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| [ Engrossed ] | [ Enrolled ] | [ House Amendment 001 ] |
| [ Senate Amendment 001 ] |
91_SB1115
LRB9102645JSpcA
1 AN ACT to create the Protected Cell Company Act.
2 Be it enacted by the People of the State of Illinois,
3 represented in the General Assembly:
4 Section 1. Short title. This Act may be cited as the
5 Protected Cell Company Act.
6 Section 5. Purpose. This Act is required for the
7 purpose of facilitating economy and efficiency in funding the
8 insurance liabilities of domestic companies through insurance
9 securitization and to promote generally the securitization of
10 insurance liabilities for the purpose of increasing the
11 sources and availability of capital and the stability of
12 underwriting results of domestic companies.
13 Section 10. Definitions. As used in this Act:
14 "Company" means a protected cell company.
15 "Department" means the Department of Insurance.
16 "Director" means the Director of Insurance.
17 "Domestic company" means an insurance company, domiciled
18 in Illinois.
19 "General account" means the assets and liabilities of a
20 protected cell company other than protected cell assets and
21 protected cell liabilities.
22 "Insurance securitization" means the issuance of
23 securities or other financial instruments to investors
24 directly or indirectly by a domestic company where payment
25 pursuant to the transaction terms is contingent upon the
26 occurrence or nonoccurrence of an event with respect to which
27 the domestic company is exposed to loss under policies or
28 contracts of insurance or reinsurance it has issued.
29 "Protected cell" means an identified pool of assets and
30 liabilities of a domestic company segregated and insulated by
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1 means of this Act from the remainder of the company's assets
2 and liabilities.
3 "Protected cell account" means a specifically identified
4 bank or custodial account established by a protected cell
5 company for the sole purpose of physically segregating the
6 protected cell assets and protected cell liabilities of one
7 protected cell from the protected cell assets of other
8 protected cells and from the assets and liabilities of the
9 protected cell company's general account.
10 "Protected cell assets" means all assets identified with
11 and attributable to a specific protected cell of a protected
12 cell company.
13 "Protected cell liabilities" means all liabilities
14 identified with and attributable to a specific protected cell
15 of a protected cell company. Protected cell liabilities
16 include the reinsurance liabilities of the protected cell as
17 well as any liabilities of the protected cell arising out of
18 any insurance securitization transactions of the protected
19 cell.
20 "Protected cell company" means a domestic company that
21 has one or more protected cells.
22 Section 15. Establishment of protected cells. A domestic
23 company may, with prior written approval by the Director of a
24 plan of operation submitted by the domestic company with
25 respect to each protected cell, establish one or more
26 protected cells. Upon the written approval by the Director
27 of the plan of operation, which shall include, but not be
28 limited to, the specific business and investment objectives
29 of the protected cell, the company may, in accordance with
30 the approved plan of operation, attribute to the protected
31 cell amounts both reflective of insurance liabilities with
32 respect to its insurance business and assets to fund
33 liabilities. A protected cell shall have its own distinct
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1 name or designation, which shall include the words "protected
2 cell". The company shall transfer all physical assets
3 attributable to a protected cell to one or more separately
4 established and identified protected cell accounts, bearing
5 the name or designation of that protected cell. Protected
6 cell assets shall be held in the protected cell account for
7 the purpose of satisfying the obligations and protected cell
8 liabilities of that protected cell.
9 All sales, exchanges, transfers, or other attributions of
10 assets between a protected cell and the general account or
11 between other protected cells shall be in accordance with the
12 plan of operation approved by the Director or shall be
13 otherwise approved by the Director. Unless otherwise
14 approved by the Director, no sale, exchange, transfer, or
15 other attribution of assets or liabilities may be made by a
16 company between any of its protected cells or between the
17 company's general account and one or more of its protected
18 cells unless, in the case of an attribution to a protected
19 cell, the attribution is made solely to establish the
20 protected cell or, in the case of an attribution from a
21 protected cell to the company's general account, the
22 attribution is made solely to support the company's
23 obligations for insurance liabilities that are the subject of
24 the business of the protected cell. Any sale, exchange,
25 transfer, or other attribution of assets between a general
26 account and a protected cell or between protected cells shall
27 be in cash or in readily marketable securities with
28 established market values unless the sale, exchange,
29 transfer, or other attribution of assets is approved in
30 advance in writing by the Director.
31 The creation of a protected cell does not create, in
32 respect of that protected cell, a legal person separate from
33 the company. Amounts attributed to a protected cell under
34 this Act, including assets transferred to a protected cell
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1 account, are owned by the company and the company may not be,
2 nor hold itself out to be, a trustee with respect to those
3 protected cell assets of that protected cell account.
4 Notwithstanding the foregoing, the company may allow for a
5 security interest to attach to protected cell assets or a
6 protected cell account when in favor of a creditor of the
7 protected cell and otherwise allowed under applicable law.
8 Nothing in this Act shall be construed to prohibit the
9 company from contracting with or arranging for an investment
10 advisor, commodity trading advisor, or other third party to
11 manage the protected cell assets of a protected cell,
12 provided that all remuneration, expenses, and other
13 compensation of the third party advisor or manager be payable
14 from the protected cell assets of that protected cell and not
15 from the protected cell assets of other protected cells or
16 the assets of the company's general account.
17 A domestic company that is a protected cell company shall
18 establish such administrative and accounting procedures as
19 are necessary to properly identify the one or more protected
20 cells of the company and the protected cell assets and
21 protected cell liabilities attributable thereto. It shall be
22 the duty of the directors of a protected cell company to (i)
23 keep protected cell assets and protected cell liabilities
24 separate and separately identifiable from the assets and
25 liabilities of the company's general account and (ii) keep
26 protected cell assets and protected cell liabilities
27 attributable to one protected cell separate and separately
28 identifiable from protected cell assets and protected cell
29 liabilities attributable to other protected cells.
30 Notwithstanding the foregoing and subject to the provisions
31 of this Act, the remedy of tracing shall be applicable to
32 protected cell assets when commingled with protected cell
33 assets of other protected cells or the assets of the
34 company's general account.
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1 Section 20. Use and operation of protected cells. Unless
2 otherwise approved by the Director, the company shall, when
3 establishing a protected cell, attribute to the protected
4 cell assets with a value at least equal to the reserves and
5 other insurance liabilities attributed to that protected
6 cell. The protected cell assets of a protected cell may not
7 be charged with liabilities arising out of any other business
8 the company may conduct. All contracts or other
9 documentation of reinsurance issued by a protected cell to
10 the general account shall clearly indicate that only the
11 assets of the protected cell are available for the
12 liabilities of the protected cell.
13 Unless otherwise approved by the Director, assets
14 attributed to a protected cell must be valued at their market
15 value on the date of valuation, or if there is no readily
16 available market, then as provided in the contract or the
17 rules or other written agreement applicable to the protected
18 cell.
19 The income, gains, and losses, realized or unrealized,
20 from protected cell assets must be credited to or charged
21 against the protected cell without regard to other income,
22 gains, or losses of the company, including income, gains or
23 losses of other protected cells. Amounts attributed to a
24 protected cell and accumulations thereon may be invested and
25 reinvested without regard to any requirements or limitations
26 of Article VIII of the Illinois Insurance Code, and the
27 investments in a protected cell or cells may not be taken
28 into account in applying the investment limitations otherwise
29 applicable to the investments of the company.
30 Unless otherwise approved by the Director, a protected
31 cell company shall, in respect of any of its protected cells,
32 engage in insurance securitization or reinsurance
33 transactions to secure in full the protected cell liabilities
34 attributable to that protected cell. The proceeds of
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1 insurance securitization or reinsurance transactions of any
2 other protected cell, or of the protected cell company's
3 general account, shall not be attributable to that protected
4 cell. A protected cell may pay interest or other
5 consideration on any outstanding debt or other obligation
6 attributable to that protected cell.
7 In all cases in which a protected cell engages in an
8 insurance securitization or reinsurance transaction, the
9 financial instrument or reinsurance agreement effecting the
10 transaction shall contain provisions identifying the
11 protected cell to which the transaction will be attributed.
12 In addition, the financial instrument shall clearly disclose
13 that the assets of that protected cell are only available to
14 pay the liabilities of that protected cell. Notwithstanding
15 the foregoing and subject to the provisions of this Act and
16 any other applicable law or rule, the failure to include such
17 language in the financial instrument or reinsurance agreement
18 shall not be used as the sole basis by creditors, reinsurers,
19 or other claimants to circumvent the provisions of this Act.
20 At the cessation of business of a protected cell, the
21 protected cell company shall voluntarily wind up the
22 protected cell in accordance with a plan approved by the
23 Director.
24 Section 25. Reach of creditors and other claimants.
25 Protected cell assets shall only be available to the
26 creditors of the company who are creditors in respect of that
27 protected cell and shall thereby be entitled, in conformity
28 with the provisions of this Act, to have recourse to the
29 protected cell assets attributable to that protected cell,
30 and shall be absolutely protected from the creditors of the
31 company who are not creditors in respect of that protected
32 cell and who, accordingly, shall not be entitled to have
33 recourse to the protected cell assets attributable to that
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1 protected cell. Creditors of a variable protected cell shall
2 not be entitled to have recourse against the protected cell
3 assets of other protected cells or the assets of the
4 company's general account.
5 When a liability of a protected cell company to a person
6 arises from a transaction, or is otherwise imposed, in
7 respect of a protected cell (i) that liability of the company
8 shall extend only to, and the person shall, in respect of
9 that liability, be entitled to have recourse only to the
10 protected cell assets attributable to that protected cell and
11 (ii) that liability of the company shall not extend to, and
12 that person shall not, in respect of that liability, be
13 entitled to have recourse to the protected cell assets of any
14 other protected cell or the assets of the company's general
15 account.
16 When a liability of a protected cell company relates
17 solely to the general account, the liability of the company
18 shall extend only to, and that creditor shall, in respect of
19 that liability, be entitled to have recourse only to, the
20 company's general account.
21 Under no circumstances shall the activities and
22 obligations of a protected cell be subject to the provisions
23 of Articles XXXIII 1/2 and XXXIV of the Illinois Insurance
24 Code, and protected cell assets shall not be assessed by or
25 otherwise be required to contribute to any guaranty fund or
26 guaranty association in this State. Nothing in this
27 provision shall affect the activities or obligations of a
28 company's general account.
29 In no event shall the establishment of one or more
30 protected cells alone constitute or be deemed to be a
31 fraudulent conveyance, an intent by the company to defraud
32 creditors or the carrying out of business by the company for
33 any other fraudulent purpose.
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1 Section 30. Rehabilitation and liquidation of protected
2 cell companies. Notwithstanding any contrary provision in the
3 Illinois Insurance Code, the rules promulgated thereunder, or
4 any other applicable law or rule, upon any order of
5 rehabilitation, conservation, or liquidation of a domestic
6 company that is a protected cell company, the receiver shall
7 be bound to deal with the company's assets and liabilities in
8 accordance with the requirements set forth in this Act.
9 With respect to amounts recoverable under any insurance
10 securitization or reinsurance transaction entered into or
11 outstanding in any protected cell of a protected cell
12 company, the amount recoverable by the receiver shall not be
13 reduced or diminished as a result of the entry of an order of
14 rehabilitation, conservation, or liquidation with respect to
15 the protected cell company or any of its protected cells,
16 notwithstanding any provisions to the contrary in the
17 financial instrument governing such insurance securitization
18 or reinsurance transaction.
19 Section 35. Penalties. Any person violating the
20 provisions of this Act shall be subject to any and all
21 enforcement procedures either currently employed or
22 subsequently promulgated by the Department including, but not
23 limited to, the imposition of fines, sanctions, or civil
24 penalties or an order to cease and desist from the
25 establishment of additional protected cells.
26 Section 40. Effect of insurance securitization. No
27 insurance securitization effected under this Act shall be
28 deemed to be an insurance policy or contract of insurance or
29 otherwise constitute the transaction of an insurance business
30 as defined in Section 121-3 of the Illinois Insurance Code,
31 and no purchaser of a securitization transaction shall, by
32 sole means of such purchase, be required to be licensed as an
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1 insurance company in the State of Illinois.
2 Section 45. Rules. The Director may promulgate
3 reasonable rules as may be necessary to effectuate the
4 purposes of this Act.
5 Section 99. Effective date. This Act takes effect upon
6 becoming law.