days after the date of the insurer's request for the
8 hearing.
9 (Source: P.A. 88-364.)
10 (215 ILCS 5/107.06a) (from Ch. 73, par. 719.06a)
11 Sec. 107.06a. Organization under Illinois Insurance
12 Code.
13 (a) After December 31, 1997, a syndicate or limited
14 syndicate, except for a limited syndicate formed as a
15 partnership, may only be organized pursuant to Sections 7, 8,
16 10, 11, 12, 14, 14.1 (other than subsection (d) thereof), 15
17 (other than subsection (d) thereof), 18, 19, 20, 21, 22, 23,
18 25, 27.1, 28, 28.1, 28.2, 29, 30, 31, 32, 32.1, 33, and 35.1
19 and Article X of this Code, to carry on the business of a
20 syndicate, or limited syndicate under Article V-1/2 of this
21 Code; provided that such syndicate or limited syndicate is
22 admitted to the Illinois Insurance Exchange.
23 (b) After December 31, 1997, syndicates and limited
24 syndicates are subject to the following:
25 (1) Articles I, IIA, VIII, VIII 1/2, X, XI, XII,
26 XII 1/2, XIII, XIII 1/2, XXIV, XXV (Sections 408 and 412
27 only), and XXVIII (except for Sections 445, 445.1, 445.2,
28 445.3, 445.4, and 445.5) of this Code;
29 (2) Subsections (2) and (3) of Section 155.04 and
30 Sections 13, 132.1 through 140, 141a, 144, 155.01,
31 155.03, 378, 379.1, 393.1, 395, and 396 of this Code;
32 (3) the Reinsurance Intermediary Act; and
33 (4) the Producer Controlled Insurer Act.
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1 (c) No other provision of this Insurance Code shall be
2 applicable to any such syndicate or limited syndicate except
3 as provided in this Article V-1/2.
4 (Source: P.A. 89-97, eff. 7-7-95; 90-499, eff. 8-19-97.)
5 (215 ILCS 5/107.26) (from Ch. 73, par. 719.26)
6 Sec. 107.26. Illinois Insurance Exchange Immediate
7 Access Security Association.
8 (a) There is created a non-profit corporation which
9 shall be known as the Illinois Insurance Exchange Immediate
10 Access Security Association and which shall be incorporated
11 under the General Not for Profit Corporation Act. All
12 syndicates shall be members of the Association as a condition
13 of their authority to transact business on the Exchange. The
14 Association shall be exempt from payment of all fees and all
15 taxes levied by this State or any of its subdivisions.
16 (b) In the event of the entry of an Order of
17 Rehabilitation, Conservation, or Liquidation against a
18 syndicate pursuant to Section 107.08, the Association shall
19 establish a claims date, which shall be not later than one
20 year after the date of such Order, by which time all persons
21 having claims arising out of insurance obligations of the
22 syndicate must file their claim with the Association. The
23 Association shall give notice to all policyholders and other
24 persons who may have a claim against the syndicate as shown
25 by the syndicate's records. Such notice shall include the
26 date of the Order, the claims date established by the
27 Association and the procedure and form for filing a claim
28 with the Association. Within 60 days after the claims date,
29 The Association shall determine the syndicate's insurance
30 obligations liability based on all claims filed on or before
31 the claims date. The Association shall then pay all claims
32 for which an insurance obligation a liability exists from the
33 assets of the syndicate's trust or custodial account and
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1 certificates of guaranty. In the event those assets are
2 insufficient to pay all claims in full, the Association shall
3 make payment pursuant to a plan approved by the court
4 entering the Order of Rehabilitation, Conservation, or
5 Liquidation. The Rehabilitator, Conservator, or Liquidator
6 shall be bound by any settlement made by the Association. Any
7 person not receiving full reimbursement for his claim from
8 the Association shall have a claim against the assets being
9 administered by the Rehabilitator, Conservator, or Liquidator
10 for the remaining amounts. In settling claims and subject to
11 limitations in this Section, the Association shall have the
12 same rights and duties of the insolvent syndicate as if the
13 syndicate had not become insolvent.
14 (c) The Association may delegate to such other person or
15 entity as it deems appropriate the performance of any duty
16 imposed on it by this Section.
17 (Source: P.A. 89-97, eff. 7-7-95; 89-206, eff. 7-21-95;
18 89-626, eff. 8-9-96.)
19 (215 ILCS 5/111) (from Ch. 73, par. 723)
20 Sec. 111. Conditions of issuance of certificate of
21 authority.
22 (1) Before a certificate of authority to transact
23 business in this State is issued to a foreign or alien
24 company, such company shall satisfy the Director that:
25 (a) the company is duly organized under the laws of
26 the state or country under whose laws it professes to be
27 organized and authorized to do the business it is
28 transacting or proposes to transact;
29 (b) its name is not the same as, or deceptively
30 similar to, the name of any domestic company, or of any
31 foreign or alien company authorized to transact business
32 in this State;
33 (c) if a company transacting business of the kind
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1 or kinds enumerated in Class 1 of Section 4, it is not
2 engaging in practices in any state which if engaged in
3 this State, would constitute a violation of Section 237;
4 and it is not transacting any kinds of business other
5 than those enumerated in Class 1 of Section 4;
6 (d) if a stock company, it has a paid up capital
7 and surplus at least equal to the capital and original
8 surplus required by this Code for a domestic company
9 doing the same kind or kinds of business or, if a mutual
10 company or reciprocal, it has a surplus and provision for
11 contingent liability of policyholders, at least equal to
12 the original surplus and provision for contingent
13 liability of policyholders required for a similar
14 domestic company doing the same kind or kinds of
15 business, or, if a fraternal benefit society, it meets
16 the requirements prescribed in this Code for the
17 organization of a domestic company or society, or if a
18 Lloyds it meets the requirements of Article V;
19 (e) its funds are invested in accordance with the
20 laws of its domicile; and
21 (f) in the case of a stock company its minimum
22 capital and surplus and required reserves, or in the case
23 of a mutual company or a reciprocal proposing to issue
24 policies without contingent liability, its minimum
25 surplus and required reserves, or in the case of any
26 other company, all its funds, are invested in securities
27 or property which afford a degree of financial security
28 equal to that required for similar domestic companies,
29 provided that this clause shall not be construed as
30 requiring the application of limitations relating either
31 to the kind or amount of securities prescribed by this
32 Code for the investments of domestic companies.
33 (2) In determining whether an alien company complies
34 with the provisions of subsection (1) of this section the
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1 Director shall consider only business transacted in the
2 United States, only the assets described in Section 60j and
3 only liabilities in connection with its United States
4 business.
5 (3) Before a certificate of authority is issued to a
6 foreign or alien company, other than a Lloyds, it shall
7 deposit with the Director securities which are authorized
8 investments for similar domestic companies under Section
9 126.11A(1), 126.11A(2), 126.24A(1), or 126.24A(2) of the
10 amount, if any, required of a domestic company similarly
11 organized and doing the same kind or kinds of business; or in
12 lieu of such deposit such foreign or alien company shall
13 satisfy the Director that it has on deposit with an official
14 of a state of the United States or a depositary designated or
15 authorized for such purpose by such official, authorized by
16 the law of such state to accept such deposit, securities of
17 at least a like amount, for the benefit and security of all
18 creditors, policyholders and policy obligations of such
19 company in the United States.
20 (4) Before issuing a certificate of authority to a
21 foreign or alien company, the Director may cause an
22 examination to be made of the condition and affairs of such
23 company.
24 (Source: P.A. 90-418, eff. 8-15-97.)
25 (215 ILCS 5/121-2.08) (from Ch. 73, par. 733-2.08)
26 Sec. 121-2.08. Transactions in this State involving
27 contracts of insurance issued to one or more industrial
28 insureds. For purposes of this Section "industrial insured"
29 is an insured:
30 (a) which procures the insurance of any risk or risks
31 other than life and annuity contracts by use of the services
32 of a full time employee acting as an insurance manager or
33 buyer or the services of a regularly and continuously
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1 retained qualified insurance consultant;
2 (b) whose aggregate annual premiums for insurance on all
3 risks, except for life and accident and health insurance,
4 total at least $100,000 $50,000; and
5 (c) which either (i) has at least 25 full time
6 employees, (ii) has gross assets in excess of $3,000,000, or
7 (iii) has annual gross revenues in excess of $5,000,000.
8 (Source: P.A. 85-131.)
9 (215 ILCS 5/123C-1) (from Ch. 73, par. 735C-1)
10 Sec. 123C-1. Definitions. As used in this Article:
11 A. "Affiliate" or "Affiliated company" shall have the
12 meaning set forth in subsection (a) of Section 131.1 (and,
13 for purposes of such definition, the definitions of "control"
14 and "person", as set forth in subsections (b) and (e) of
15 Section 131.1, respectively, shall be applicable).
16 B. "Association" means any entity meeting the
17 requirements set forth in either of the following paragraphs
18 (1), (2) or (3):
19 (1) any organized association of individuals, legal
20 representatives, corporations (whether for profit or not
21 for profit), partnerships, trusts, associations, units of
22 government or other organizations, or any combination of
23 the foregoing, that has been in continuous existence for
24 at least one year, the member organizations of which
25 collectively:
26 (a) own, control, or hold with power to vote
27 (directly or indirectly) all of the outstanding
28 voting securities of an association captive
29 insurance company incorporated as a stock insurer;
30 or
31 (b) have complete voting control (directly or
32 indirectly) over an association captive insurance
33 company organized as a mutual insurer;
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1 (2) any organized association of individuals, legal
2 representatives, corporations (whether for profit or not
3 for profit), partnerships, trusts, associations, units of
4 government or other organizations, or any combination of
5 the foregoing:
6 (a) whose member organizations are engaged in
7 businesses or activities similar or related with
8 respect to the liability of which such members are
9 exposed by virtue of any related, similar, or common
10 business, trade, product, services, premises, or
11 operations; and
12 (b) whose member organizations:
13 (i) directly or indirectly own or
14 control, and hold with power to vote, at least
15 80% of all of the outstanding voting securities
16 of an association captive insurance company
17 incorporated as a stock insurer; or
18 (ii) directly or indirectly have at least
19 80% of the voting control over an association
20 captive insurance company organized as a mutual
21 insurer; or
22 (3) any risk retention group, as defined in
23 subsection (11) of Section 123B-2, domiciled in this
24 State and organized under this Article; however,
25 beginning 6 months after the effective date of this
26 amendatory Act of 1995, a risk retention group shall no
27 longer qualify as an association under this Article.
28 Provided, however, that with respect to each of the
29 associations described in paragraphs (1), (2) and (3) above,
30 no member organization may (i) own, control, or hold with
31 power to vote in excess of 25% of the voting securities of an
32 association captive insurance company incorporated as a stock
33 insurer, or (ii) have more than 25% of the voting control of
34 an association captive insurance company organized as a
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1 mutual insurer.
2 C. "Association captive insurance company" means any
3 company that insures risks of (i) the member organizations of
4 an association, and (ii) their affiliated companies.
5 D. "Captive insurance company" means any pure captive
6 insurance company, association captive insurance company or
7 industrial insured captive insurance company organized under
8 the provisions of this Article.
9 E. "Director" means the Director of the Department of
10 Insurance.
11 F. "Industrial insured" means an insured which (together
12 with its affiliates) at the time of its initial procurement
13 of insurance from an industrial insured captive insurance
14 company:
15 (1) has available to it advice with respect to the
16 purchase of insurance through the use of the services of
17 a full-time employee acting as an insurance manager or
18 buyer or the services of a regularly and continuously
19 retained qualified insurance consultant; and
20 (2) pays aggregate annual premiums in excess of
21 $100,000 $35,000 for insurance on all risks except
22 for life, accident and health; and
23 (3) either (i) has at least 25 full-time employees,
24 or (ii) has gross assets in excess of $3,000,000, or
25 (iii) has annual gross revenues in excess of $5,000,000.
26 G. "Industrial insured captive insurance company" means
27 any company that insures risks of industrial insureds that
28 are members of the industrial insured group, and their
29 affiliated companies.
30 H. "Industrial insured group" means any group of
31 industrial insureds that collectively:
32 (1) directly or indirectly (including ownership or
33 control through a company which is wholly owned by such
34 group of industrial insureds) own or control, and hold
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1 with power to vote, all of the outstanding voting
2 securities of an industrial insured captive insurance
3 company incorporated as a stock insurer; or
4 (2) directly or indirectly (including control
5 through a company which is wholly owned by such group of
6 industrial insureds) have complete voting control over an
7 industrial insured captive insurance company organized as
8 a mutual insurer; provided, however, that no member
9 organization may (i) own, control, or hold with power to
10 vote in excess of 25% of the voting securities of an
11 industrial insured captive insurance company incorporated
12 as a stock insurer, or (ii) have more than 25% of the
13 voting control of an industrial insured captive insurance
14 company organized as a mutual insurer.
15 I. "Member organization" means any individual, legal
16 representative, corporation (whether for profit or not for
17 profit), partnership, association, unit of government, trust
18 or other organization that belongs to an association or an
19 industrial insured group.
20 J. "Parent" means a corporation, partnership, individual
21 or other legal entity that directly or indirectly owns,
22 controls, or holds with power to vote more than 50% of the
23 outstanding voting securities of a company.
24 K. "Personal risk liability" means liability to other
25 persons for (i) damage because of injury to any person, (ii)
26 damage to property, or (iii) other loss or damage, in each
27 case resulting from any personal, familial, or household
28 responsibilities or activities, but does not include legal
29 liability for damages (including costs of defense, legal
30 costs and fees, and other claims expenses) because of
31 injuries to other persons, damage to their property, or other
32 damage or loss to such other persons resulting from or
33 arising out of:
34 (i) any business (whether for profit or not for
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1 profit), trade, product, services (including professional
2 services), premises, or operations; or
3 (ii) any activity of any state or local government,
4 or any agency or political subdivision thereof.
5 L. "Pure captive insurance company" means any company
6 that insures only risks of its parent or affiliated companies
7 or both.
8 M. "Unit of government" includes any state, regional or
9 local government, or any agency or political subdivision
10 thereof, or any district, authority, public educational
11 institution or school district, public corporation or other
12 unit of government in this State or any similar unit of
13 government in any other state.
14 (Source: P.A. 89-97, eff. 7-7-95.)
15 (215 ILCS 5/126.2)
16 Sec. 126.2. Definitions. For purposes of this Article:
17 A. "Acceptable collateral" means:
18 (1) As to securities lending transactions, and for
19 the purpose of calculating counterparty exposure amount,
20 cash, cash equivalents, letters of credit, direct
21 obligations of, or securities that are fully guaranteed
22 as to principal and interest by, the government of the
23 United States or any agency of the United States, or by
24 the Federal National Mortgage Association or the Federal
25 Home Loan Mortgage Corporation, and as to lending foreign
26 securities, sovereign debt rated 1 by the SVO;
27 (2) As to repurchase transactions, cash, cash
28 equivalents and direct obligations of, or securities that
29 are fully guaranteed as to principal and interest by, the
30 government of the United States or an agency of the
31 United States, or by the Federal National Mortgage
32 Association or the Federal Home Loan Mortgage
33 Corporation; and
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1 (3) As to reverse repurchase transactions, cash and
2 cash equivalents.
3 B. "Acceptable private mortgage insurance" means
4 insurance written by a private insurer protecting a mortgage
5 lender against loss occasioned by a mortgage loan default and
6 issued by a licensed mortgage insurance company, with an SVO
7 1 designation or a rating issued by a nationally recognized
8 statistical rating organization equivalent to an SVO 1
9 designation, that covers losses to an 80% loan-to-value
10 ratio.
11 C. "Accident and health insurance" means protection
12 which provides payment of benefits for covered sickness or
13 accidental injury, excluding credit insurance, disability
14 insurance, accidental death and dismemberment insurance and
15 long-term care insurance.
16 D. "Accident and health insurer" means a licensed life
17 or health insurer or health service corporation whose
18 insurance premiums and required statutory reserves for
19 accident and health insurance constitute at least 95% of
20 total premium considerations or total statutory required
21 reserves, respectively.
22 E. "Admitted assets" means assets defined by Section 3.1
23 of this Code permitted to be reported as admitted assets on
24 the statutory financial statement of the insurer most
25 recently required to be filed with the Director, but
26 excluding assets of separate accounts, the investments of
27 which are not subject to the provisions of this Article
28 except to the extent that the provisions of Article XIV 1/2
29 so provide.
30 F. "Affiliate" means, as to any person, another person
31 that, directly or indirectly through one or more
32 intermediaries, controls, is controlled by, or is under
33 common control with the person.
34 G. "Asset-backed security" means a security or other
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1 instrument, excluding shares in a mutual fund, evidencing an
2 interest in, or the right to receive payments from, or
3 payable from distributions on, an asset, a pool of assets or
4 specifically divisible cash flows which are legally
5 transferred to a trust or another special purpose
6 bankruptcy-remote business entity, on the following
7 conditions:
8 (1) The trust or other business entity is
9 established solely for the purpose of acquiring specific
10 types of assets or rights to cash flows, issuing
11 securities and other instruments representing an interest
12 in or right to receive cash flows from those assets or
13 rights, and engaging in activities required to service
14 the assets or rights and any credit enhancement or
15 support features held by the trust or other business
16 entity; and
17 (2) The assets of the trust or other business
18 entity consist solely of interest bearing obligations or
19 other contractual obligations representing the right to
20 receive payment from the cash flows from the assets or
21 rights. However, the existence of credit enhancements,
22 such as letters of credit or guarantees, or support
23 features such as swap agreements, shall not cause a
24 security or other instrument to be ineligible as an
25 asset-backed security.
26 H. "Business entity" includes a sole proprietorship,
27 corporation, limited liability company, association,
28 partnership, joint stock company, joint venture, mutual fund,
29 trust, joint tenancy or other similar form of business
30 organization, whether organized for profit or not for profit.
31 I. "Cap" means an agreement obligating the seller to
32 make payments to the buyer, with each payment based on the
33 amount by which a reference price or level or the performance
34 or value of one or more underlying interests exceeds a
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1 predetermined number, sometimes called the strike rate or
2 strike price.
3 J. "Capital and surplus" means the sum of the capital
4 and surplus of the insurer required to be shown on the
5 statutory financial statement of the insurer most recently
6 required to be filed with the Director.
7 K. "Cash equivalents" means short-term, highly rated and
8 highly liquid investments or securities readily convertible
9 to known amounts of cash without penalty and so near maturity
10 that they present insignificant risk of change in value. Cash
11 equivalents include government money market mutual funds and
12 class one money market mutual funds. For purposes of this
13 definition:
14 (1) "Short-term" means investments with a remaining
15 term to maturity of 90 days or less; and
16 (2) "Highly rated" means an investment rated "P-1"
17 by Moody's Investors Service, Inc., or "A-1" by Standard
18 and Poor's division of The McGraw Hill Companies, Inc. or
19 its equivalent rating by a nationally recognized
20 statistical rating organization recognized by the SVO.
21 L. "Class one bond mutual fund" means a mutual fund that
22 at all times qualifies for investment using the bond class
23 one reserve factor under the Purposes and Procedures of the
24 Securities Valuation Office or any successor publication.
25 M. "Class one money market mutual fund" means a money
26 market mutual fund that at all times qualifies for investment
27 using the bond class one reserve factor under the Purposes
28 and Procedures of the Securities Valuation Office or any
29 successor publication.
30 N. "Code" means the Illinois Insurance Code.
31 O. "Collar" means an agreement to receive payments as
32 the buyer of an option, cap or floor and to make payments as
33 the seller of a different option, cap or floor.
34 P. "Commercial mortgage loan" means a mortgage loan,
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1 other than a residential mortgage loan.
2 Q. "Construction loan" means a loan of less than 3 years
3 in term, made for financing the cost of construction of a
4 building or other improvement to real estate, that is secured
5 by the real estate.
6 R. "Control" means the possession, directly or
7 indirectly, of the power to direct or cause the direction of
8 the management and policies of a person, whether through the
9 ownership of voting securities, by contract (other than a
10 commercial contract for goods or nonmanagement services), or
11 otherwise, unless the power is the result of an official
12 position with or corporate office held by the person. Control
13 shall be presumed to exist if a person, directly or
14 indirectly, owns, controls, holds with the power to vote or
15 holds proxies representing 10% or more of the voting
16 securities of another person. This presumption may be
17 rebutted by a showing that control does not exist in fact.
18 The Director may determine, after furnishing all interested
19 persons notice and an opportunity to be heard and making
20 specific findings of fact to support the determination, that
21 control exists in fact, notwithstanding the absence of a
22 presumption to that effect.
23 S. "Counterparty exposure amount" means:
24 (1) The amount of credit risk attributable to a
25 derivative instrument entered into with a business entity
26 other than through a qualified exchange, qualified
27 foreign exchange, or cleared through a qualified
28 clearinghouse ("over-the-counter derivative instrument").
29 The amount of credit risk equals:
30 (a) The market value of the over-the-counter
31 derivative instrument if the liquidation of the
32 derivative instrument would result in a final cash
33 payment to the insurer; or
34 (b) Zero if the liquidation of the derivative
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1 instrument would not result in a final cash payment
2 to the insurer.
3 (2) If over-the-counter derivative instruments are
4 entered into under a written master agreement which
5 provides for netting of payments owed by the respective
6 parties, and the domicile of the counterparty is either
7 within the United States or if not within the United
8 States, within a foreign jurisdiction listed in the
9 Purposes and Procedures of the Securities Valuation
10 Office as eligible for netting, the net amount of credit
11 risk shall be the greater of zero or the net sum of:
12 (a) The market value of the over-the-counter
13 derivative instruments entered into under the
14 agreement, the liquidation of which would result in
15 a final cash payment to the insurer; and
16 (b) The market value of the over-the-counter
17 derivative instruments entered into under the
18 agreement, the liquidation of which would result in
19 a final cash payment by the insurer to the business
20 entity.
21 (3) For open transactions, market value shall be
22 determined at the end of the most recent quarter of the
23 insurer's fiscal year and shall be reduced by the market
24 value of acceptable collateral held by the insurer or
25 placed in escrow by one or both parties.
26 T. "Covered" means that an insurer owns or can
27 immediately acquire, through the exercise of options,
28 warrants or conversion rights already owned, the underlying
29 interest in order to fulfill or secure its obligations under
30 a call option, cap or floor it has written, or has set aside,
31 pursuant to a custodial or escrow agreement, cash or cash
32 equivalents with a market value equal to the amount required
33 to fulfill its obligations under a put option it has written,
34 in an income generation transaction.
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1 U. "Credit tenant loan" means a mortgage loan which is
2 made primarily in reliance on the credit standing of a major
3 tenant, structured with an assignment of the rental payments
4 to the lender with real estate pledged as collateral in the
5 form of a first lien.
6 V. (1) "Derivative instrument" means an agreement,
7 option, instrument or a series or combination thereof:
8 (a) To make or take delivery of, or assume or
9 relinquish, a specified amount of one or more
10 underlying interests, or to make a cash settlement
11 in lieu thereof; or
12 (b) That has a price, performance, value or
13 cash flow based primarily upon the actual or
14 expected price, level, performance, value or cash
15 flow of one or more underlying interests.
16 (2) Derivative instruments include options,
17 warrants used in a hedging transaction and not attached
18 to another financial instrument, caps, floors, collars,
19 swaps, forwards, futures and any other agreements,
20 options or instruments substantially similar thereto or
21 any series or combination thereof and any agreements,
22 options or instruments permitted under rules adopted
23 under Section 126.8. Derivative instruments shall not
24 include an investment authorized by Sections 126.11
25 through 126.17, 126.19 and 126.24 through 126.30.
26 W. "Derivative transaction" means a transaction
27 involving the use of one or more derivative instruments.
28 X. "Direct" or "directly," when used in connection with
29 an obligation, means the designated obligor is primarily
30 liable on the instrument representing the obligation.
31 Y. "Dollar roll transaction" means 2 simultaneous
32 transactions with settlement dates no more than 96 days
33 apart, so that in one transaction an insurer sells to a
34 business entity, and in the other transaction the insurer is
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1 obligated to purchase from the same business entity,
2 substantially similar securities of the following types:
3 (1) Asset-backed securities issued, assumed or
4 guaranteed by the Government National Mortgage
5 Association, the Federal National Mortgage Association or
6 the Federal Home Loan Mortgage Corporation or their
7 respective successors; and
8 (2) Other asset-backed securities referred to in
9 Section 106 of Title I of the Secondary Mortgage Market
10 Enhancement Act of 1984 (15 U.S.C. 77r1), as amended.
11 Z. "Domestic jurisdiction" means the United States,
12 Canada, any state, any province of Canada or any political
13 subdivision of any of the foregoing.
14 AA. "Equity interest" means any of the following that
15 are not rated credit instruments: common stock; preferred
16 stock; trust certificate; equity investment in an investment
17 company other than a money market mutual fund or a class one
18 bond mutual fund; investment in a common trust fund of a bank
19 regulated by a federal or state agency; an ownership interest
20 in minerals, oil or gas, the rights to which have been
21 separated from the underlying fee interest in the real estate
22 where the minerals, oil or gas are located; instruments which
23 are mandatorily, or at the option of the issuer, convertible
24 to equity; limited partnership interests and those general
25 partnership interests authorized under Section 126.5(D);
26 member interests in limited liability companies; warrants or
27 other rights to acquire equity interests that are created by
28 the person that owns or would issue the equity to be
29 acquired; or instruments that would be rated credit
30 instruments except for the provisions of subsection RRR(2) of
31 this Section.
32 BB. "Equivalent securities" means:
33 (1) In a securities lending transaction, securities
34 that are identical to the loaned securities in all
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1 features including the amount of the loaned securities,
2 except as to certificate number if held in physical form,
3 but if any different security shall be exchanged for a
4 loaned security by recapitalization, merger,
5 consolidation or other corporate action, the different
6 security shall be deemed to be the loaned security;
7 (2) In a repurchase transaction, securities that
8 are identical to the purchased securities in all features
9 including the amount of the purchased securities, except
10 as to the certificate number if held in physical form; or
11 (3) In a reverse repurchase transaction, securities
12 that are identical to the sold securities in all features
13 including the amount of the sold securities, except as to
14 the certificate number if held in physical form.
15 CC. "Floor" means an agreement obligating the seller to
16 make payments to the buyer in which each payment is based on
17 the amount by which a predetermined number, sometimes called
18 the floor rate or price, exceeds a reference price, a level,
19 or the performance or value of one or more underlying
20 interests.
21 DD. "Foreign currency" means a currency other than that
22 of a domestic jurisdiction.
23 EE. (1) "Foreign investment" means an investment in a
24 foreign jurisdiction, or an investment in a person, real
25 estate or asset domiciled in a foreign jurisdiction, that
26 is substantially of the same type as those eligible for
27 investment under this Article, other than under Sections
28 126.17 and 126.30. An investment shall not be deemed to
29 be foreign if the issuing person, qualified primary
30 credit source or qualified guarantor is a domestic
31 jurisdiction or a person domiciled in a domestic
32 jurisdiction, unless:
33 (a) The issuing person is a shell business
34 entity; and
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1 (b) The investment is not assumed, accepted,
2 guaranteed, or insured or otherwise backed by a
3 domestic jurisdiction or a person, that is not a
4 shell business entity, domiciled in a domestic
5 jurisdiction.
6 (2) For purposes of this definition:
7 (a) "Shell business entity" means a business
8 entity having no economic substance, except as a
9 vehicle for owning interests in assets issued, owned
10 or previously owned by a person domiciled in a
11 foreign jurisdiction;
12 (b) "Qualified guarantor" means a guarantor
13 against which an insurer has a direct claim for full
14 and timely payment, evidenced by a contractual right
15 for which an enforcement action can be brought in a
16 domestic jurisdiction; and
17 (c) "Qualified primary credit source" means
18 the credit source to which an insurer looks for
19 payment as to an investment and against which an
20 insurer has a direct claim for full and timely
21 payment, evidenced by a contractual right for which
22 an enforcement action can be brought in a domestic
23 jurisdiction.
24 FF. "Foreign jurisdiction" means a jurisdiction other
25 than a domestic jurisdiction.
26 GG. "Forward" means an agreement (other than a future)
27 to make or take delivery of, or effect a cash settlement
28 based on the actual or expected price, level, performance or
29 value of, one or more underlying interests.
30 HH. "Future" means an agreement, traded on a qualified
31 exchange or qualified foreign exchange, to make or take
32 delivery of, or effect a cash settlement based on the actual
33 or expected price, level, performance or value of, one or
34 more underlying interests and includes an insurance future.
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1 II. "Government money market mutual fund" means a money
2 market mutual fund that at all times:
3 (1) Invests only in obligations issued, guaranteed,
4 or insured by the federal government of the United States
5 or collateralized repurchase agreements composed of these
6 obligations; and
7 (2) Qualifies for investment without a reserve
8 under the Purposes and Procedures of the Securities
9 Valuation Office or any successor publication.
10 JJ. "Government sponsored enterprise" means a:
11 (1) Governmental agency; or
12 (2) Corporation, limited liability company,
13 association, partnership, joint stock company, joint
14 venture, trust or other entity or instrumentality
15 organized under the laws of any domestic jurisdiction to
16 accomplish a public policy or other governmental purpose.
17 KK. "Guaranteed or insured," when used in connection
18 with an obligation acquired under this Article, means the
19 guarantor or insurer has agreed to:
20 (1) Perform or insure the obligation of the obligor
21 or purchase the obligation; or
22 (2) Be unconditionally obligated until the
23 obligation is repaid to maintain in the obligor a minimum
24 net worth, fixed charge coverage, stockholders' equity or
25 sufficient liquidity to enable the obligor to pay the
26 obligation in full.
27 LL. "Hedging transaction" means:
28 (1) A derivative transaction that is entered into
29 and maintained to reduce:
30 (a) the risk of a change in the value, yield,
31 price, cash flow, or quantity of assets or
32 liabilities that the insurer has acquired or
33 incurred or anticipates acquiring or incurring; or
34 (b) the currency exchange rate risk or the
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1 degree of exposure as to assets or liabilities that
2 the insurer has acquired or incurred or anticipates
3 acquiring or incurring; or
4 (2) Such other derivative transactions as may be
5 specified to constitute hedging transactions in rules
6 adopted pursuant to Section 126.8.
7 MM. "High grade investment" means a rated credit
8 instrument; rated 1, 2, P1, P2, PSF1 or PSF2 by the SVO.
9 NN. "Income" means, as to a security, interest, accrual
10 of discount, dividends or other distributions, such as
11 rights, tax or assessment credits, warrants and distributions
12 in kind.
13 OO. "Income generation transaction" means (1) a
14 derivative transaction involving the writing of covered call
15 options, covered put options, covered caps or covered floors
16 that is intended to generate income or enhance return, or (2)
17 such other derivative transactions as may be specified to
18 constitute income generation transactions in rules adopted
19 pursuant to Section 126.8.
20 PP. "Initial margin" means the amount of cash,
21 securities or other consideration initially required to be
22 deposited to establish a futures position.
23 QQ. "Insurance future" means a future relating to an
24 index or pool that is based on insurance-related items.
25 RR. "Insurance futures option" means an option on an
26 insurance future.
27 SS. "Investment company" means an investment company as
28 defined in Section 3(a) of the Investment Company Act of 1940
29 (15 U.S.C. 80a-1 et seq.), as amended, and a person
30 described in Section 3(c) of that Act.
31 TT. "Investment company series" means an investment
32 portfolio of an investment company that is organized as a
33 series company and to which assets of the investment company
34 have been specifically allocated.
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1 UU. "Investment practices" means transactions of the
2 types described in Section 126.16, 126.18, 126.29 or 126.31.
3 VV. "Investment subsidiary" means a subsidiary of an
4 insurer engaged or organized to engage exclusively in the
5 ownership and management of assets authorized as investments
6 for the insurer if such subsidiary agrees to limit its
7 investment in any asset so that its investments will not
8 cause the amount of the total investment of the insurer to
9 exceed any of the investment limitations or avoid any other
10 provisions of this Article applicable to the insurer. As used
11 in this subsection, the total investment of the insurer shall
12 include:
13 (1) Direct investment by the insurer in an asset;
14 and
15 (2) The insurer's proportionate share of an
16 investment in an asset by an investment subsidiary of the
17 insurer, which shall be calculated by multiplying the
18 amount of the subsidiary's investment by the percentage
19 of the insurer's ownership interest in the subsidiary.
20 WW. "Investment strategy" means the techniques and
21 methods used by an insurer to meet its investment objectives,
22 such as active bond portfolio management, passive bond
23 portfolio management, interest rate anticipation, growth
24 investing and value investing.
25 XX. "Letter of credit" means a clean, irrevocable and
26 unconditional letter of credit issued or confirmed by, and
27 payable and presentable at, a financial institution on the
28 list of financial institutions meeting the standards for
29 issuing letters of credit under the Purposes and Procedures
30 of the Securities Valuation Office or any successor
31 publication. To constitute acceptable collateral for the
32 purposes of Sections 126.16 and 126.29, a letter of credit
33 must have an expiration date beyond the term of the subject
34 transaction.
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1 YY. "Limited liability company" means a business
2 organization, excluding partnerships and ordinary business
3 corporations, organized or operating under the laws of the
4 United States or any state thereof that limits the personal
5 liability of investors to the equity investment of the
6 investor in the business entity.
7 ZZ. "Lower grade investment" means a rated credit
8 instrument rated 4, 5, 6, P4, P5, P6, PSF4, PSF5, or PSF6 by
9 the SVO.
10 AAA. "Market value" means:
11 (1) As to cash and letters of credit, the amounts
12 thereof; and
13 (2) As to a security as of any date, the price for
14 the security on that date obtained from a generally
15 recognized source or the most recent quotation from such
16 a source or, to the extent no generally recognized source
17 exists, the price for the security as determined in good
18 faith by the insurer, plus accrued but unpaid income
19 thereon to the extent not included in the price as of
20 that date.
21 BBB. "Medium grade investment" means a rated credit
22 instrument rated 3, P3, or PSF 3 by the SVO.
23 CCC. "Money market mutual fund" means a mutual fund that
24 meets the conditions of 17 Code of Federal Regulations Par.
25 270.2a-7, under the Investment Company Act of 1940 (15 U.S.C.
26 80a-1 et seq.), as amended or renumbered.
27 DDD. "Mortgage loan" means an obligation secured by a
28 mortgage, deed of trust, trust deed or other consensual lien
29 on real estate.
30 EEE. "Multilateral development bank" means an
31 international development organization of which the United
32 States is a member.
33 FFF. "Mutual fund" means an investment company or, in
34 the case of an investment company that is organized as a
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1 series company, an investment company series, that, in either
2 case, is registered with the United States Securities and
3 Exchange Commission under the Investment Company Act of 1940
4 (15 U.S.C. 80a-1 et seq.), as amended.
5 GGG. "NAIC" means the National Association of Insurance
6 Commissioners.
7 HHH. "Obligation" means a bond, note, debenture, trust
8 certificate including an equipment trust certificate,
9 production payment, negotiable bank certificate of deposit,
10 bankers' acceptance, credit tenant loan, loan secured by
11 financing net leases and other evidence of indebtedness for
12 the payment of money (or participations, certificates or
13 other evidences of an interest in any of the foregoing),
14 whether constituting a general obligation of the issuer or
15 payable only out of certain revenues or certain funds pledged
16 or otherwise dedicated for payment.
17 III. "Option" means an agreement giving the buyer the
18 right to buy or receive (a "call option"), sell or deliver (a
19 "put option"), enter into, extend or terminate or effect a
20 cash settlement based on the actual or expected price, level,
21 performance or value of one or more underlying interests and
22 includes an insurance futures option.
23 JJJ. "Person" means an individual, a business entity, a
24 multilateral development bank or a government or quasi
25 governmental body, such as a political subdivision or a
26 government sponsored enterprise.
27 KKK. "Potential exposure" means the amount determined in
28 accordance with the NAIC Annual Statement Instructions.
29 LLL. "Preferred stock" means preferred, preference or
30 guaranteed stock of a business entity authorized to issue the
31 stock, that has a preference in liquidation over the common
32 stock of the business entity.
33 MMM. "Qualified bank" means:
34 (1) A national bank, state bank or trust company
-31- LRB9011424JScdam
1 that at all times is no less than adequately capitalized
2 as determined by standards adopted by United States
3 banking regulators and that either is regulated by state
4 banking laws or is a member of the Federal Reserve
5 System; or
6 (2) A bank or trust company incorporated or
7 organized under the laws of a country other than the
8 United States that is regulated as a bank or trust
9 company by that country's government or an agency thereof
10 and that at all times is no less than adequately
11 capitalized as determined by the standards adopted by
12 international banking authorities.
13 NNN. "Qualified business entity" means a business entity
14 that is:
15 (1) An issuer of obligations or preferred stock
16 that are rated 1 or 2 by the SVO or an issuer of
17 obligations, preferred stock or derivative instruments
18 that are rated the equivalent of 1 or 2 by the SVO or by
19 a nationally recognized statistical rating organization
20 recognized by the SVO; or
21 (2) A primary dealer in United States government
22 securities, recognized by the Federal Reserve Bank of New
23 York; or.
24 (3) With respect to securities lending arrangements
25 under Sections 126.16 and 126.29, an affiliate of an
26 entity that is a qualified business entity pursuant to
27 paragraph (1) or (2) of this subsection NNN, whose
28 arrangement with the insurer is guaranteed by the
29 affiliated entity that is a qualified business entity
30 under paragraph (1) or (2).
31 OOO. "Qualified clearinghouse" means a clearinghouse
32 for, and subject to the rules of, a qualified exchange or a
33 qualified foreign exchange, which provides clearing services,
34 including acting as a counterparty to each of the parties to
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1 a transaction such that the parties no longer have credit
2 risk as to each other.
3 PPP. "Qualified exchange" means:
4 (1) A securities exchange registered as a national
5 securities exchange, or a securities market regulated
6 under the Securities Exchange Act of 1934 (15 U.S.C. 78
7 et seq.), as amended;
8 (2) A board of trade or commodities exchange
9 designated as a contract market by the Commodity Futures
10 Trading Commission or any successor thereof;
11 (3) Private Offerings, Resales and Trading through
12 Automated Linkages (PORTAL);
13 (4) A designated offshore securities market as
14 defined in Securities Exchange Commission Regulation S,
15 17 C.F.R. Part 230, as amended; or
16 (5) A qualified foreign exchange.
17 QQQ. "Qualified foreign exchange" means a foreign
18 exchange, board of trade or contract market located outside
19 the United States, its territories or possessions:
20 (1) That has received regulatory comparability
21 relief under Commodity Futures Trading Commission (CFTC)
22 Rule 30.10 (as set forth in Appendix C to Part 30 of the
23 CFTC's Regulations, 17 C.F.R. Part 30);
24 (2) That is, or its members are, subject to the
25 jurisdiction of a foreign futures authority that has
26 received regulatory comparability relief under CFTC Rule
27 30.10 (as set forth in Appendix C to Part 30 of the
28 CFTC's Regulations, 17 C.F.R. Part 30) as to futures
29 transactions in the jurisdiction where the exchange,
30 board of trade or contract market is located; or
31 (3) Upon which foreign stock index futures
32 contracts are listed that are the subject of no-action
33 relief issued by the CFTC's Office of General Counsel,
34 provided that an exchange, board of trade or contract
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1 market that qualifies as a "qualified foreign exchange"
2 only under this subsection shall only be a "qualified
3 foreign exchange" as to foreign stock index futures
4 contracts that are the subject of no-action relief.
5 RRR. (1) "Rated credit instrument" means an obligation
6 or other instrument which gives its holder a contractual
7 right to receive cash or another rated credit instrument
8 from another entity, if the instrument:
9 (a) Is rated or required to be rated by the
10 SVO;
11 (b) In the case of an instrument with a
12 maturity of 397 days or less, is issued, guaranteed,
13 or insured by an entity that is rated by, or another
14 instrument of such entity is rated by, the SVO or by
15 a nationally recognized statistical rating
16 organization recognized by the SVO;
17 (c) In the case of an instrument with a
18 maturity of 90 days or less, the instrument has been
19 issued, assumed, accepted, guaranteed, or insured by
20 a qualified bank;
21 (d) Is a share of a class one bond mutual
22 fund; or
23 (e) Is a share of a money market mutual fund.
24 (2) However, "rated credit instrument" does not
25 mean:
26 (a) An instrument that is mandatorily, or at
27 the option of the issuer, convertible to an equity
28 interest; or
29 (b) A security that has a par value and whose
30 terms provide that the issuer's net obligation to
31 repay all or part of the security's par value is
32 determined by reference to the performance of an
33 equity, a commodity, a foreign currency or an index
34 of equities, commodities, foreign currencies or
-34- LRB9011424JScdam
1 combinations thereof.
2 SSS. "Real estate" means:
3 (1) (a) Real property;
4 (b) Interests in real property, such as
5 leaseholds, minerals and oil and gas that have not
6 been separated from the underlying fee interest;
7 (c) Improvements and fixtures located on or in
8 real property; and
9 (d) The seller's equity in a contract
10 providing for a deed of real estate.
11 (2) As to a mortgage on a leasehold estate, real
12 estate shall include the leasehold estate only if it has
13 an unexpired term (including renewal options exercisable
14 at the option of the lessee) extending beyond the
15 scheduled maturity date of the obligation that is secured
16 by a mortgage on the leasehold estate by a period equal
17 to at least 20% of the original term of the obligation or
18 10 years, whichever is greater.
19 TTT. "Replication transaction" means a derivative
20 transaction that is intended to replicate the performance of
21 one or more assets that an insurer is authorized to acquire
22 under this Article. A derivative transaction that is entered
23 into as a hedging transaction shall not be considered a
24 replication transaction.
25 UUU. "Repurchase transaction" means a transaction in
26 which an insurer purchases securities from a business entity
27 that is obligated to repurchase the purchased securities or
28 equivalent securities from the insurer at a specified price,
29 either within a specified period of time or upon demand.
30 VVV. "Required liabilities" means total liabilities
31 required to be reported on the statutory financial statement
32 of the insurer most recently required to be filed with the
33 Director.
34 WWW. "Residential mortgage loan" means a loan primarily
-35- LRB9011424JScdam
1 secured by a mortgage on real estate improved with a one to
2 four family residence.
3 XXX. "Reverse repurchase transaction" means a
4 transaction in which an insurer sells securities to a
5 business entity and is obligated to repurchase the sold
6 securities or equivalent securities from the business entity
7 at a specified price, either within a specified period of
8 time or upon demand.
9 YYY. "Secured location" means the contiguous real estate
10 owned by one person.
11 ZZZ. "Securities lending transaction" means a
12 transaction in which securities are loaned by an insurer to a
13 business entity that is obligated to return the loaned
14 securities or equivalent securities to the insurer, either
15 within a specified period of time or upon demand.
16 AAAA. "Series company" means an investment company that
17 is organized as a series company, as defined in Rule 18f-2(a)
18 adopted under the Investment Company Act of 1940 (15 U.S.C.
19 80a-1 et seq.), as amended.
20 BBBB. "Sinking fund stock" means preferred stock that:
21 (1) Is subject to a mandatory sinking fund or
22 similar arrangement that will provide for the redemption
23 (or open market purchase) of the entire issue over a
24 period not longer than 40 years from the date of
25 acquisition; and
26 (2) Provides for mandatory sinking fund
27 installments (or open market purchases) commencing not
28 more than 10.5 years from the date of issue, with the
29 sinking fund installments providing for the purchase or
30 redemption, on a cumulative basis commencing 10 years
31 from the date of issue, of at least 2.5% per year of the
32 original number of shares of that issue of preferred
33 stock.
34 CCCC. "Special rated credit instrument" means a rated
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1 credit instrument that is:
2 (1) An instrument that is structured so that, if it
3 is held until retired by or on behalf of the issuer, its
4 rate of return, based on its purchase cost and any cash
5 flow stream possible under the structure of the
6 transaction, may become negative due to reasons other
7 than the credit risk associated with the issuer of the
8 instrument; however, a rated credit instrument shall not
9 be a special rated credit instrument under this
10 subsection if it is:
11 (a) A share in a class one bond mutual fund;
12 (b) An instrument, other than an asset-backed
13 security, with payments of par value fixed as to
14 amount and timing, or callable but in any event
15 payable only at par or greater, and interest or
16 dividend cash flows that are based on either a fixed
17 or variable rate determined by reference to a
18 specified rate or index;
19 (c) An instrument, other than an asset-backed
20 security, that has a par value and is purchased at a
21 price no greater than 110% of par;
22 (d) An instrument, including an asset-backed
23 security, whose rate of return would become negative
24 only as a result of a prepayment due to casualty,
25 condemnation or economic obsolescence of collateral
26 or change of law;
27 (e) An asset-backed security that relies on
28 collateral that meets the requirements of
29 subparagraph (b) of this paragraph, the par value of
30 which collateral:
31 (i) Is not permitted to be paid sooner
32 than one half of the remaining term to maturity
33 from the date of acquisition;
34 (ii) Is permitted to be paid prior to
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1 maturity only at a premium sufficient to
2 provide a yield to maturity for the investment,
3 considering the amount prepaid and reinvestment
4 rates at the time of early repayment, at least
5 equal to the yield to maturity of the initial
6 investment; or
7 (iii) Is permitted to be paid prior to
8 maturity at a premium at least equal to the
9 yield of a treasury issue of comparable
10 remaining life; or
11 (f) An asset-backed security that relies on
12 cash flows from assets that are not prepayable at
13 any time at par, but is not otherwise governed by
14 subparagraph (e) of this paragraph, if the
15 asset-backed security has a par value reflecting
16 principal payments to be received if held until
17 retired by or on behalf of the issuer and is
18 purchased at a price no greater than 105% of such
19 par amount.
20 (2) An asset-backed security that:
21 (a) Relies on cash flows from assets that are
22 prepayable at par at any time;
23 (b) Does not make payments of par that are
24 fixed as to amount and timing; and
25 (c) Has a negative rate of return at the time
26 of acquisition if a prepayment threshold assumption
27 is used with such prepayment threshold assumption
28 defined as either:
29 (i) Two (2) times the prepayment
30 expectation reported by a recognized, publicly
31 available source as being the median of
32 expectations contributed by broker dealers or
33 other entities, except insurers, engaged in the
34 business of selling or evaluating such
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1 securities or assets. The prepayment
2 expectation used in this calculation shall be,
3 at the insurer's election, the prepayment
4 expectation for pass-through securities of the
5 Federal National Mortgage Association, the
6 Federal Home Loan Mortgage Corporation, the
7 Government National Mortgage Association, or
8 for other assets of the same type as the assets
9 that underlie the asset- backed security, in
10 either case with a gross weighted average
11 coupon comparable to the gross weighted average
12 coupon of the assets that underlie the
13 asset-backed security; or
14 (ii) Another prepayment threshold
15 assumption specified by the Director by rule
16 promulgated under Section 126.8.
17 (3) For purposes of subparagraph 2 of this
18 subsection, if the asset-backed security is purchased in
19 combination with one or more other asset-backed
20 securities that are supported by identical underlying
21 collateral, the insurer may calculate the rate of return
22 for these specific combined asset-backed securities in
23 combination. The insurer must maintain documentation
24 demonstrating that such securities were acquired and are
25 continuing to be held in combination.
26 DDDD. "State" means a state, territory or possession of
27 the United States of America, the District of Columbia or the
28 Commonwealth of Puerto Rico.
29 EEEE. "Substantially similar securities" means
30 securities that meet all criteria for substantially similar
31 securities specified in the NAIC Accounting Practices and
32 Procedures Manual, as amended, and in an amount that
33 constitutes good delivery form as determined from time to
34 time by the PSA The Bond Market Trade Association.
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1 FFFF. "Subsidiary" means, as to any person, an affiliate
2 controlled by such person, directly or indirectly through one
3 or more intermediaries.
4 GGGG. "SVO" means the Securities Valuation Office of the
5 NAIC or any successor office established by the NAIC.
6 HHHH. "Swap" means an agreement to exchange or to net
7 payments at one or more times based on the actual or expected
8 price, level, performance or value of one or more underlying
9 interests.
10 IIII. "Underlying interest" means the assets,
11 liabilities, other interests or a combination thereof
12 underlying a derivative instrument, such as any one or more
13 securities, currencies, rates, indices, commodities or
14 derivative instruments.
15 JJJJ. "Unrestricted surplus" means the amount by which
16 total admitted assets exceed 125% of the insurer's required
17 liabilities.
18 KKKK. "Warrant" means an instrument that gives the
19 holder the right to purchase an underlying financial
20 instrument at a given price and time or at a series of prices
21 and times outlined in the warrant agreement. Warrants may be
22 issued alone or in connection with the sale of other
23 securities, for example, as part of a merger or
24 recapitalization agreement, or to facilitate divestiture of
25 the securities of another business entity.
26 (Source: P.A. 90-418, eff. 8-15-97.)
27 (215 ILCS 5/143) (from Ch. 73, par. 755)
28 Sec. 143. Policy forms.
29 (1) Life, accident and health. No company transacting
30 the kind or kinds of business enumerated in Classes 1 (a), 1
31 (b) and 2 (a) of Section 4 shall issue or deliver in this
32 State a policy or certificate of insurance or evidence of
33 coverage, attach an endorsement or rider thereto, incorporate
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1 by reference bylaws or other matter therein or use an
2 application blank in this State until the form and content of
3 such policy, certificate, evidence of coverage, endorsement,
4 rider, bylaw or other matter incorporated by reference or
5 application blank has been filed with and approved by the
6 Director and the appropriate filing fee under Section 408 has
7 been paid, except that any such endorsement or rider that
8 unilaterally reduces benefits and is to be attached to a
9 policy subsequent to the date the policy is issued must be
10 filed with, reviewed, and formally approved by the Director
11 prior to the date it is attached to a policy issued or
12 delivered in this State. It shall be the duty of the
13 Director to withhold approval of any such policy,
14 certificate, endorsement, rider, bylaw or other matter
15 incorporated by reference or application blank filed with him
16 if it contains provisions which encourage misrepresentation
17 or are unjust, unfair, inequitable, ambiguous, misleading,
18 inconsistent, deceptive, contrary to law or to the public
19 policy of this State, or contains exceptions and conditions
20 that unreasonably or deceptively affect the risk purported to
21 be assumed in the general coverage of the policy. In all
22 cases the Director shall approve or disapprove any such form
23 within 60 days after submission unless the Director extends
24 by not more than an additional 30 days the period within
25 which he shall approve or disapprove any such form by giving
26 written notice to the insurer of such extension before
27 expiration of the initial 60 days period. The Director shall
28 withdraw his approval of a policy, certificate, evidence of
29 coverage, endorsement, rider, bylaw, or other matter
30 incorporated by reference or application blank if he
31 subsequently determines that such policy, certificate,
32 evidence of coverage, endorsement, rider, bylaw, other
33 matter, or application blank is misrepresentative, unjust,
34 unfair, inequitable, ambiguous, misleading, inconsistent,
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1 deceptive, contrary to law or public policy of this State, or
2 contains exceptions or conditions which unreasonably or
3 deceptively affect the risk purported to be assumed in the
4 general coverage of the policy or evidence of coverage.
5 If a previously approved policy, certificate, evidence of
6 coverage, endorsement, rider, bylaw or other matter
7 incorporated by reference or application blank is withdrawn
8 for use, the Director shall serve upon the company an order
9 of withdrawal of use, either personally or by mail, and if by
10 mail, such service shall be completed if such notice be
11 deposited in the post office, postage prepaid, addressed to
12 the company's last known address specified in the records of
13 the Department of Insurance. The order of withdrawal of use
14 shall take effect 30 days from the date of mailing but shall
15 be stayed if within the 30-day period a written request for
16 hearing is filed with the Director. Such hearing shall be
17 held at such time and place as designated in the order given
18 by the Director. The hearing may be held either in the City
19 of Springfield, the City of Chicago or in the county where
20 the principal business address of the company is located. The
21 action of the Director in disapproving or withdrawing such
22 form shall be subject to judicial review under the
23 Administrative Review Law.
24 This subsection shall not apply to riders or endorsements
25 issued or made at the request of the individual policyholder
26 relating to the manner of distribution of benefits or to the
27 reservation of rights and benefits under his life insurance
28 policy.
29 (2) Casualty, fire, and marine. The Director shall
30 require the filing of all policy forms issued or delivered by
31 any company transacting the kind or kinds of business
32 enumerated in Classes 2 (except Class 2 (a)) and 3 of Section
33 4. In addition, he may require the filing of any generally
34 used riders, endorsements, certificates, application blanks,
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1 and other matter incorporated by reference in any such policy
2 or contract of insurance along with the appropriate filing
3 fee under Section 408. Companies that are members of an
4 organization, bureau, or association may have the same filed
5 for them by the organization, bureau, or association. If the
6 Director shall find from an examination of any such policy
7 form, rider, endorsement, certificate, application blank, or
8 other matter incorporated by reference in any such policy so
9 filed that it (i) violates any provision of this Code, (ii)
10 contains inconsistent, ambiguous, or misleading clauses, or
11 (iii) contains exceptions and conditions that will
12 unreasonably or deceptively affect the risks that are
13 purported to be assumed by the policy, he shall order the
14 company or companies issuing these forms to discontinue their
15 use. Nothing in this subsection shall require a company
16 transacting the kind or kinds of business enumerated in
17 Classes 2 (except Class 2 (a)) and 3 of Section 4 to obtain
18 approval of these forms before they are issued nor in any way
19 affect the legality of any policy that has been issued and
20 found to be in conflict with this subsection, but such
21 policies shall be subject to the provisions of Section 442.
22 (3) This Section shall not apply (i) to surety contracts
23 or fidelity bonds, (ii) to policies issued to an industrial
24 insured as defined in Section 121-2.08 except for workers'
25 compensation policies, nor (iii) to riders or endorsements
26 prepared to meet special, unusual, peculiar, or extraordinary
27 conditions applying to an individual risk.
28 (Source: P.A. 87-1090; 88-313.)
29 (215 ILCS 5/191) (from Ch. 73, par. 803)
30 Sec. 191. Title to property of company. The Director and
31 his successor and successors in office shall be vested by
32 operation of law with the title to all property, contracts,
33 and rights of action of the company as of the date of the
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1 order directing rehabilitation or liquidation. The Director
2 is entitled to immediate possession and control of all
3 property, contracts, and rights of action of the company, and
4 is further authorized and directed to remove any and all
5 records and property of the company to the Director's
6 possession and control or to such other place as may be
7 convenient for the purposes of efficient and orderly
8 administration of the rehabilitation or liquidation. All
9 persons, companies, and entities shall immediately release
10 their possession and control of any and all property,
11 contracts, and rights of action of the company to the
12 Director including, but not limited to, bank accounts and
13 bank records, premium and related records, and claim,
14 underwriting, accounting, and litigation files. As of the
15 date of the order directing rehabilitation or liquidation, no
16 possessory liens held by any attorney, including common law
17 retaining liens, may be asserted or enforced against the
18 Director or the company as a basis for withholding files or
19 otherwise. Further, no attorney shall be granted secured
20 status, security, or payment for his or her claim against the
21 company in exchange for the release of files or the
22 extinguishment of any such lien. The entry of an order of
23 rehabilitation or liquidation creates an estate that
24 comprises all of the liabilities and assets of the company.
25 The filing or recording of such order in the office of the
26 recorder or the Registrar of Titles in any county of this
27 State shall impart the same notice that a deed, bill of sale
28 or other evidence of title duly filed for record by such
29 company would have imparted.
30 (Source: P.A. 89-206, eff. 7-21-95.)
31 (215 ILCS 5/445) (from Ch. 73, par. 1057)
32 Sec. 445. Surplus line.
33 (1) Surplus line defined; surplus line insurer
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1 unauthorized company requirements. Surplus line insurance is
2 insurance on an Illinois risk of the kinds specified in
3 Classes 2 and 3 of Section 4 of this Code procured from an
4 unauthorized company or a domestic surplus line insurer as
5 defined in Section 445a after the insurance producer
6 representing the insured or the surplus line producer is
7 unable, after diligent effort, to procure said insurance from
8 companies which are authorized to transact business in this
9 State other than domestic surplus line insurers as defined in
10 Section 445a.
11 Insurance producers may procure surplus line insurance
12 only if licensed as a surplus line producer under this
13 Section and may procure that insurance only from an
14 unauthorized company or from a domestic surplus line insurer
15 as defined in Section 445a:
16 (a) that based upon information available to the
17 surplus line producer has a policyholders surplus of not
18 less than $15,000,000 determined in accordance with
19 accounting rules that are applicable to authorized
20 companies; and
21 (b) that has standards of solvency and management
22 that are adequate for the protection of policyholders;
23 and
24 (c) where an unauthorized company does not meet the
25 standards set forth in (a) and (b) above, a surplus line
26 producer may, if necessary, procure insurance from that
27 company only if prior written warning of such fact or
28 condition is given to the insured by the insurance
29 producer or surplus line producer.
30 (2) Surplus line producer; license. Any licensed
31 producer who is a resident of this State may be licensed as a
32 surplus line producer upon:
33 (a) passing a written examination. The examination
34 shall reasonably test the knowledge of the applicant
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1 concerning the surplus line law and the responsibilities
2 assumed by a surplus line producer thereunder. The
3 examination provided for by this Section shall be
4 conducted under rules and regulations prescribed by the
5 Director. The Director may administer the examination or
6 may make arrangements, including contracting with an
7 outside testing service, for administering such
8 examinations. Any charges assessed by the Director or
9 the testing service for administering such examinations
10 shall be paid directly by the individual applicants.
11 Each applicant required to take an examination shall, at
12 the time of request for examination, enclose with the
13 application a non-refundable $10 application fee payable
14 to the Director plus an examination administration fee.
15 If the Director administers the examination, the
16 application fee and examination administration fee shall
17 be combined and made payable to the Director. If the
18 Director designates an outside testing service to
19 administer the examination, the applicant shall make a
20 separate examination administration fee remittance
21 payable to the designated testing service for the total
22 fees the testing service charges for each of the various
23 services being requested by the applicant. An applicant
24 who fails to appear for the examination as scheduled, or
25 appears but fails to pass, shall not be entitled to any
26 refund, and shall be required to submit a new request for
27 examination together with all the requisite fees before
28 being rescheduled for another examination at a later
29 date;
30 (b) payment of an annual license fee of $200; and
31 (c) procurement of the surety bond required in
32 subsection (4) of this Section.
33 Each surplus line producer so licensed shall keep a
34 separate account of the business transacted thereunder which
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1 shall be open at all times to the inspection of the Director
2 or his representative.
3 The examination requirement in (a) above shall not apply
4 to insurance producers who were licensed under the Illinois
5 surplus line law or individuals designated to act for a
6 partnership, association or corporation licensed under the
7 Illinois surplus line law on February 27, 1985.
8 (3) Taxes and reports.
9 (a) Surplus line tax and penalty for late payment.
10 Each surplus line producer shall file with the
11 Director on or before February 1 and August 1 of each
12 year a report in the form prescribed by the Director on
13 all surplus line insurance procured from unauthorized
14 insurers during the preceding 6 month period ending
15 December 31 or June 30 respectively, and on the filing of
16 such report shall pay to the Director for the use and
17 benefit of the State a sum equal to 3% of the gross
18 premiums less returned premiums upon all surplus line
19 insurance procured or cancelled during the preceding 6
20 months.
21 Any surplus line producer who fails to pay the full
22 amount due under this subsection is liable, in addition
23 to the amount due, for such penalty and interest charges
24 as are provided for under Section 412 of this Code. The
25 Director, through the Attorney General, may institute an
26 action in the name of the People of the State of
27 Illinois, in any court of competent jurisdiction, for the
28 recovery of the amount of such taxes and penalties due,
29 and prosecute the same to final judgment, and take such
30 steps as are necessary to collect the same.
31 (b) Fire Marshal Tax.
32 Each surplus line producer shall file with the
33 Director on or before March 31 of each year a report in
34 the form prescribed by the Director on all fire insurance
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1 procured from unauthorized insurers subject to tax under
2 Section 12 of the Fire Investigation Act and shall pay to
3 the Director the fire marshal tax required thereunder.
4 (c) Taxes and fees charged to insured. The taxes
5 imposed under this subsection and the countersigning fees
6 charged by the Surplus Line Association of Illinois may
7 be charged to and collected from surplus line insureds.
8 (4) Bond. Each surplus line producer, as a condition to
9 receiving a surplus line producer's license, shall execute
10 and deliver to the Director a surety bond to the People of
11 the State in the penal sum of $20,000, with a surety which is
12 authorized to transact business in this State, conditioned
13 that the surplus line producer will pay to the Director the
14 tax, interest and penalties levied under subsection (3) of
15 this Section.
16 (5) Submission of documents to Surplus Line Association
17 of Illinois. Each surplus line producer shall submit every
18 insurance contract issued under his or her license to the
19 Surplus Line Association of Illinois for recording and
20 countersignature. The insurance contracts submitted shall
21 set forth:
22 (a) the name of the insured;
23 (b) the description and location of the insured
24 property or risk;
25 (c) the amount insured;
26 (d) the gross premiums charged or returned;
27 (e) the name of the unauthorized insurer or
28 domestic surplus line insurer as defined in Section 445a
29 from whom coverage has been procured company;
30 (f) the kind or kinds of insurance procured; and
31 (g) amount of premium subject to tax required by
32 Section 12 of the Fire Investigation Act.
33 Proposals, endorsements and other documents which
34 are incidental to the insurance but which does not affect
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1 the premium charged are exempted from countersignature.
2 The submission of insuring contracts to the Surplus
3 Line Association of Illinois constitutes a certification
4 by the surplus line producer or by the insurance producer
5 who presented the risk to the surplus line producer for
6 placement as a surplus line risk that after diligent
7 effort the required insurance could not be procured from
8 companies which are authorized to transact business in
9 this State other than domestic surplus line insurers as
10 defined in Section 445a and that such procurement was
11 otherwise in accordance with the surplus line law.
12 (6) Countersignature required. It shall be unlawful for
13 an insurance producer to deliver any unauthorized company
14 insurance contract or domestic surplus line insurer contract
15 unless such insurance contract is countersigned by the
16 Surplus Line Association of Illinois.
17 (7) Inspection of records. Each surplus line producer
18 shall maintain separate records of the business transacted
19 under his or her license, which records shall be open at all
20 times for inspection by the Director and by the Surplus Line
21 Association of Illinois.
22 (8) Violations and penalties. The Director may suspend
23 or revoke or refuse to renew a surplus line producer license
24 for any violation of this Code. In addition to or in lieu of
25 suspension or revocation, the Director may subject a surplus
26 line producer to a civil penalty of up to $1,000 for each
27 cause for suspension or revocation. Such penalty is
28 enforceable under subsection (5) of Section 403A of this
29 Code.
30 (9) Director may declare insurer company ineligible. If
31 the Director determines that the further assumption of risks
32 might be hazardous to the policyholders of an unauthorized
33 insurer company, the Director may order the Surplus Line
34 Association of Illinois not to countersign insurance
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1 contracts evidencing insurance in such insurer company and
2 order surplus line producers to cease procuring insurance
3 from such insurer company.
4 (10) Service of process upon Director. All insurance
5 contracts delivered under this Section from unauthorized
6 insurers shall contain a provision designating the Director
7 and his successors in office the true and lawful attorney of
8 the insurer company upon whom may be served all lawful
9 process in any action, suit or proceeding arising out of such
10 insurance and further designate the surplus line producer or
11 other resident of this State an agent of the unauthorized
12 insurer company to which a copy of such process shall be
13 forwarded by the Director for delivery to the insurer
14 company. Service of process made upon the Director to be
15 valid hereunder must state the name of the insured, the name
16 of the unauthorized insurer company and identify the contract
17 of insurance. The Director at his option is authorized to
18 forward a copy of the process to the Surplus Line Association
19 of Illinois for delivery to the surplus line producer or
20 other designated resident of this State or the Director may
21 deliver the process to the unauthorized insurer company by
22 other means which he considers to be reasonably prompt and
23 certain.
24 (11) The Illinois Surplus Line law does not apply to
25 insurance of property and operations of railroads or aircraft
26 engaged in interstate or foreign commerce, insurance of
27 vessels, crafts or hulls, cargoes, marine builder's risks,
28 marine protection and indemnity, or other risks including
29 strikes and war risks insured under ocean or wet marine forms
30 of policies.
31 (12) Surplus line insurance procured under this Section,
32 including insurance procured from a domestic surplus line
33 insurer, is not subject to the provisions of the Illinois
34 Insurance Code other than Sections 123, 123.1, 401, 401.1,
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1 402, 403, 403A, 408, 412, 445, 445.1, 445.2, 445.3, 445.4,
2 and all of the provisions of Article XXXI to the extent that
3 the provisions of Article XXXI are not inconsistent with the
4 terms of this Act.
5 (Source: P.A. 88-627, eff. 9-9-94.)
6 (215 ILCS 5/445a new)
7 Sec. 445a. Domestic surplus line insurer.
8 (a) A domestic insurer possessing policyholder surplus
9 of at least $15,000,000 may pursuant to a resolution by its
10 board of directors, and with the written approval of the
11 Director, be designated as a "domestic surplus line insurer".
12 (b) A domestic surplus line insurer may only insure in
13 this State an Illinois risk procured from a surplus line
14 producer pursuant to Section 445 of this Code.
15 (c) A domestic surplus line insurer must agree not to
16 issue a policy designed to satisfy the financial
17 responsibility requirements of the Illinois Vehicle Code, the
18 Workers' Compensation Act, or the Workers' Occupational
19 Diseases Act. A domestic surplus line insurer is not subject
20 to the provisions of Articles XXXIII, XXXIII 1/2, XXXIV,
21 XXXVIIIA, Section 468, or Section 478.1 of this Code.
22 (215 ILCS 5/3.1 rep.)
23 Section 10. The Illinois Insurance Code is amended by
24 repealing Section 3.1.
25 Section 15. The Dental Service Plan Act is amended by
26 changing Section 35 as follows:
27 (215 ILCS 110/35) (from Ch. 32, par. 690.35)
28 Sec. 35. Investments; reserves; deficiencies.
29 (a) The funds of any dental service plan corporation may
30 be invested only in accordance with the requirements provided
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1 by law for the investment of funds of life insurance
2 companies.
3 (b) As an allocation of net worth, each dental service
4 plan corporation shall maintain a special contingent reserve.
5 The special contingent reserve for a corporation that is
6 beginning operations shall be equal to 5% of its net earned
7 subscription revenue for dental care services through
8 December 31st of the year in which it is certified, but in no
9 event less than that $100,000. In subsequent years, unless
10 waived by the Director, the corporation shall accumulate
11 additions to the contingent reserve in an amount which is
12 equal to 2% of its net earned subscription revenue for each
13 calendar year. For purposes of this Section, "net earned
14 subscription revenue" means premium minus reinsurance
15 expenses. Maintenance of the contingent reserve requires
16 that net worth equals or exceeds the contingent reserve at
17 any balance sheet date. The special contingent reserve shall
18 be provided in cash and securities in combination and form
19 acceptable to the Director.
20 (c) Additional accumulations under Section 35(b) will no
21 longer be required when at such time that the total special
22 contingent reserve required by Section 35(b) is equal to or
23 greater than 5% of the corporation's average annual net
24 earned subscription revenue for the corporation's preceding 2
25 two calendar years. Additional accumulations under
26 subsection (b) of this Section shall no longer be required
27 when the total special contingent reserve required by
28 subsection (b) of this Section is equal to $1,500,000.
29 (d) A deficiency in meeting amounts required in
30 subsection (b) Section 6(b) or (c) of this Section will
31 require, upon notice from the Director, (1) filing of a plan
32 for correction of the deficiency, acceptable to the Director,
33 within 20 days from receipt of notice, and (2) correction of
34 the deficiency within a reasonable time, not to exceed 60
-52- LRB9011424JScdam
1 days from receipt of notice unless an extension of time is
2 granted by the Director. Such a deficiency will be deemed an
3 impairment, and failure to correct the deficiency in the
4 prescribed time shall be grounds for rehabilitation,
5 liquidation, conservation, or dissolution pursuant to Section
6 38.
7 (Source: P.A. 84-209; revised 2-25-98.)
8 Section 20. The Farm Mutual Insurance Company Act of
9 1986 is amended by changing Sections 4 and 12 as follows:
10 (215 ILCS 120/4) (from Ch. 73, par. 1254)
11 Sec. 4. Definition of Admitted Assets. Admitted assets
12 shall include those investments permitted under Section 12 of
13 this Act and in addition thereto, only the following:
14 (1) Cash funds held in the company's office and under
15 the company's control.
16 (2) Interest due and accrued on bonds, certificates of
17 deposit and other investments permitted by this Act that are
18 not in default.
19 (3) Dividends declared and unpaid on mutual funds,
20 common stock, and preferred stock, permitted by this Act.
21 (4) (3) Amounts recoverable from solvent insurance
22 companies licensed to do business in this State.
23 (5) (4) Tax refunds due from the United States or the
24 State of Illinois.
25 (6) (5) Premiums receivable on policies not over 90 days
26 past due. The due date of the premium shall be considered to
27 be the first day of the coverage period for which the premium
28 is payable.
29 (Source: P.A. 88-364.)
30 (215 ILCS 120/12) (from Ch. 73, par. 1262)
31 Sec. 12. Investments. Without the prior approval of the
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1 Director, the funds of any company operating under or
2 regulated by the provisions of this Act, shall be invested
3 only in the following:
4 (1) Direct obligations of the United States of
5 America, or obligations of agencies or instrumentalities
6 of the United States to the extent guaranteed or insured
7 as to the payment of principal and interest by the United
8 States of America;
9 (2) Bonds which are direct, general obligations of
10 the State of Illinois;
11 (3) Bonds which are direct, general obligations of
12 political subdivisions of the State of Illinois, subject
13 to the following conditions:
14 (a) Maximum of 5% of admitted assets in any
15 one political subdivision;
16 (b) Maximum of 30% 35% of admitted assets in
17 all political subdivisions in the aggregate;
18 (4) Bonds that are obligations of the Federal
19 National Mortgage Association subject to a maximum
20 investment of 10% of admitted assets in the aggregate;
21 (5) Bonds that are obligations of the Federal Home
22 Loan Mortgage Corporation subject to a maximum investment
23 of 10% of admitted assets in the aggregate;
24 (6) Mutual funds subject to the following
25 conditions:
26 (a) Maximum of 3% of policyholders' surplus in
27 any one balanced or growth mutual fund that invests
28 in common stock;
29 (b) Maximum of 5% of admitted assets in any
30 one bond or income mutual fund or any one
31 non-governmental money market mutual fund;
32 (c) Maximum of 10% of admitted assets in any
33 one governmental money market mutual fund;
34 (d) Maximum of 25% of admitted assets in all
-54- LRB9011424JScdam
1 mutual funds in the aggregate;
2 (7) Common stock and preferred stock subject to the
3 following conditions:
4 (a) Common stock and preferred stock shall be
5 traded on the New York Stock Exchange or the
6 American Stock Exchange or listed on the National
7 Association of Securities Dealers Automated
8 Quotation (NASDAQ) system;
9 (b) Maximum of 3% of policyholders' surplus in
10 excess of $400,000 in any one common stock or
11 preferred stock issuer provided that the net
12 unearned premium reserve does not exceed
13 policyholders' surplus;
14 (8) Investments authorized under subdivision (a) of
15 item (6) and subdivision (a) of item (7) of this Section
16 shall not in the aggregate exceed 10% of policyholders'
17 surplus;
18 (9) (4) Funds on deposit in solvent banks and
19 savings and loan associations which are insured by
20 qualify for insurance with the Federal Deposit Insurance
21 Corporation; however, the uninsured portion of funds held
22 in any one such bank or association shall not exceed 5%
23 of the company's policyholders' surplus;
24 (5) Funds on deposit with savings and loan
25 associations, provided that all funds invested in such
26 associations are insured by the Federal Deposit Insurance
27 Corporation;
28 (10) (6) Real estate for home office building
29 purposes, provided that such investments are approved by
30 the Director of Insurance on the basis of a showing by
31 the company that the company has adequate assets
32 available for such investment and that the proposed
33 acquisition does not exceed the reasonable normal value
34 of such property.
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1 An investment that qualified under this Section at the
2 time it was acquired by the company shall continue to qualify
3 under this Section.
4 Investments permitted under this Section shall be
5 registered in the name of the company and under its direct
6 control or shall be held in a custodial account with a bank
7 or trust company that is qualified to administer trusts in
8 Illinois under the Corporate Fiduciary Act and that has an
9 office in Illinois. However, securities may be held in
10 street form and in the custody of a licensed dealer for a
11 period not to exceed 30 days.
12 Notwithstanding the provisions of this Act, the Director
13 may, after notice and hearing, order a company to limit or
14 withdraw from certain investments or discontinue certain
15 investments or investment practices to the extent the
16 Director finds those investments or investment practices
17 endanger the solvency of the company.
18 (Source: P.A. 88-364.)
19 Section 25. The Voluntary Health Services Plans Act is
20 amended by changing Section 20 as follows:
21 (215 ILCS 165/20) (from Ch. 32, par. 614)
22 Sec. 20. The funds of any health services plan
23 corporation shall be handled in accordance with the following
24 rules:
25 (a) All loans made to original capital of the
26 corporation may be repayable only out of earned surplus.
27 (b) The funds of the corporation may be invested in
28 accordance with the requirements provided by law for the
29 investment of funds of life insurance companies and may also
30 be invested in equipment of the corporation provided such
31 investment in equipment shall not exceed more than 30% of the
32 total admitted assets. The value of such equipment shall be
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1 depreciated at a rate as rapidly as is provided under the
2 Internal Revenue Code.
3 (c) Every health services plan corporation, after its
4 first fiscal year of doing business, shall accumulate and
5 maintain a special contingent reserve over and above its
6 reserves and liabilities at the rate of 2% annually of its
7 subscription income net of reinsurance so long as the special
8 contingent reserve does not exceed 8% of its annual net
9 income for the preceding 12 month period. Additional
10 accumulations shall no longer be required at such time that
11 the total special contingent reserve is equal to $1,500,000.
12 (Source: P.A. 81-1203.)
13 Section 99. Effective date. This Act takes effect upon
14 becoming law except that Section 20 takes effect January 1,
15 1999.".