State of Illinois
92nd General Assembly
Legislation

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[ House Amendment 002 ]


92_HB2556

 
                                              LRB9207828JSpcA

 1        AN ACT concerning insurers.

 2        Be it enacted by the People of  the  State  of  Illinois,
 3    represented in the General Assembly:

 4        Section  5.  The  Illinois  Insurance  Code is amended by
 5    changing Sections 10, 40, 131.20a, 187, and  188  and  adding
 6    Section 131.20b as follows:

 7        (215 ILCS 5/10) (from Ch. 73, par. 622)
 8        Sec. 10.  Directors.
 9        (1)  After  the  date  of incorporation, as determined by
10    Section 18, and until the first meeting of shareholders,  the
11    incorporators  shall  have  the powers and perform the duties
12    ordinarily possessed and exercised by a board of directors.
13        (2)  Upon the issuance of a certificate of authority to a
14    company organized under this article,  the  corporate  powers
15    shall  be exercised by, and its business and affairs shall be
16    under the control of, a board of directors  composed  of  not
17    less  than  3  nor  more  than  21  natural  persons  who are
18    shareholders, except where the  Company  is  a  wholly  owned
19    subsidiary, and who are at least 18 years of age and at least
20    3  of  whom  are  residents and citizens of this State. After
21    June 30, 2002, at least 20%, but not less than  one,  of  the
22    directors of a company that is not subject to Section 131.20b
23    shall  be  persons  who  are not officers or employees of the
24    company.  A person  convicted  of  a  felony  may  not  be  a
25    director,  and  all  directors shall be of good character and
26    known professional, administrative, or business ability, such
27    business  ability  to  include  a  practical   knowledge   of
28    insurance,   finance,  or  investment.  The  first  board  of
29    directors  shall  be  elected  at  the   first   meeting   of
30    shareholders,  and,  except  as  provided  in  subsection (3)
31    below, all directors shall be elected annually thereafter.
 
                            -2-               LRB9207828JSpcA
 1        (3)  If the board of directors  consists  of  6  or  more
 2    members,  in  lieu  of  electing  the membership of the whole
 3    board of directors annually, the  articles  of  incorporation
 4    may  provide  that the directors shall be divided into two or
 5    three classes, each class to be as nearly equal in number  as
 6    is  possible.   The  term of office of directors of the first
 7    class  shall  expire  at  the   first   annual   meeting   of
 8    shareholders  after  their election, that of the second class
 9    shall  expire  at  the  second  annual  meeting  after  their
10    election, and that of the third class, if any,  shall  expire
11    at  the  third  annual meeting after their election.  At each
12    annual  meeting  after  such  classification,  a  number   of
13    directors equal to the number of directors in the class whose
14    terms  expire at the time of such meeting shall be elected to
15    hold office until the second succeeding  annual  meeting,  if
16    there  are  two classes, or until the third succeeding annual
17    meeting, if there are three classes.
18        (4)  In all elections for directors every shareholder  of
19    common  shares  has the right to vote, in person or by proxy,
20    for the number of common shares owned by  him,  for  as  many
21    persons  as there are directors to be elected, or to cumulate
22    his shares, and give one  candidate  as  many  votes  as  the
23    number  of  directors  multiplied by the number of his shares
24    equals, or to distribute them on the same principle among  as
25    many  candidates as he thinks fit, and directors shall not be
26    elected in any other manner.
27        (5)  Meetings of  the  board  of  directors,  regular  or
28    special,  may  be  held  either  within or without the State.
29    Meetings of the board of directors shall be upon such  notice
30    as the by-laws may prescribe. Attendance of a director at any
31    meeting  shall  constitute a waiver of notice of such meeting
32    except where a director attends the meeting for  the  express
33    purpose  of  objecting  to  the  transaction  of any business
34    because the meeting  is  not  lawfully  called  or  convened.
 
                            -3-               LRB9207828JSpcA
 1    Neither the business to be transacted at, nor the purpose of,
 2    any regular or special meeting of the board of directors need
 3    be  specified  in  the  notice  or  waiver  of notice of such
 4    meeting, unless expressly otherwise provided  by  this  Code.
 5    Unless   specifically   prohibited   by   the   articles   of
 6    incorporation  or  by-laws, members of the board of directors
 7    or of any committee of the board of directors may participate
 8    in and act at any meeting of such board or committee  through
 9    the  use  of  a  conference telephone or other communications
10    equipment by means of which all persons participating in  the
11    meeting  can  hear each other.  Participation in such meeting
12    shall constitute attendance and presence  in  person  at  the
13    meeting  of  the  person or persons so participating.  Unless
14    specifically prohibited by the articles of  incorporation  or
15    by-laws,  members  of  the  board  of  directors  or  of  any
16    committee of the board of directors may take action without a
17    meeting,  if a consent in writing setting forth the action so
18    taken shall be signed by all of  the  directors  entitled  to
19    vote with respect to the subject matter thereof, or by all of
20    the  members  of  such  committee,  as  the case may be.  The
21    consent shall be evidenced by one or more written  approvals,
22    each  of  which  sets  forth  the  action taken and bears the
23    signature of one or more directors or committee members.  All
24    approvals evidencing  the  consent  shall  be  filed  in  the
25    company's  corporate  records.   The  action  taken  shall be
26    effective when all  of  the  directors,  or  members  of  the
27    committee,  have  approved  the  consent  unless  the consent
28    specifies a different effective date.
29        (6)  If the number  of  directors  provided  for  in  the
30    articles  of  incorporation  be  indefinite,  the  number  of
31    directors  to  be  elected,  within  the  minimum and maximum
32    limits set forth in paragraph (2), shall be  as  provided  in
33    the  by-laws.  The  number  of  directors may be increased or
34    decreased from time to time by amendment to the by-laws.  The
 
                            -4-               LRB9207828JSpcA
 1    by-laws  may  establish  a variable range for the size of the
 2    board  by  prescribing  a  minimum  and  maximum  number   of
 3    directors.   The  maximum  may not exceed the minimum by more
 4    than 5.  If a variable range is established,  the  number  of
 5    directors  may  be fixed or changed from time to time, within
 6    the minimum and maximum, by the directors or the shareholders
 7    without further amendment to the by-laws.
 8        (7)  (a) A company may indemnify any person who was or is
 9    a  party  or  is  threatened  to  be  made  a  party  to  any
10    threatened, pending or completed action, suit or  proceeding,
11    whether  civil,  criminal,  administrative  or  investigative
12    (other  than  an action by or in the right of the company) by
13    reason of the fact that he or  she  is  or  was  a  director,
14    officer,  employee  or  agent,  against  expenses  (including
15    attorneys'  fees),  judgments,  fines  and  amounts  paid  in
16    settlement actually and reasonably incurred by such person in
17    connection  with  such  action,  suit  or proceeding, if such
18    person acted in  good  faith  and  in  a  manner  he  or  she
19    reasonably  believed  to  be  in,  or not opposed to the best
20    interests of the company, and, with respect to  any  criminal
21    action  or proceeding, had no reasonable cause to believe his
22    or her conduct was unlawful.  The termination of any  action,
23    suit   or   proceeding   by   judgment,   order,  settlement,
24    conviction,  or  upon  a  plea  of  nolo  contendere  or  its
25    equivalent, shall not, of itself, create a  presumption  that
26    the person did not act in good faith and in a manner which he
27    or  she  reasonably  believed  to be in or not opposed to the
28    best interest of the company or, with respect to any criminal
29    action or proceeding, that the person had reasonable cause to
30    believe that his or her conduct was unlawful.
31        (b)  A company may indemnify any person who was or  is  a
32    party, or is threatened to be made a party to any threatened,
33    pending or completed action or suit by or in the right of the
34    company  to  procure a judgment in its favor by reason of the
 
                            -5-               LRB9207828JSpcA
 1    fact that such person is or was a director, officer, employee
 2    or agent of the company, or is or was serving at the  request
 3    of  the  company as a director, officer, employee or agent of
 4    another company, partnership, joint venture, trust  or  other
 5    enterprise,  against  expenses  (including  attorneys'  fees)
 6    actually and reasonably incurred by such person in connection
 7    with  the  defense  or  settlement of such action or suit, if
 8    such person acted in good faith and in a  manner  he  or  she
 9    reasonably  believed  to  be  in,  or not opposed to the best
10    interests of the company, provided  that  no  indemnification
11    shall  be made in respect of any claim, issue or matter as to
12    which such person shall have been adjudged to be  liable  for
13    negligence  or  misconduct  in  the performance of his or her
14    duty to the company, unless, and only to the extent that  the
15    court  in  which  such  action  or  suit  was  brought  shall
16    determine  upon application that, despite the adjudication of
17    liability, but in view of all the circumstances of the  case,
18    such   person   is   fairly   and   reasonably   entitled  to
19    indemnification for such expenses as  the  court  shall  deem
20    proper.
21        (c)  To  the extent that a director, officer, employee or
22    agent of a company has been  successful,  on  the  merits  or
23    otherwise,  in  the defense of any action, suit or proceeding
24    referred to in subsections (a) and (b), or in defense of  any
25    claim,   issue  or  matter  therein,  such  person  shall  be
26    indemnified  against  expenses  (including  attorneys'  fees)
27    actually and reasonably incurred by such person in connection
28    therewith.
29        (d)  Any indemnification under subsections  (a)  and  (b)
30    (unless ordered by a court) shall be made by the company only
31    as authorized in the specific case, upon a determination that
32    indemnification  of  the director, officer, employee or agent
33    is proper in the circumstances because he or she has met  the
34    applicable  standard  of conduct set forth in subsections (a)
 
                            -6-               LRB9207828JSpcA
 1    or (b).  Such determination shall be made (1) by the board of
 2    directors by a  majority  vote  of  a  quorum  consisting  of
 3    directors  who  were  not  parties  to  such  action, suit or
 4    proceeding, or (2) if such a quorum  is  not  obtainable,  or
 5    even if obtainable, if a quorum of disinterested directors so
 6    directs,  by  independent legal counsel in a written opinion,
 7    or (3) by the shareholders.
 8        (e)  Expenses incurred in defending a civil  or  criminal
 9    action,  suit  or  proceeding  may  be paid by the company in
10    advance of the final disposition  of  such  action,  suit  or
11    proceeding,  as  authorized  by the board of directors in the
12    specific case, upon receipt of an undertaking by or on behalf
13    of the director, officer, employee or  agent  to  repay  such
14    amount,  unless  it shall ultimately be determined that he or
15    she  is  entitled  to  be  indemnified  by  the  company   as
16    authorized in this Section.
17        (f)  The  indemnification  provided by this Section shall
18    not be deemed exclusive of any other rights  to  which  those
19    seeking  indemnification  may  be  entitled under any by-law,
20    agreement, vote of shareholders or  disinterested  directors,
21    or  otherwise,  both  as  to  action  in  his or her official
22    capacity and as to action in another capacity  while  holding
23    such office, and shall continue as to a person who has ceased
24    to be a director, officer, employee or agent, and shall inure
25    to  the benefit of the heirs, executors and administrators of
26    such a person.
27        (g)  A company may purchase  and  maintain  insurance  on
28    behalf  of  any  person  who  is  or was a director, officer,
29    employee or agent of the company, or who is or was serving at
30    the request of the company as a director,  officer,  employee
31    or  agent  of  another  company,  partnership, joint venture,
32    trust or other enterprise,  against  any  liability  asserted
33    against  such  person and incurred by such person in any such
34    capacity, or arising out  of  his  or  her  status  as  such,
 
                            -7-               LRB9207828JSpcA
 1    whether  or not the company would have the power to indemnify
 2    such person against such liability under  the  provisions  of
 3    this Section.
 4        (h)  If   a  company  has  paid  indemnification  or  has
 5    advanced expenses to a director, officer, employee or  agent,
 6    the  company  shall  report the indemnification or advance in
 7    writing to the shareholders with or before the notice of  the
 8    next shareholders meeting.
 9        (i)  For  purposes  of  this  Section, references to "the
10    company" shall include, in addition to the surviving company,
11    any merging company (including any company having merged with
12    a merging  company)  absorbed  in  a  merger  which,  if  its
13    separate  existence  had  continued, would have had the power
14    and authority  to  indemnify  its  directors,  officers,  and
15    employees  or  agents, so that any person who was a director,
16    officer, employee or agent of such merging  company,  or  was
17    serving at the request of such merging company as a director,
18    officer,  employee  or agent of another company, partnership,
19    joint venture, trust or other enterprise, shall stand in  the
20    same  position  under  the  provisions  of  this Section with
21    respect to the surviving company as such  person  would  have
22    with   respect  to  such  merging  company  if  its  separate
23    existence had continued.
24        (j)  For purposes of this Section, references  to  "other
25    enterprises" shall include employee benefit plans; references
26    to  "fines"  shall  include  any  excise  taxes assessed on a
27    person  with  respect  to  any  employee  benefit  plan;  and
28    references to "serving at the request of the  company"  shall
29    include any service as a director, officer, employee or agent
30    of  the company which imposes duties on, or involves services
31    by such director, officer, employee, or agent with respect to
32    any   employee   benefit   plan,   its    participants,    or
33    beneficiaries.   A  person  who  acted in good faith and in a
34    manner he or she  reasonably  believed  to  be  in  the  best
 
                            -8-               LRB9207828JSpcA
 1    interests  of  the  participants  and  beneficiaries  of  any
 2    employee  benefit  plan  shall  be  deemed to have acted in a
 3    manner "not opposed to the best interest of the  company"  as
 4    referred to in this Section.
 5    (Source: P.A. 88-648, eff. 9-16-94.)

 6        (215 ILCS 5/40) (from Ch. 73, par. 652)
 7        Sec. 40.  Directors or trustees.
 8        (1)    After  the date of incorporation, as determined by
 9    Section 48, and until the first meeting of the  members,  the
10    incorporators  shall  have  the powers and perform the duties
11    ordinarily possessed and exercised by a board of directors.
12        (2)  Upon the issuance of a certificate of authority to a
13    company organized under this Article,  the  corporate  powers
14    shall  be exercised by, and its business and affairs shall be
15    under the control  of,  a  board  of  directors  or  trustees
16    composed  of not less than 3 nor more than 21 natural persons
17    who are members and who are at least 18 years of age  and  at
18    least  3  of  whom  are residents and citizens of this State.
19    After June 30, 2002, at least 20%, but not less than one,  of
20    the  directors  of  a  company that is not subject to Section
21    131.20b shall be persons who are not officers or employees of
22    the company.  A person convicted of a felony  may  not  be  a
23    director,  and  all  directors shall be of good character and
24    known professional, administrative, or business ability, such
25    business  ability  to  include  a  practical   knowledge   of
26    insurance,   finance,  or  investment.  The  first  board  of
27    directors or trustees shall be elected at the  first  meeting
28    of  the  members,  and  all  directors  or  trustees shall be
29    elected annually  thereafter,  except  only  as  provided  in
30    subsection (3).
31        (3)  The  articles  of  incorporation may provide for the
32    division of the board into classes, as nearly equal in number
33    as possible, and fix the term of office for each  class,  but
 
                            -9-               LRB9207828JSpcA
 1    no term shall be for more than 3 years.
 2        (4)  Meetings  of  the  board  of  directors or trustees,
 3    regular or special, may be held either within or without  the
 4    State.  Meetings  of the board of directors or trustees shall
 5    be upon such notice as the by-laws may prescribe.  Attendance
 6    of  a  director  or trustee at any meeting shall constitute a
 7    waiver of notice of such meeting except where a  director  or
 8    trustee  attends  the  meeting  for  the  express  purpose of
 9    objecting to the transaction  of  any  business  because  the
10    meeting  is  not  lawfully  called  or  convened. Neither the
11    business to be transacted at, nor the purpose of, any regular
12    or special meeting of the board of directors or trustees need
13    be specified in the  notice  or  waiver  of  notice  of  such
14    meeting,  unless  expressly  otherwise provided by this Code.
15    Unless   specifically   prohibited   by   the   articles   of
16    incorporation or by-laws, members of the board  of  directors
17    or of any committee of the board of directors may participate
18    in  and act at any meeting of such board or committee through
19    the use of a conference  telephone  or  other  communications
20    equipment  by means of which all persons participating in the
21    meeting can hear each other. Participation  in  such  meeting
22    shall  constitute  attendance  and  presence in person at the
23    meeting of the person or  persons  so  participating.  Unless
24    specifically  prohibited  by the articles of incorporation or
25    by-laws,  members  of  the  board  of  directors  or  of  any
26    committee of the board of directors may take action without a
27    meeting, if a consent in writing setting forth the action  so
28    taken  shall  be  signed  by all of the directors entitled to
29    vote with respect to the subject matter thereof, or by all of
30    the members of such committee, as  the  case  may  be.    The
31    consent  shall be evidenced by one or more written approvals,
32    each of which sets forth  the  action  taken  and  bears  the
33    signature of one or more directors or committee members.  All
34    approvals  evidencing  the  consent  shall  be  filed  in the
 
                            -10-              LRB9207828JSpcA
 1    company's corporate  records.   The  action  taken  shall  be
 2    effective  when  all  of  the  directors,  or  members of the
 3    committee, have  approved  the  consent  unless  the  consent
 4    specifies a different effective date.
 5        (5)  A  company  may  indemnify any person in conformance
 6    with subsection (7) of Section 10.
 7    (Source: P.A. 86-632.)

 8        (215 ILCS 5/131.20a) (from Ch. 73, par. 743.20a)
 9        Sec.  131.20a.  Prior   notification   of   transactions;
10    dividends and distributions.
11        (1) (a)  The  following  transactions  between a domestic
12    company and any person in its holding company system may  not
13    be  entered into unless the company has notified the Director
14    in writing of its intention to enter into such transaction at
15    least 30 days prior thereto, or such shorter  period  as  the
16    Director  may permit, and the Director has not disapproved it
17    within such period:
18             (i)  Sales, purchases, exchanges of assets, loans or
19        extensions of credit,  guarantees,  investments,  or  any
20        other   transaction   (A)  that  involves  involving  the
21        transfer of assets from or liabilities to a company equal
22        to or  exceeding  the  lesser  of  3%  of  the  company's
23        admitted   assets  or  25%  of  its  surplus  as  regards
24        policyholders  as  of  the  31st  day  of  December  next
25        preceding or (B)  that  is  proposed  when  the  domestic
26        company  is not eligible to declare and pay a dividend or
27        other distribution pursuant to the provisions of  Section
28        27.
29             (ii)  Loans  or  extensions  of credit to any person
30        that is not an  affiliate  (A)  that  which  involve  the
31        lesser  of  3% of the company's admitted assets or 25% of
32        the company's  surplus,  each  as  of  the  31st  day  of
33        December  next  preceding,  made  with  the  agreement or
 
                            -11-              LRB9207828JSpcA
 1        understanding that the proceeds of such transactions,  in
 2        whole  or  in  substantial  part,  are to be used to make
 3        loans or extensions of credit to, to purchase assets  of,
 4        or  to  make investments in, any affiliate of the company
 5        making such loans or extensions of credit or (B) that are
 6        proposed when the domestic company  is  not  eligible  to
 7        declare and pay a dividend or other distribution pursuant
 8        to the provisions of Section 27.
 9             (iii)  Reinsurance   agreements   or   modifications
10        thereto,  including  those agreements that may require as
11        consideration the transfer of assets from an insurer to a
12        nonaffiliate, if an  agreement  or  understanding  exists
13        between  the insurer and nonaffiliate that any portion of
14        those  assets  will  be  transferred  to  one   or   more
15        affiliates of the insurer.
16             (iv)  All  management agreements, service contracts,
17        cost-sharing  arrangements,  and  any   other   contracts
18        providing  for  the  rendering  of  services on a regular
19        systematic basis.
20             (v)  Any  series   of   the   previously   described
21        transactions  that  are  substantially  similar  to  each
22        other,  that  take  place  within any 180 day period, and
23        that in total are equal to or exceed the lesser of 3%  of
24        the  domestic  insurer's  admitted  assets  or 25% of its
25        policyholders surplus, as of the 31st day of the December
26        next preceding.
27             (vi)  Any  other  material  transaction   that   the
28        Director  by  rule  determines might render the company's
29        surplus as regards policyholders unreasonable in relation
30        to the company's outstanding liabilities  and  inadequate
31        to  its financial needs or may otherwise adversely affect
32        the  interests  of   the   company's   policyholders   or
33        shareholders.
34        Nothing  herein contained shall be deemed to authorize or
 
                            -12-              LRB9207828JSpcA
 1    permit any transactions that, in the case of an insurer not a
 2    member of the same holding company system, would be otherwise
 3    contrary to law.
 4        (b)  Any transaction or contract otherwise  described  in
 5    paragraph  (a)  of this subsection that is between a domestic
 6    insurer and any person that is not  its  affiliate  and  that
 7    precedes  or  follows within 180 days or is concurrent with a
 8    similar  transaction  between  that   nonaffiliate   and   an
 9    affiliate  of  the domestic company and that involves amounts
10    that are equal to or exceed the lesser of 3% of the  domestic
11    insurer's  admitted  assets  or 25% of its surplus as regards
12    policyholders at the end of the prior year may not be entered
13    into unless the company has notified the Director in  writing
14    of  its  intention  to enter into the transaction at least 30
15    days prior thereto or such shorter period as the Director may
16    permit, and the Director has not disapproved it  within  such
17    period.
18        (c)  A  company may not enter into transactions which are
19    part of a plan or series of like transactions with any person
20    within the holding company system if  the  purpose  of  those
21    separate  transactions  is  to  avoid the statutory threshold
22    amount and thus avoid the review that would occur  otherwise.
23    If  the  Director  determines that such separate transactions
24    were entered into for  such  purpose,  he  may  exercise  his
25    authority under subsection (2) of Section 131.24.
26        (d)  The  Director, in reviewing transactions pursuant to
27    paragraph (a), shall consider whether the transactions comply
28    with the standards set forth in Section  131.20  and  whether
29    they may adversely affect the interests of policyholders.
30        (e)  The Director shall be notified within 30 days of any
31    investment  of the domestic insurer in any one corporation if
32    the total investment in that  corporation  by  the  insurance
33    holding  company  system  exceeds  10%  of that corporation's
34    voting securities.
 
                            -13-              LRB9207828JSpcA
 1        (f)  Except for those transactions  subject  to  approval
 2    under  other  Sections  of this Code, any such transaction or
 3    agreements which are not disapproved by the Director  may  be
 4    effective  as  of  the  date set forth in the notice required
 5    under this Section.
 6        (g)  If a domestic  insurer  enters  into  a  transaction
 7    described   in  this  subsection  without  having  given  the
 8    required notification, the Director may cause the insurer  to
 9    pay  a  civil  forfeiture  of  not  more than $250,000.  Each
10    transaction  so  entered  shall  be  considered  a   separate
11    offense.
12        (2)  No  domestic  company  subject to registration under
13    Section 131.13 may pay any extraordinary dividend or make any
14    other  extraordinary  distribution  to  its   securityholders
15    until:  (a) 30 days after the Director has received notice of
16    the declaration  thereof  and  has  not  within  such  period
17    disapproved  the  payment,  or (b) the Director approves such
18    payment within the  30-day  period.   For  purposes  of  this
19    subsection,  an extraordinary dividend or distribution is any
20    dividend or distribution of cash or other property whose fair
21    market value,  together  with  that  of  other  dividends  or
22    distributions,  made  within  the  period  of  12 consecutive
23    months ending on the date on which the proposed  dividend  is
24    scheduled for payment or distribution exceeds the greater of:
25    (a)  10% of the company's surplus as regards policyholders as
26    of the 31st day of December next preceding, or  (b)  the  net
27    income of the company for the 12-month period ending the 31st
28    day of December next preceding, but does not include pro rata
29    distributions of any class of the company's own securities.
30        Notwithstanding  any  other provision of law, the company
31    may declare an extraordinary dividend or  distribution  which
32    is  conditional  upon  the  Director's  approval,  and such a
33    declaration confers no rights upon  security  holders  until:
34    (a)  the Director has approved the payment of the dividend or
 
                            -14-              LRB9207828JSpcA
 1    distribution, or (b) the Director  has  not  disapproved  the
 2    payment within the 30-day period referred to above.
 3    (Source: P.A. 90-655, eff. 7-30-98.)

 4        (215 ILCS 5/131.20b new)
 5        Sec.     131.20b.  Controlled    insurers;    management;
 6    directors.
 7        (1)  Notwithstanding the control of a domestic insurer by
 8    any person, the officers and directors of the  insurer  shall
 9    not  thereby  be  relieved  of any obligation or liability to
10    which they would otherwise be subject by law, and the insurer
11    shall be managed so  as  to  assure  its  separate  operating
12    identity consistent with Article VIII 1/2 of this Code.
13        (2)  Nothing  in  this  Section shall preclude a domestic
14    insurer from having or  sharing  a  common  management  or  a
15    cooperative  or joint use of personnel, property, or services
16    with  one  or  more  affiliated  persons  under  arrangements
17    meeting the standards and requirements of Sections 131.20 and
18    131.20a.
19        (3)  After June 30, 2002, not less than one-third of  the
20    directors  of  a  domestic  insurer  that  is  a member of an
21    insurance holding company system shall be persons who are not
22    officers or  employees  of  the  insurer  or  of  any  entity
23    controlling,  controlled by, or under common control with the
24    insurer and who are not beneficial owners  of  a  controlling
25    interest  in  the  voting  stock  of  the insurer or any such
26    entity.  At least one such person shall be  included  in  any
27    quorum  for the transaction of business at any meeting of the
28    board of directors or any committee thereof.
29        (4)  Subsection (3) of this Section does not apply  to  a
30    domestic  insurer if the entity controlling the insurer has a
31    board  of  directors  composed  in   accordance   with   that
32    subsection.
 
                            -15-              LRB9207828JSpcA
 1        (215 ILCS 5/187) (from Ch. 73, par. 799)
 2        Sec. 187. Scope of Article.
 3        (1)  This  Article  shall  apply  to  every  corporation,
 4    association,  society,  order,  firm,  company,  partnership,
 5    individual,  and  aggregation  of  individuals  to  which any
 6    Article of this Code is applicable, or which  is  subject  to
 7    examination,  visitation or supervision by the Director under
 8    any provision of this Code or under any law of this State, or
 9    which is engaging in or proposing or attempting to engage  in
10    or  is  representing  that it is doing an insurance or surety
11    business, or is undertaking or  proposing  or  attempting  to
12    undertake to provide or arrange for health care services as a
13    health  care plan as defined in subsection (7) of Section 1-2
14    of the Health Maintenance  Organization  Act,  including  the
15    exchanging of reciprocal or inter-insurance contracts between
16    individuals,  partnerships and corporations in this State, or
17    which is in the process of organization for  the  purpose  of
18    doing  or  attempting  or  intending  to  do  such  business,
19    anything  as  to  any such corporation, association, society,
20    order, firm, company, partnership, individual or  aggregation
21    of individuals provided in this Code or elsewhere in the laws
22    of this State to the contrary notwithstanding.
23        (2)  The  word "company" as used in this Article includes
24    all of the  corporations,  associations,  societies,  orders,
25    firms,  companies, partnerships, and individuals specified in
26    subsections subsection (1), (4), and (5) of this Section  and
27    agents,  managing  general  agents,  brokers, premium finance
28    companies,  insurance  holding  companies,  and   all   other
29    non-risk bearing entities or persons engaged in any aspect of
30    the  business  of  insurance  on behalf of an insurer against
31    which a receivership proceeding has been or  is  being  filed
32    under  this  Article, including, but not limited to, entities
33    or   persons   that   provide   management,   administrative,
34    accounting, data processing, marketing, underwriting,  claims
 
                            -16-              LRB9207828JSpcA
 1    handling,  or  any  other  similar  services to that insurer,
 2    whether or not those entities are licensed to engage  in  the
 3    business of insurance in Illinois, if the entity or person is
 4    an  affiliate  of  that  insurer the word "assets" as used in
 5    this article includes all deposits and funds of a special  or
 6    trust nature.
 7        (3)  The  word  "court" shall mean the court before which
 8    the conservation, rehabilitation, or  liquidation  proceeding
 9    of  the  company  is  pending, or the judge presiding in such
10    proceedings.
11        (4)  The word "affiliate" as used in this Article means a
12    person that directly,  or  indirectly  through  one  or  more
13    intermediaries,  controls,  is  controlled  by,  or  is under
14    common control with, the person specified.
15        (5)  The word "person" as used in this Article  means  an
16    individual,  an aggregation of individuals, a partnership, or
17    a corporation.
18        (6)  The word "assets" as used in this  Article  includes
19    all deposits and funds of a special or trust nature.
20        (7)  The   words   "receivership  proceedings"  mean  any
21    conservation,  rehabilitation,  liquidation,   or   ancillary
22    receivership.
23    (Source: P.A. 87-1012.)

24        (215 ILCS 5/188) (from Ch. 73, par. 800)
25        Sec. 188. Grounds for rehabilitation and liquidation of a
26    domestic company or an unauthorized foreign or alien company.
27    Whenever  any domestic company or any unauthorized foreign or
28    alien company:
29             1.  is insolvent;
30             2.  has failed  or  refused  to  submit  its  books,
31        papers,  accounts,  records  or affairs to the reasonable
32        inspection  or  examination  of  the  Director   or   his
33        actuaries, supervisors, deputies, or examiners;
 
                            -17-              LRB9207828JSpcA
 1             3.  has  concealed,  removed,  altered, destroyed or
 2        failed  to  establish  and   maintain   books,   records,
 3        documents,   accounts,   vouchers   and  other  pertinent
 4        material adequate for the determination of its  financial
 5        condition by examination under Sections 132 through 132.7
 6        or  has  failed  to  properly  administer  claims  and to
 7        maintain  claims  records  which  are  adequate  for  the
 8        determination of its outstanding claims liability;
 9             4.  has failed or refused to observe an order of the
10        Director to make good within the time prescribed  by  law
11        any deficiency, whenever its capital and minimum required
12        surplus,  if a stock company, or its required surplus, if
13        a company other than stock, has become impaired;
14             5.  has, by articles of consolidation,  contract  of
15        reinsurance  or  otherwise,  transferred  or attempted to
16        transfer  its  entire  property  or   business   not   in
17        conformity   with   this   Code,   or  entered  into  any
18        transaction the effect of which is to merge substantially
19        its entire property or  business  in  any  other  company
20        without having first obtained the written approval of the
21        Director under this Code;
22             6.  is  found  to  be  in  such  condition  that its
23        further transaction of business would be hazardous to its
24        policyholders, or to its creditors, or to the public;
25             7.  has violated its charter  or  any  law  of  this
26        State  or  has  exceeded  or  is  exceeding its corporate
27        powers;
28             8.  has an officer who has refused  upon  reasonable
29        demand to be examined under oath touching its affairs;
30             9.  is  found  to be in such condition that it could
31        not  meet   the   requirements   for   organization   and
32        authorization as required by law, except as to the amount
33        of  the  original  surplus required of a stock company in
34        Section 13, and except as to the amount  of  the  surplus
 
                            -18-              LRB9207828JSpcA
 1        required  of  a  mutual  company in excess of the minimum
 2        surplus required by this Code to be maintained, or either
 3        an authorized control level event or a mandatory  control
 4        level event as set forth in Article IIA exists;
 5             10.  has  ceased  for  the  period  of  one  year to
 6        transact insurance business;
 7             11.  has commenced, or has  attempted  to  commence,
 8        any  voluntary  liquidation or dissolution proceeding, or
 9        any proceeding to procure the appointment of a  receiver,
10        liquidator,  rehabilitator,  sequestrator,  or  a similar
11        officer for itself;
12             12.  is a party, whether plaintiff or  defendant  in
13        any  proceeding  in  which an application is made for the
14        appointment  of  a   receiver,   custodian,   liquidator,
15        rehabilitator,  sequestrator, or similar officer for such
16        company  or  its  property,  or  a  receiver,  custodian,
17        liquidator,  rehabilitator,   sequestrator   or   similar
18        officer, for such company or its property is appointed by
19        any court, or such appointment is imminent;
20             13.  consents   by  a  majority  of  its  directors,
21        stockholders or members;
22             14.  has not organized and  obtained  a  certificate
23        authorizing   it  to  commence  the  transaction  of  its
24        business within the period  of  time  prescribed  by  the
25        sections of this Code under which it is or proposes to be
26        organized; or
27             15.  has  failed  or  refused to pay any valid final
28        judgment within 30 days after the rendition  thereof,  or
29        whenever  it  appears to the Director that any person has
30        committed a violation of Article VIII 1/2 with the result
31        described in Section 131.26,
32    sufficient  grounds  shall  be  deemed  to  exist   for   the
33    commencement of rehabilitation or liquidation proceedings.
34        With  respect  to  a  domestic company, the Director must
 
                            -19-              LRB9207828JSpcA
 1    report, and with respect to an unauthorized foreign or  alien
 2    company,  the  Director  may  report  any  such  case  to the
 3    Attorney General of this State whose  duty  it  shall  be  to
 4    apply  forthwith  by complaint on relation of the Director in
 5    the  name  of  the  People  of  the  State  of  Illinois,  as
 6    plaintiff, to the Circuit Court of Cook County,  the  Circuit
 7    Court  of Sangamon County, or the circuit court of the county
 8    in which such company has, or last had its principal  office,
 9    for  an  order  to  rehabilitate  or  liquidate the defendant
10    company as provided in  this  Article,  and  for  such  other
11    relief  as  the  nature  of the case and the interests of its
12    policyholders, creditors, members, stockholders or the public
13    may require.
14        When, upon  investigation,  the  Director  finds  that  a
15    company is engaged in any aspect of the business of insurance
16    on  behalf  of  or in association with any domestic insurance
17    company, against which a receivership proceeding has been  or
18    is  being  filed under this Article, the controlling interest
19    of any  domestic  insurance  company  has  been  acquired  by
20    another  corporation  and  that the purchasing corporation is
21    operating the acquired company in a manner that which appears
22    to  be  detrimental  to  policyholders,  creditors,  members,
23    shareholders,  or  the  interests  of  the  persons  insured,
24    minority shareholders and the general  public,  the  Director
25    may  after  notice  and  hearing  under Article XXIV issue an
26    order stating such  finding  and  report  such  case  to  the
27    Attorney  General  of  this  State, whose duty it is to apply
28    forthwith by complaint on relation of  the  Director  in  the
29    name of the People of the State of Illinois, as plaintiff, to
30    the  Circuit  Court  of  Cook  County,  the  Circuit Court of
31    Sangamon County,  or  the  circuit  court  in  which  of  the
32    receivership  proceeding  is  pending  county  in  which such
33    acquired or controlled company has, or last had its principal
34    office, for an order to appoint the Director as  receiver  to
 
                            -20-              LRB9207828JSpcA
 1    assume  control  of  the  assets and operation of the company
 2    pending a complete investigation  and  determination  of  the
 3    rights    of    the    policyholders,   creditors,   members,
 4    shareholders, and the general public.
 5    (Source:  P.A.  88-364;  89-97,  eff.  7-7-95;  89-206,  eff.
 6    7-21-95; 89-626, eff. 8-9-96.)

 7        Section 10.  The Health Maintenance Organization  Act  is
 8    amended  by  changing  Section 3-1 and adding Section 2-10 as
 9    follows:

10        (215 ILCS 125/2-10 new)
11        Sec. 2-10.  Directors.
12        (a)  After  June  30,  2002,  the  corporate  powers  for
13    domestic organizations  issued  a  certificate  of  authority
14    under  this  Act  must  be exercised by, and its business and
15    affairs must be under the control of, a  board  of  directors
16    composed  of not less than 3 nor more than 21 natural persons
17    who are at least  18  years  of  age.   At  least  3  of  the
18    directors  must  be  residents and citizens of this State.  A
19    person convicted of a  felony  may  not  be  a  director.   A
20    director  must  be  of good character and known professional,
21    administrative, or business ability.  The  requisite  ability
22    must  include  a  practical knowledge of managed health care,
23    insurance, finance, or investment.
24        (b)  After June 30, 2002, not less than one-third of  the
25    directors of a domestic organization that is not a controlled
26    insurer  for  purposes  of  Section  131.20b  of the Illinois
27    Insurance Code must  be  persons  who  are  not  officers  or
28    employees of the organization.  At least one of those persons
29    must  be  included  in  any  quorum  for  the  transaction of
30    business at any meeting of the  board  of  directors  or  any
31    committee thereof.
 
                            -21-              LRB9207828JSpcA
 1        (215 ILCS 125/3-1) (from Ch. 111 1/2, par. 1407.3)
 2        Sec. 3-1.  Investment Regulations.
 3        (a)  Any  health  maintenance organization may invest its
 4    funds as provided in  this  Section  and  not  otherwise.   A
 5    health   maintenance  organization  that  is  organized as an
 6    insurance company may  also  acquire  the  investment  assets
 7    authorized  for  an  insurance  company  pursuant to the laws
 8    applicable to an  insurance  company  in  the  organization's
 9    state  of  domicile.   Notwithstanding the provisions of this
10    Section, the Director may, after notice and hearing, order an
11    organization to limit or withdraw from  certain  investments,
12    or  discontinue  certain  investment practices, to the extent
13    the  Director  finds  that  such  investments  or  investment
14    practices are hazardous to the  financial  condition  of  the
15    organization.
16        (b)  No investment or loan shall be made or engaged in by
17    any health maintenance organization unless the same have been
18    authorized  or  ratified  by  the  board of directors or by a
19    committee  thereof  charged  with  the  duty  of  supervising
20    investments and loans.  Nothing contained in this  subsection
21    shall prevent the board of directors of any such organization
22    from  depositing  any  of  its  securities  with  a committee
23    appointed for the  purpose  of  protecting  the  interest  of
24    security  holders  or with the authorities of any state where
25    it is necessary to do so in order  to  secure  permission  to
26    transact   its  appropriate  business  therein,  and  nothing
27    contained in this  subsection  shall  prevent  the  board  of
28    directors of such organization from depositing any securities
29    as  collateral  for the securing of any bond required for the
30    business of the organization.
31        (c)  No health maintenance  organization  shall  pay  any
32    commission  or brokerage for the purchase or sale of property
33    whether real  or  personal,  in  excess  of  that  usual  and
34    customary  at  the  time  and  in  the  locality  where  such
 
                            -22-              LRB9207828JSpcA
 1    purchases  or  sales  are  made,  and  information  regarding
 2    payments of commissions and brokerage shall be maintained.
 3        (d)  A  health  maintenance organization may not directly
 4    or indirectly, unless it has notified the Director in writing
 5    of its intention to enter into the transaction  at  least  30
 6    days prior thereto, or any shorter period as the Director may
 7    permit,  and  the Director has not disapproved it within that
 8    period:
 9             (1)  make a  loan  to  or  other  investment  in  an
10        officer  or  director  of the organization or a person in
11        which the officer or director has any direct or  indirect
12        financial interest;
13             (2)  make a guarantee for the benefit of or in favor
14        of an officer or director of the organization or a person
15        in  which  the  officer  or  director  has  any direct or
16        indirect financial interest; or
17             (3)  enter into an agreement  for  the  purchase  or
18        sale of property from or to an officer or director of the
19        organization or a person in which the officer or director
20        has any direct or indirect financial interest.
21        For  the purposes of this Section, an officer or director
22    shall not be deemed to have a financial interest by reason of
23    an interest that is held directly or indirectly  through  the
24    ownership  of  equity  interests representing less than 2% of
25    all outstanding equity interests issued by a person that is a
26    party to  the  transaction,  or  solely  by  reason  of  that
27    individual's  position  as  a director or officer of a person
28    that is a party to the transaction.
29        This subsection does not apply to a  transaction  between
30    an  organization  and  any  of its subsidiaries or affiliates
31    that is entered into in compliance with  Section  131.20a  of
32    the Illinois Insurance Code, other than a transaction between
33    an insurer and its officer or director.
34        No  such  Health Maintenance Organization shall knowingly
 
                            -23-              LRB9207828JSpcA
 1    invest in or loan upon any property, directly or  indirectly,
 2    whether real or personal, in which any officer or director of
 3    such  organization  has  a  financial interest, nor shall any
 4    such organization make a loan of any kind to any  officer  or
 5    director  of  such  organization, except that this subsection
 6    shall not apply in circumstances where the financial interest
 7    of such officer or director is only nominal, trifling  or  so
 8    remote as not to give rise to a conflict of interest.  In any
 9    case,  the  Director  may  approve a transaction between such
10    organization  and  its  officers  or  directors  under   this
11    subsection  if  he  is  satisfied that (i) the transaction is
12    entered into in good faith for the advantage and  benefit  of
13    the  organization, (ii) the amount of the proposed investment
14    or loan does not violate any other provision of this  Section
15    nor  exceed  the  reasonable, normal value of the property or
16    the interest which the organization proposes to acquire,  and
17    that  the  transaction  is otherwise fair and reasonable, and
18    (iii) the transaction  will  not  adversely  affect,  to  any
19    substantial  degree,  the  liquidity  of  the  organization's
20    investment   or   its   ability  thereafter  to  comply  with
21    requirements of this Act or the payment  of  its  claims  and
22    obligations.
23        (e)  In  applying  the  percentage limitations imposed by
24    this Section there shall be used as a base the total  of  all
25    assets which would be admitted by this Section without regard
26    to  percentage limitations.  All legal measurements used as a
27    base in the determination of  all  investment  qualifications
28    shall  consist  of  the amounts determined at the most recent
29    year end adjusted for subsequent acquisition and  disposition
30    of investments.
31        (f)  Valuation  of  investments.   Investments  shall  be
32    valued  in  accordance with the published valuation standards
33    of  the  National  Association  of  Insurance  Commissioners.
34    Securities investments as to which the  National  Association
 
                            -24-              LRB9207828JSpcA
 1    of   Insurance  Commissioners  has  not  published  valuation
 2    standards in its  Valuations  of  Securities  manual  or  its
 3    successor publication shall be valued as follows:
 4        (1)  All  obligations having a fixed term and rate shall,
 5    if not in default as to principal or interest, be  valued  as
 6    follows:  if purchased at par, at the par value; if purchased
 7    above or below par,  on  the  basis  of  the  purchase  price
 8    adjusted  so  as to bring the value to par at maturity and so
 9    as to yield in the meantime the effective rate of interest at
10    which the purchase was made;
11        (2)  Common, preferred  or  guaranteed  stocks  shall  be
12    valued at market value.
13        (3)  Other   security  investments  shall  be  valued  in
14    accordance  with  regulations  promulgated  by  the  Director
15    pursuant to paragraph (6) of this subsection.
16        (4)  Other investments, including real property, shall be
17    valued in accordance  with  regulations  promulgated  by  the
18    Director pursuant to paragraph (6) of this subsection, but in
19    no  event shall such other investments be valued at more than
20    the purchase price.  The purchase  price  for  real  property
21    includes    capitalized    permanent    improvements,    less
22    depreciation  spread evenly over the life of the property or,
23    at the option of the company, less depreciation  computed  on
24    any  basis  permitted  under  the  Internal  Revenue Code and
25    regulations thereunder.   Such  investments  that  have  been
26    affected  by  permanent  declines in value shall be valued at
27    not more than market value.
28        (5)  Any  investment,  including   real   property,   not
29    purchased by the Health Maintenance Organization but acquired
30    in  satisfaction  of  a  debt or otherwise shall be valued in
31    accordance with the applicable procedures for  that  type  of
32    investment  contained  in  this  subsection.  For purposes of
33    applying the valuation procedures, the purchase  price  shall
34    be  deemed  to be the market value at the time the investment
 
                            -25-              LRB9207828JSpcA
 1    is acquired or, in the case of  any  investment  acquired  in
 2    satisfaction  of  debt,  the  amount  of  the debt, including
 3    interest, taxes and expenses, whichever amount is less.
 4        (6)  The Director shall promulgate rules and  regulations
 5    for   determining  and  calculating  values  to  be  used  in
 6    financial  statements  submitted  to   the   Department   for
 7    investments.
 8        (g)  Definitions.   As  used  in this Section, unless the
 9    context otherwise requires.
10        (1)  "Business Corporation" means corporations  organized
11    for other than not for profit purposes.
12        (2)  "Business  Entity"  includes  sole  proprietorships,
13    corporations, associations, partnerships and business trusts.
14        (3)  "Bank  or  Trust  Company"  means  any bank or trust
15    company organized under the laws of the United States or  any
16    State  thereof  if  said  bank  or trust company is regularly
17    examined pursuant to such laws and said bank or trust company
18    has the insurance protection afforded by  an  agency  of  the
19    United States government.
20        (4)  "Capital"  means  capital stock paid-up, if any, and
21    its use in a provision  does  not  imply  that  a  non-profit
22    Health  Maintenance Organization without stated capital stock
23    is excluded from the  provision.   The  capital  of  such  an
24    organization will be zero.
25        (5)  "Direct"  when  used in connection with "obligation"
26    means that the designated obligor shall be  primarily  liable
27    on the instrument representing the obligation.
28        (6)  "Facility"  means  and  includes real estate and any
29    and all forms of tangible personal property and services used
30    constituting an operating unit.
31        (7)  "Guaranteed or insured" means that the guarantor  or
32    insurer  will perform or insure the obligation of the obligor
33    or will purchase the obligation to the extent of the guaranty
34    or insurance.
 
                            -26-              LRB9207828JSpcA
 1        (8)  "Mortgage" shall include a trust deed or other  lien
 2    on  real  property  securing an obligation for the payment of
 3    money.
 4        (9)  "Servicer"  means  a  business  entity  that  has  a
 5    contractual obligation to service a pool of  mortgage  loans.
 6    The  service  provided  shall include, but is not limited to,
 7    collection of principal and interest,  keeping  the  accounts
 8    current,  maintaining or confirming in force hazard insurance
 9    and tax status and providing supportive accounting services.
10        (10)  "Single credit risk" means the  direct,  guaranteed
11    or  insured  obligations of any one business entity including
12    affiliates thereof.
13        (11)  "Surplus" means the amount properly shown as  total
14    net  worth  on  a company's balance sheet, plus all voluntary
15    reserves, but not including capital paid-up.
16        (12)  "Tangible net worth" means the  par  value  of  all
17    issued  and outstanding capital stock of a corporation (or in
18    the case of shares having no par value, the stated value) and
19    the amounts of all surplus accounts less the sum of (a)  such
20    intangible  assets  as  deferred  charges,  organization  and
21    development   expense,   discount  and  expense  incurred  in
22    securing capital, good  will,  trade-marks,  trade-names  and
23    patents,  (b)  leasehold  improvements,  and (c) any reserves
24    carried by the corporation and not  otherwise  deducted  from
25    assets.
26        (13)  "Unconditional"   when   used  in  connection  with
27    "obligation" means that nothing remains  to  be  done  or  to
28    occur   to   make   the  designated  obligor  liable  on  the
29    instrument, and that the legal holder shall have  the  status
30    at least equal to that of general creditor of the obligor.
31        (h)  Authorized   investments.   Any  Health  Maintenance
32    Organization, except those organized as an insurance company,
33    may acquire the assets set forth in paragraphs 1 through  17,
34    inclusive.    A   Health  Maintenance  Organization  that  is
 
                            -27-              LRB9207828JSpcA
 1    organized as an insurance company may acquire the  investment
 2    assets  authorized  for  an insurance company pursuant to the
 3    laws applicable to an insurance company in the organization's
 4    state of domicile.  Any restriction, exclusion  or  provision
 5    appearing  in  any paragraph shall apply only with respect to
 6    the authorization of the particular  paragraph  in  which  it
 7    appears  and  shall  not constitute a general prohibition and
 8    shall  not  be  applicable  to  any  other  paragraph.    The
 9    qualifications  or  disqualifications  of an investment under
10    one paragraph shall not prevent its qualification in whole or
11    in part under another paragraph, and an investment authorized
12    by more than  one  paragraph  may  be  held  under  whichever
13    authorizing paragraph the organization elects.  An investment
14    which  qualified  under  any  paragraph  at  the  time it was
15    acquired or entered into by an organization shall continue to
16    be qualified under that paragraph.  An investment in whole or
17    in part may be transferred from time to time, at the election
18    of the organization, to the authority of any paragraph  under
19    which  it qualifies, whether originally qualifying thereunder
20    or not.
21        (1)  Direct obligations of  the  United  States  for  the
22    payment  of money, or obligations for the payment of money to
23    the extent  guaranteed  or  insured  as  to  the  payment  of
24    principal and interest by the United States.
25        (2)  Direct  obligations for the payment of money, issued
26    by an agency or instrumentality  of  the  United  States,  or
27    obligations for the payment of money to the extent guaranteed
28    or  insured as to the payment of principal and interest by an
29    agency or instrumentality of the United States.
30        (3)  Direct, general obligations  of  any  state  of  the
31    United  States  for  the payment of money, or obligations for
32    the payment of money to the extent guaranteed or  insured  as
33    to  the payment of principal and interest by any state of the
34    United States, on the following conditions:
 
                            -28-              LRB9207828JSpcA
 1        (i)  Such state has the  power  to  levy  taxes  for  the
 2    prompt   payment  of  the  principal  and  interest  of  such
 3    obligations; and
 4        (ii)  Such state shall not be in default in  the  payment
 5    of  principal or interest on any of its direct, guaranteed or
 6    insured obligations at the date of such investment.
 7        (4)  Direct,  general  obligations   of   any   political
 8    subdivision of any state of the United States for the payment
 9    of  money,  or  obligations  for  the payment of money to the
10    extent guaranteed as to the payment of principal and interest
11    by any political subdivision  of  any  state  of  the  United
12    States, on the following conditions:
13        (i)  The  obligations  are  payable or guaranteed from ad
14    valorem taxes;
15        (ii)  Such political subdivision is not in default in the
16    payment of principal or interest on  any  of  its  direct  or
17    guaranteed obligations;
18        (iii)  No  investment  shall be made under this paragraph
19    in obligations which are secured only by special  assessments
20    for local improvements; and
21        (iv)  An   organization   shall  not  invest  under  this
22    paragraph more than 2% of its admitted assets in  obligations
23    issued or guaranteed by any one such political subdivision.
24        (5)  Anticipation    obligations    of    any   political
25    subdivision of any state of the United States, including  but
26    not  limited  to  bond  anticipation  notes, tax anticipation
27    notes and construction anticipation notes, for the payment of
28    money within 12 months from the issuance of  the  obligation,
29    on the following conditions:
30        (i)  Such  anticipation notes must be a direct obligation
31    of the issuer under conditions set forth in paragraph 4;
32        (ii)  Such political subdivision is not in default in the
33    payment of the principal or interest on  any  of  its  direct
34    general  obligations  or  any  obligation  guaranteed by such
 
                            -29-              LRB9207828JSpcA
 1    political subdivision;
 2        (iii)  The anticipated funds must be specifically pledged
 3    to secure the obligation;
 4        (iv)  An  organization  shall  not  invest   under   this
 5    paragraph  more  than  2%  of  its  admitted  assets  in  the
 6    anticipation  obligations  issued  by  any one such political
 7    subdivision.
 8        (6)  Obligations of any state of  the  United  States,  a
 9    political subdivision thereof, or a public instrumentality of
10    any  one  or more of the foregoing, for the payment of money,
11    on the following conditions:
12        (i)  The  obligations  are  payable  from   revenues   or
13    earnings  of  a  public  utility  of  such  state,  political
14    subdivision, or public instrumentality which are specifically
15    pledged therefor;
16        (ii)  The  law  under  which  the  obligations are issued
17    requires  such  rates  for  service  shall  be  charged   and
18    collected  at  all  times  that  they will produce sufficient
19    revenue or earnings  together  with  any  other  revenues  or
20    moneys  pledged  to pay all operating and maintenance charges
21    of the public utility and all principal and interest on  such
22    obligations;
23        (iii)  No  prior  or  parity obligations payable from the
24    revenues or earnings of that public utility are in default at
25    the date of such investment;
26        (iv)  An organization shall not invest more than  20%  of
27    its admitted assets under this paragraph; and
28        (v)  An  organization shall not invest under this Section
29    more  than  2%  of  its  admitted  assets  in   the   revenue
30    obligations issued in connection with any one facility.
31        (7)  Obligations  of  any  state  of the United States, a
32    political subdivision thereof, or a public instrumentality of
33    any of the foregoing,  for  the  payment  of  money,  on  the
34    following conditions:
 
                            -30-              LRB9207828JSpcA
 1        (i)  The   obligations   are  payable  from  revenues  or
 2    earnings,  excluding  revenues  or   earnings   from   public
 3    utilities,  specifically  pledged  therefor  by  such  state,
 4    political subdivision or public instrumentality;
 5        (ii)  No  prior  or  parity obligation of the same issuer
 6    payable from revenues or earnings from the  same  source  has
 7    been  in  default  as  to  principal or interest during the 5
 8    years next preceding the date of such  investment,  but  such
 9    issuer  need  not have been in existence for that period, and
10    obligations  acquired  under  this  paragraph  may  be  newly
11    issued;
12        (iii)  An organization shall not invest in excess of  20%
13    of its admitted assets under this paragraph; and
14        (iv)  An   organization   shall  not  invest  under  this
15    paragraph more than 2% of its admitted assets in the  revenue
16    obligations issued in connection with any one facility;
17        (v)  An   organization   shall   not  invest  under  this
18    paragraph more than 2% of  its  admitted  assets  in  revenue
19    obligations payable from revenue or earning sources which are
20    the contractual responsibility of any one single credit risk.
21        (8)  Direct,   unconditional  obligations  of  a  solvent
22    business corporation for  the  payment  of  money,  including
23    obligations to pay rent for equipment used in its business or
24    obligations for the payment of money to the extent guaranteed
25    or insured as to the payment of principal and interest by any
26    solvent business corporation, on the following conditions:
27        (i)  The corporation shall be incorporated under the laws
28    of the United States or any state of the United States;
29        (ii)  The  corporation  shall  have tangible net worth of
30    not less than $1,000,000;
31        (iii)  No such obligation, guarantee or insurance of  the
32    corporation  has  been in default as to principal or interest
33    during the 5 years preceding the date of investment, but  the
34    corporation  need  not  have  had  obligations  guarantees or
 
                            -31-              LRB9207828JSpcA
 1    insurance outstanding during that period and  need  not  have
 2    been  in  existence for that period, and obligations acquired
 3    under this paragraph may be newly issued;
 4        (iv)  An organization shall not invest more  than  2%  of
 5    its  admitted  assets  in  obligations  issued, guaranteed or
 6    insured by any one such corporation;
 7        (v)  An organization may invest under this  paragraph  up
 8    to  an  additional  2%  of its admitted assets in obligations
 9    which (i) are issued, guaranteed or insured  by  any  one  or
10    more  such  corporations, each having a tangible net worth of
11    not less than $25,000,000 and (ii) mature  within  12  months
12    from the date of acquisition;
13        (vi)  An  organization may invest not more than 1/2 of 1%
14    of its admitted assets in such  obligations  of  corporations
15    which  do not meet the condition of subparagraph (ii) of this
16    paragraph; and
17        (vii)  An organization shall not invest more than 75%  of
18    its admitted assets under this paragraph.
19        (9)  Direct, unconditional obligations for the payment of
20    money  issued  or obligations for the payment of money to the
21    extent guaranteed as to principal and interest by  a  solvent
22    not for profit corporation, on the following conditions:
23        (i)  The corporation shall be incorporated under the laws
24    of the United States or of any state of the United States;
25        (ii)  The corporation shall have been in existence for at
26    least 5 years and shall have assets of at least $2,000,000;
27        (iii)  Revenues  or other income from such assets and the
28    services or commodities dispensed by the corporation shall be
29    pledged for the payment of the obligations or guarantees;
30        (iv)  No such obligation or guarantee of the  corporation
31    has  been in default as to principal or interest during the 5
32    years next preceding the date of  such  investment,  but  the
33    corporation  need  not  have  had  obligations  or guarantees
34    outstanding during that  period  and  obligations  which  are
 
                            -32-              LRB9207828JSpcA
 1    acquired under this paragraph may be newly issued;
 2        (v)  An  organization  shall  not invest more than 15% of
 3    its admitted assets under this paragraph; and
 4        (vi)  An  organization  shall  not  invest   under   this
 5    paragraph  more  than  2%  of  its  admitted  assets  in  the
 6    obligations issued or guaranteed by any one such corporation.
 7        (10)  Direct, unconditional nondemand obligations for the
 8    payment  of  money  issued  by a solvent bank, mutual savings
 9    bank or trust company on the following conditions:
10        (i)  The bank, mutual savings bank or trust company shall
11    be incorporated under the laws of the United  States,  or  of
12    any state of the United States;
13        (ii)  The  bank,  mutual  savings  bank  or trust company
14    shall have tangible net worth of not less than $1,000,000;
15        (iii)  Such obligations must be of  the  type  which  are
16    insured  by an agency of the United States or have a maturity
17    of no more than 1 day;
18        (iv)  An  organization  shall  not  invest   under   this
19    paragraph  more  than the amount which is fully insured by an
20    agency of the United States plus 2% of its admitted assets in
21    nondemand  obligations  issued  by  any  one  such  financial
22    institution; and
23        (v)  An organization may invest under this  paragraph  up
24    to  an  additional  8%  of  its  admitted assets in nondemand
25    obligations which (1) are issued by any  such  banks,  mutual
26    savings  banks or trust companies, each having a tangible net
27    worth of not less than $25,000,000 and (2) mature  within  12
28    months from the date of acquisition.
29        (11)  Preferred or guaranteed stocks issued or guaranteed
30    by a solvent business corporation incorporated under the laws
31    of  the  United  States or any state of the United States, on
32    the following conditions:
33        (i)  The corporation shall have tangible net worth of not
34    less than $1,000,000;
 
                            -33-              LRB9207828JSpcA
 1        (ii)  If such  stocks  have  been  outstanding  prior  to
 2    purchase,   an  organization  shall  not  invest  under  this
 3    paragraph in such stock if prescribed current  or  cumulative
 4    dividends are in arrears;
 5        (iii)  An organization shall not invest more than 33 1/3%
 6    of   its   admitted   assets  under  this  paragraph  and  an
 7    organization shall not invest more than 15% of  its  admitted
 8    assets  under  this paragraph in stocks which, at the time of
 9    purchase, are not Sinking Fund Stocks.  An issue of preferred
10    or guaranteed stock shall be a Sinking Fund  Stock  when  (1)
11    such  issue  is  subject  to a 100% mandatory sinking fund or
12    similar arrangement which will provide for the redemption  of
13    the  entire issue over a period not longer than 40 years from
14    the date of  purchase;  (2)  annual  mandatory  sinking  fund
15    installments  on  each  issue commence not more than 10 years
16    from the date of issue; and  (3)  each  annual  sinking  fund
17    installment  provides  for  the  purchase or redemption of at
18    least 2 1/2% of the original number of shares of such  issue;
19    and
20        (iv)  An   organization   shall  not  invest  under  this
21    paragraph  more  than  2%  of  its  admitted  assets  in  the
22    preferred or guaranteed stocks of any one such corporation.
23        (12)  Common  stock  issued  by  any   solvent   business
24    corporation incorporated under the laws of the United States,
25    or  of  any  state  of  the  United  States, on the following
26    conditions:
27        (i)  The issuing corporation must have tangible net worth
28    of $1,000,000 or more;
29        (ii)  An organization may not invest more than an  amount
30    equal to its net worth under this paragraph; and
31        (iii)  An   organization   may   not  invest  under  this
32    paragraph an amount equal to more than 10% of its  net  worth
33    in the common stock of any one corporation.
34        (13)  Shares  of  common  stock  or  units  of beneficial
 
                            -34-              LRB9207828JSpcA
 1    interest issued by any solvent business corporation or  trust
 2    incorporated  or  organized  under  the  laws  of  the United
 3    States, or  of  any  state  of  the  United  States,  on  the
 4    following conditions:
 5        (i)  If the issuing corporation or trust is advised by an
 6    investment  advisor which is the organization or an affiliate
 7    of the organization, the issuing corporation or  trust  shall
 8    have  net  assets  of  $100,000  or  more,  or if the issuing
 9    corporation or trust has an unaffiliated investment  advisor,
10    the  issuing  corporation  or  trust shall have net assets of
11    $10,000,000 or more;
12        (ii)  The issuing corporation or trust is  registered  as
13    an  investment  company  with  the  Securities  and  Exchange
14    Commission  under  the  Investment  Company  Act  of 1940, as
15    amended;
16        (iii)  An  organization  shall  not  invest  under   this
17    paragraph  more  than  the  greater of $100,000 or 10% of its
18    admitted assets in any one bond fund, municipal bond fund  or
19    money market fund;
20        (iv)  An   organization   shall  not  invest  under  this
21    paragraph more than 10% of its net worth in  any  one  common
22    stock fund, balanced fund or income fund;
23        (v)  An  organization  shall  not invest more than 50% of
24    its admitted assets in bond funds, municipal bond  funds  and
25    money market funds under this paragraph; and
26        (vi)  An   organization's  investments  in  common  stock
27    funds, balanced funds or income funds when combined with  its
28    investments  in common stocks made under paragraph (12) shall
29    not exceed the aggregate limitation provided by  subparagraph
30    (ii) of paragraph (12).
31        (14)  Shares of, or accounts or deposits with savings and
32    loan  associations  or building and loan associations, on the
33    following conditions:
34        (i)  The shares, accounts, or deposits, or investments in
 
                            -35-              LRB9207828JSpcA
 1    any form legally issuable shall be of a withdrawable type and
 2    issued by an association which has the  insurance  protection
 3    afforded   by   the   Federal   Savings  and  Loan  Insurance
 4    Corporation;  but  nonwithdrawable  accounts  which  are  not
 5    eligible for  insurance  by  the  Federal  Savings  and  Loan
 6    Insurance  Corporation  shall  not be eligible for investment
 7    under this paragraph;
 8        (ii)  The association shall have tangible  net  worth  of
 9    not less than $1,000,000;
10        (iii)  The  investment  shall be in the name of and owned
11    by  the  organization,  unless  the  account   is   under   a
12    trusteeship with the organization named as the beneficiary;
13        (iv)  An  organization  shall not invest more than 50% of
14    its admitted assets under this paragraph; and
15        (v)  Under this  paragraph,  an  organization  shall  not
16    invest  in any one such association an amount in excess of 2%
17    of its admitted assets or an amount which is fully insured by
18    the Federal Savings and Loan Insurance Corporation, whichever
19    is greater.
20        (15)  Direct, unconditional obligations for  the  payment
21    of  money  secured  by  the pledge of any investment which is
22    authorized  by  any  of  the  preceding  paragraphs,  on  the
23    following conditions:
24        (i)  The investment pledged shall by its terms be legally
25    assignable and shall be validly assigned to the organization;
26        (ii)  The investment pledged shall  have  a  fair  market
27    value  which is at least 25% greater than the amount invested
28    under this paragraph, except that a loan may be  made  up  to
29    100%  of  the full fair market value of collateral that would
30    qualify as an investment  under  paragraph  (1)  provided  it
31    qualifies under condition (i) of this paragraph; and
32        (iii)  An  organization's investment under this paragraph
33    when  added  to  its  investment  of  the  category  of   the
34    collateral  pledged  shall  not  cause  the sum to exceed the
 
                            -36-              LRB9207828JSpcA
 1    limits provided by the paragraph authorizing that category of
 2    investments.
 3        (16)  Real  estate  (including  leasehold   estates   and
 4    leasehold  improvements)  for the convenient accommodation of
 5    the  organization's  business  operations,   including   home
 6    office,  branch  office,  medical facilities and field office
 7    operations, on the following conditions:
 8        (i)  Any  parcel  of  real  estate  acquired  under  this
 9    paragraph may include excess space for rent to others, if  it
10    is  reasonably  anticipated that such excess will be required
11    by the  organization  for  expansion  or  if  the  excess  is
12    reasonably  required  in  order to have one or more buildings
13    that will function as an economic unit;
14        (ii)  Such real estate may be subject to a mortgage; and
15        (iii)  The greater of the admitted value of the asset  as
16    determined  by  subsection  (f)  or the organization's equity
17    plus all encumbrances on such real estate owned by a  company
18    under  this  paragraph  shall  not exceed 20% of its admitted
19    assets, except with the permission  of  the  Director  if  he
20    finds   that  such  percentage  of  its  admitted  assets  is
21    insufficient to  provide  convenient  accommodation  for  the
22    company's  business;  provided, however, an organization that
23    directly provides medical services may invest  an  additional
24    20% of its admitted assets in such real estate, not requiring
25    the permission of the Director.
26        (17)  Any  investments  of  any  kind,  in  the  complete
27    discretion   of  the  organization,  without  regard  to  any
28    condition of, restriction in, or  exclusion  from  paragraphs
29    (1) to (16), inclusive, and regardless of whether the same or
30    a  similar type of investment has been included in or omitted
31    from any such paragraph, on the following condition:
32        (a)  An  organization  shall  not   invest   under   this
33    paragraph  more  than  the  lesser of (i) 10% of its admitted
34    assets, or (ii) 50% of the amount  by  which  its  net  worth
 
                            -37-              LRB9207828JSpcA
 1    exceeds  the minimum requirements of a new health maintenance
 2    organization to qualify for a certificate of authority.
 3    (Source: P.A. 90-655, eff. 7-30-98.)

 4        Section 99.  Effective date.  This Act takes effect  upon
 5    becoming law.

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