Public Act 90-0794 of the 90th General Assembly
Public Act 90-0794
SB1728 Enrolled LRB9011450JSmg
AN ACT concerning the regulation of insurers, amending
named Acts.
Be it enacted by the People of the State of Illinois,
represented in the General Assembly:
Section 5. The Illinois Insurance Code is amended by
changing Sections 35A-5, 35A-20, 35A-35, 86, 98, 102, 103,
107.06a, 107.26, 111, 121-2.08, 123C-1, 126.2, 143, 144, and
445 and adding Section 445a as follows:
(215 ILCS 5/35A-5)
Sec. 35A-5. Definitions. As used in this Article, the
terms listed in this Section have the meaning given herein.
"Adjusted RBC Report" means an RBC Report that has been
adjusted by the Director in accordance with subsection (e) of
Section 35A-10.
"Authorized control level RBC" means the number
determined under the risk-based capital formula in accordance
with the RBC Instructions.
"Company action level RBC" means the product of 2.0 and
the insurer's authorized control level RBC.
"Corrective Order" means an order issued by the Director
in accordance with Article XII 1/2 specifying corrective
actions that the Director determines are required.
"Domestic insurer" means any insurance company domiciled
in this State under Article II, Article III, Article III 1/2,
or Article IV.
"Foreign insurer" means any foreign or alien insurance
company licensed under Article VI that is not domiciled in
this State.
"Life, health, or life and health insurer" means an
insurance company that has authority to transact the kinds of
insurance described in either or both clause (a) or clause
(b) of Class 1 of Section 4 or a licensed property and
casualty insurer writing only accident and health insurance.
"Mandatory control level RBC" means the product of 0.70
and the insurer's authorized control level RBC.
"NAIC" means the National Association of Insurance
Commissioners.
"Negative trend" means, with respect to a life, health,
or life and health insurer, a negative trend over a period of
time, as determined in accordance with the trend test
calculation included in the RBC Instructions.
"Property and casualty insurer" means an insurance
company that has authority to transact the kinds of insurance
in either or both Class 2 or Class 3 of Section 4 or a
licensed insurer writing only insurance authorized under
clause (c) of Class 1, but does not include monoline mortgage
guaranty insurers, financial guaranty insurers, and title
insurers.
"RBC" means risk-based capital.
"RBC Instructions" means the RBC Report including
risk-based capital instructions adopted by the NAIC as those
instructions may be amended by the NAIC from time to time in
accordance with the procedures adopted by the NAIC.
"RBC level" means an insurer's company action level RBC,
regulatory action level RBC, authorized control level RBC, or
mandatory control level RBC.
"RBC Plan" means a comprehensive financial plan
containing the elements specified in subsection (b) of
Section 35A-15.
"RBC Report" means the risk-based capital report required
under Section 35A-10.
"Receivership" means conservation, rehabilitation, or
liquidation under Article XIII.
"Regulatory action level RBC" means the product of 1.5
and the insurer's authorized control level RBC.
"Revised RBC Plan" means an RBC Plan rejected by the
Director and revised by the insurer with or without the
Director's recommendations.
"Total adjusted capital" means the sum of (1) an
insurer's statutory capital and surplus and (2) any other
items that the RBC Instructions may provide.
(Source: P.A. 88-364; 89-97, eff. 7-7-95.)
(215 ILCS 5/35A-20)
Sec. 35A-20. Regulatory action level event.
(a) A regulatory action level event means any of the
following events:
(1) The filing of an RBC Report by the insurer that
indicates that the insurer's total adjusted capital is
greater than or equal to its authorized control level
RBC, but less than its regulatory action level RBC.
(2) The notification by the Director to an insurer
of an Adjusted RBC Report that indicates the event
described in paragraph (1), provided the insurer does not
challenge the Adjusted RBC Report under Section 35A-35.
(3) The notification by the Director to the insurer
that the Director has, after a hearing, rejected the
insurer's challenge under Section 35A-35 to an Adjusted
RBC Report that indicates the event described in
paragraph (1).
(4) The failure of the insurer to file an RBC
Report by the filing date, unless the insurer has
provided an explanation for the failure that is
satisfactory to the Director and has cured the failure
within 10 days after the filing date.
(5) The failure of the insurer to submit an RBC
Plan to the Director within the time period set forth in
subsection (c) of Section 35A-15.
(6) The notification by the Director to the insurer
that the insurer's RBC Plan or revised RBC Plan is, in
the judgment of the Director, unsatisfactory and that the
notification constitutes a regulatory action level event
with respect to the insurer, provided the insurer does
not challenge the determination under Section 35A-35.
(7) The notification by the Director to the insurer
that the Director has, after a hearing, rejected the
insurer's challenge under Section 35A-35 to the
determination made by the Director under paragraph (6).
(8) The notification by the Director to the insurer
that the insurer has failed to adhere to its RBC Plan or
Revised RBC Plan, but only if that failure has a
substantial adverse effect on the ability of the insurer
to eliminate the company action level event in accordance
with its RBC Plan or Revised RBC Plan and the Director
has so stated in the notification, provided the insurer
does not challenge the determination under Section
35A-35.
(9) The notification by the Director to the insurer
that the Director has, after a hearing, rejected the
insurer's challenge under Section 35A-35 to the
determination made by the Director under paragraph (8).
(b) In the event of a regulatory action level event, the
Director shall do all of the following:
(1) Require the insurer to prepare and submit an
RBC Plan or, if applicable, a Revised RBC Plan to the
Director within 45 days after the regulatory action level
event occurs or within 45 days after the Director
notifies the insurer that the Director has, after a
hearing, rejected its challenge under Section 35A-35 to
either an Adjusted RBC Report or a Revised RBC Plan.
However, if the insurer previously prepared and submitted
an RBC Plan or a Revised RBC Plan in accordance with any
provision of this Article, the Director may determine
that the previously prepared RBC Plan or Revised RBC Plan
satisfies the requirement of this subsection (b)(1).
(2) Perform any examination or analysis of the
assets, liabilities, and operations of the insurer,
including a review of its RBC Plan or Revised RBC Plan,
that the Director deems necessary.
(3) After the examination or analysis, issue a
Corrective Order specifying the corrective actions the
Director determines are required.
(c) In determining corrective actions, the Director may
take into account any factors the Director deems relevant
based upon the examination or analysis of the assets,
liabilities, and operations of the insurer including, but not
limited to, the results of any sensitivity tests undertaken
under the RBC Instructions. The regulatory action level event
shall be deemed sufficient grounds for the Director to issue
a Corrective Order in accordance with Article XII 1/2. The
Director shall have rights, powers, and duties with respect
to the insurer that are set forth in Article XII 1/2 and the
insurer shall be entitled to the protections afforded
insurers under Article XII 1/2. The insurer shall submit the
RBC Plan to the Director within 45 days after the regulatory
action level event occurs or within 45 days after the
Director notifies the insurer that the Director has, after a
hearing, rejected its challenge under Section 35A-35 to
either an Adjusted RBC Report or a Revised RBC Plan.
(d) The Director may retain actuaries, investment
experts, and other consultants necessary to review an
insurer's RBC Plan or Revised RBC Plan, examine or analyze
the assets, liabilities, and operations of the insurer, and
formulate the Corrective Order with respect to the insurer.
The fees, costs, and expenses related to the actuaries,
investment experts, and other consultants shall be borne by
the affected insurer or the party designated by the Director.
(Source: P.A. 88-364; 89-97, eff. 7-7-95.)
(215 ILCS 5/35A-35)
Sec. 35A-35. Hearings.
(a) An insurer has the right to an administrative
hearing with respect to any of the following:
(1) The notification by the Director to the insurer
of an Adjusted RBC Report.
(2) The notification by the Director to the insurer
that the insurer's RBC Plan or Revised RBC Plan is
unsatisfactory and that the notification constitutes a
regulatory action level event.
(3) The notification by the Director to the insurer
that the insurer has failed to adhere to its RBC Plan or
Revised RBC Plan and that the failure has a substantial
adverse effect on the ability of the insurer to eliminate
the company action level event in accordance with its RBC
Plan or Revised RBC Plan.
(4) The notification by the Director to the insurer
of a Corrective Order.
(b) At the administrative hearing, the insurer may
challenge any determination or action by the Director. The
insurer shall notify the Director of its request for a
hearing within 5 days after notification by the Director made
under subsection (a). Upon receipt of the insurer's request
for a hearing, the Director shall set a date for the hearing.
The hearing shall be held no fewer than 10 days and no more
than 30 days after the date of the insurer's request for the
hearing.
(Source: P.A. 88-364.)
(215 ILCS 5/86) (from Ch. 73, par. 698)
Sec. 86. Scope of Article.
(1) This Article applies to all groups including
incorporated and individual unincorporated underwriters
transacting an insurance business in this State through an
attorney-in-fact under the name Lloyds or under a Lloyds plan
of operation. Groups that meet the requirements of
subsection (3) are referred to in this Code as "Lloyds", and
incorporated and individual unincorporated underwriters are
referred to as "underwriters".
(2) As used in this Code "Domestic Lloyds" means a
Lloyds having its home office in this State; "Foreign Lloyds"
means a Lloyds having its home office in any state of the
United States other than this State; and "Alien Lloyds" means
a Lloyds having its home office or principal place of
business in any country other than the United States.
(3) A domestic Lloyds must: (i) be established pursuant
to a statute or written charter; (ii) provide for governance
by a board of directors or similar body; and (iii) establish
and monitor standards of solvency of its underwriters. A
foreign or alien Lloyds must be subject to requirements of
its state or country of domicile. Those requirements must be
substantially similar to those required of domestic Lloyds.
Domestic, foreign, and alien Lloyd's shall not be subject to
Section 144 of this Code.
(Source: P.A. 88-535.)
(215 ILCS 5/98) (from Ch. 73, par. 710)
Sec. 98. Verified statement Maximum single risk.
(1) The net maximum amount of insurance to be assumed by
an underwriter of a domestic Lloyds upon any single risk for
each kind of insurance shall not exceed ten per centum of the
value of the cash and securities deposited in trust by such
underwriter plus the share of admitted assets other than
underwriters' deposits of such Lloyds belonging to such
underwriter less the share of liabilities and reserves of
such Lloyds allocable to such underwriter, but in no event
shall it exceed ten per centum of the value of the cash or
securities deposited in trust by such underwriter.
(2) Whenever the Director shall so require, the
attorney-in-fact of a domestic Lloyds shall file with the
Director a verified statement setting forth
(a) the names and addresses of all underwriters;
and
(b) a description of the cash and securities
deposited in trust by each underwriter.;
(c) the maximum amount of insurance assumed by each
underwriter upon any single risk for each kind of
insurance; and
(d) That the maximum amount of insurance assumed or
made upon any single risk for each kind of insurance by
any underwriter does not exceed the limitation set forth
in subsection (1) of this section.
(Source: P.A. 88-535.)
(215 ILCS 5/102) (from Ch. 73, par. 714)
Sec. 102. Restrictions upon foreign Lloyds.
(1) Each foreign Lloyds authorized to transact business
in this State shall
(a) maintain cash and securities, including the deposits
of its underwriters, of a character conformable to the
requirements of Article VIII of this Code for domestic
companies, at least equal at all times to the minimum
admitted assets required by this Article for a domestic
Lloyds doing the same kind or kinds of business.
(b) file with the Director an authenticated copy of its
power of attorney and an authenticated copy of the trust
agreement or other agreement under which deposits made by
underwriters are held;
(c) notify the Director forthwith of any amendment to
its power of attorney, deposit agreement or other documents
underlying its organization, by filing with the Director an
authenticated copy of such document as amended;
(d) notify the Director forthwith of any change in its
name or change of attorney-in-fact or change of address of
its attorney-in-fact.
(2) A foreign Lloyds shall not establish branches under
other or different names or titles.
(3) Each such foreign Lloyds shall be subject to all
limitation of risk provisions imposed by this Article upon
domestic Lloyds.
(3)(4) There shall be filed with the Director by the
attorney-in-fact of such foreign Lloyds at the time of filing
the annual statement, or more often if required by the
Director, a statement verified by the appropriate official of
such Lloyds, setting forth
(a) the names and addresses of all underwriters of such
Lloyds; and
(b) a description of the cash and securities deposited
in trust by each underwriter.;
(c) the maximum amount of insurance assumed by each
underwriter upon any single risk for each kind of insurance;
and
(d) that the maximum amount of insurance assumed upon
any single risk for each kind of insurance by any underwriter
does not exceed the limitation provided in this article for
individual underwriters of a domestic Lloyds.
(Source: Laws 1959, p. 1431.)
(215 ILCS 5/103) (from Ch. 73, par. 715)
Sec. 103. Alien Lloyds.
(1) Each alien Lloyds authorized to transact business in
this State shall
(a) maintain in this State or any other state of the
United States in which they are authorized to transact
business, cash or securities of a character conformable to
the requirements of Article VIII of this Code for domestic
companies at least equal at all times to the minimum of
admitted assets required by this Article for a domestic
Lloyds doing the same kind or kinds of business;
(b) make deposits of underwriters in this State in
accordance with the requirements imposed upon domestic
Lloyds;
(c) file with the Director an authenticated copy of its
power of attorney and an authenticated copy of the trust
agreement or other agreement under which deposits made by
underwriters in this State are held;
(d) notify the Director forthwith of any amendment to
its power of attorney, deposit agreement or other documents
by filing with the Director an authenticated copy of such
document as amended; and
(e) notify the Director forthwith of any change in its
name or change of attorney-in-fact or change of address of
its attorney-in-fact.
(2) An alien Lloyds shall not establish branches under
other or different names or titles.
(3) Each such alien Lloyds shall be subject to all
limitation of risk provisions imposed by this Article upon
domestic Lloyds.
(3)(4) There shall be filed with the Director by the
attorney-in-fact for such Lloyds, who or which shall be a
resident person or corporation of this State, at the time of
filing the annual statement, or more often if required by the
Director, a verified statement setting forth
(a) the names and addresses of all underwriters of such
Lloyds; and
(b) a description of the cash and securities deposited
in trust by each underwriter.;
(c) the maximum amount of insurance assumed by each
underwriter upon any single risk for each kind of insurance;
and
(d) that the maximum amount of insurance assumed upon
any single risk for each kind of insurance by any
underwriters does not exceed 10% of such underwriter's
deposit.
(4)(5) Additional underwriters may join and be included
in any such Lloyds subject to such conditions and
requirements as may from time to time be imposed by such
Lloyds and upon meeting the requirements of this section,
such additional underwriters who may so join such Lloyds
shall be bound by the documents on file with the Director in
the same manner as though they had personally executed the
same and shall have the same rights, powers and duties as all
other underwriters of such Lloyds. The attorney-in-fact
authorized by the underwriters to act for them shall
thereafter be the attorney-in-fact for such additional
underwriters to the extent of the power of attorney or other
document or authorization by such underwriters to the
attorney-in-fact.
(Source: Laws 1959, p. 1431.)
(215 ILCS 5/107.06a) (from Ch. 73, par. 719.06a)
Sec. 107.06a. Organization under Illinois Insurance
Code.
(a) After December 31, 1997, a syndicate or limited
syndicate, except for a limited syndicate formed as a
partnership, may only be organized pursuant to Sections 7, 8,
10, 11, 12, 14, 14.1 (other than subsection (d) thereof), 15
(other than subsection (d) thereof), 18, 19, 20, 21, 22, 23,
25, 27.1, 28, 28.1, 28.2, 29, 30, 31, 32, 32.1, 33, and 35.1
and Article X of this Code, to carry on the business of a
syndicate, or limited syndicate under Article V-1/2 of this
Code; provided that such syndicate or limited syndicate is
admitted to the Illinois Insurance Exchange.
(b) After December 31, 1997, syndicates and limited
syndicates are subject to the following:
(1) Articles I, IIA, VIII, VIII 1/2, X, XI, XII,
XII 1/2, XIII, XIII 1/2, XXIV, XXV (Sections 408 and 412
only), and XXVIII (except for Sections 445, 445.1, 445.2,
445.3, 445.4, and 445.5) of this Code;
(2) Subsections (2) and (3) of Section 155.04 and
Sections 13, 132.1 through 140, 141a, 144, 155.01,
155.03, 378, 379.1, 393.1, 395, and 396 of this Code;
(3) the Reinsurance Intermediary Act; and
(4) the Producer Controlled Insurer Act.
(c) No other provision of this Insurance Code shall be
applicable to any such syndicate or limited syndicate except
as provided in this Article V-1/2.
(Source: P.A. 89-97, eff. 7-7-95; 90-499, eff. 8-19-97.)
(215 ILCS 5/107.26) (from Ch. 73, par. 719.26)
Sec. 107.26. Illinois Insurance Exchange Immediate
Access Security Association.
(a) There is created a non-profit corporation which
shall be known as the Illinois Insurance Exchange Immediate
Access Security Association and which shall be incorporated
under the General Not for Profit Corporation Act. All
syndicates shall be members of the Association as a condition
of their authority to transact business on the Exchange. The
Association shall be exempt from payment of all fees and all
taxes levied by this State or any of its subdivisions.
(b) In the event of the entry of an Order of
Rehabilitation, Conservation, or Liquidation against a
syndicate pursuant to Section 107.08, the Association shall
establish a claims date, which shall be not later than one
year after the date of such Order, by which time all persons
having claims arising out of insurance obligations of the
syndicate must file their claim with the Association. The
Association shall give notice to all policyholders and other
persons who may have a claim against the syndicate as shown
by the syndicate's records. Such notice shall include the
date of the Order, the claims date established by the
Association and the procedure and form for filing a claim
with the Association. Within 60 days after the claims date,
The Association shall determine the syndicate's insurance
obligations liability based on all claims filed on or before
the claims date. The Association shall then pay all claims
for which an insurance obligation a liability exists from the
assets of the syndicate's trust or custodial account and
certificates of guaranty. In the event those assets are
insufficient to pay all claims in full, the Association shall
make payment pursuant to a plan approved by the court
entering the Order of Rehabilitation, Conservation, or
Liquidation. The Rehabilitator, Conservator, or Liquidator
shall be bound by any settlement made by the Association. Any
person not receiving full reimbursement for his claim from
the Association shall have a claim against the assets being
administered by the Rehabilitator, Conservator, or Liquidator
for the remaining amounts. In settling claims and subject to
limitations in this Section, the Association shall have the
same rights and duties of the insolvent syndicate as if the
syndicate had not become insolvent.
(c) The Association may delegate to such other person or
entity as it deems appropriate the performance of any duty
imposed on it by this Section.
(Source: P.A. 89-97, eff. 7-7-95; 89-206, eff. 7-21-95;
89-626, eff. 8-9-96.)
(215 ILCS 5/111) (from Ch. 73, par. 723)
Sec. 111. Conditions of issuance of certificate of
authority.
(1) Before a certificate of authority to transact
business in this State is issued to a foreign or alien
company, such company shall satisfy the Director that:
(a) the company is duly organized under the laws of
the state or country under whose laws it professes to be
organized and authorized to do the business it is
transacting or proposes to transact;
(b) its name is not the same as, or deceptively
similar to, the name of any domestic company, or of any
foreign or alien company authorized to transact business
in this State;
(c) if a company transacting business of the kind
or kinds enumerated in Class 1 of Section 4, it is not
engaging in practices in any state which if engaged in
this State, would constitute a violation of Section 237;
and it is not transacting any kinds of business other
than those enumerated in Class 1 of Section 4;
(d) if a stock company, it has a paid up capital
and surplus at least equal to the capital and original
surplus required by this Code for a domestic company
doing the same kind or kinds of business or, if a mutual
company or reciprocal, it has a surplus and provision for
contingent liability of policyholders, at least equal to
the original surplus and provision for contingent
liability of policyholders required for a similar
domestic company doing the same kind or kinds of
business, or, if a fraternal benefit society, it meets
the requirements prescribed in this Code for the
organization of a domestic company or society, or if a
Lloyds it meets the requirements of Article V;
(e) its funds are invested in accordance with the
laws of its domicile; and
(f) in the case of a stock company its minimum
capital and surplus and required reserves, or in the case
of a mutual company or a reciprocal proposing to issue
policies without contingent liability, its minimum
surplus and required reserves, or in the case of any
other company, all its funds, are invested in securities
or property which afford a degree of financial security
equal to that required for similar domestic companies,
provided that this clause shall not be construed as
requiring the application of limitations relating either
to the kind or amount of securities prescribed by this
Code for the investments of domestic companies.
(2) In determining whether an alien company complies
with the provisions of subsection (1) of this section the
Director shall consider only business transacted in the
United States, only the assets described in Section 60j and
only liabilities in connection with its United States
business.
(3) Before a certificate of authority is issued to a
foreign or alien company, other than a Lloyds, it shall
deposit with the Director securities which are authorized
investments for similar domestic companies under Section
126.11A(1), 126.11A(2), 126.24A(1), or 126.24A(2) of the
amount, if any, required of a domestic company similarly
organized and doing the same kind or kinds of business; or in
lieu of such deposit such foreign or alien company shall
satisfy the Director that it has on deposit with an official
of a state of the United States or a depositary designated or
authorized for such purpose by such official, authorized by
the law of such state to accept such deposit, securities of
at least a like amount, for the benefit and security of all
creditors, policyholders and policy obligations of such
company in the United States.
(4) Before issuing a certificate of authority to a
foreign or alien company, the Director may cause an
examination to be made of the condition and affairs of such
company.
(Source: P.A. 90-418, eff. 8-15-97.)
(215 ILCS 5/121-2.08) (from Ch. 73, par. 733-2.08)
Sec. 121-2.08. Transactions in this State involving
contracts of insurance issued to one or more industrial
insureds. For purposes of this Section "industrial insured"
is an insured:
(a) which procures the insurance of any risk or risks
other than life and annuity contracts by use of the services
of a full time employee acting as an insurance manager or
buyer or the services of a regularly and continuously
retained qualified insurance consultant;
(b) whose aggregate annual premiums for insurance on all
risks, except for life and accident and health insurance,
total at least $100,000 $50,000; and
(c) which either (i) has at least 25 full time
employees, (ii) has gross assets in excess of $3,000,000, or
(iii) has annual gross revenues in excess of $5,000,000.
(Source: P.A. 85-131.)
(215 ILCS 5/123C-1) (from Ch. 73, par. 735C-1)
Sec. 123C-1. Definitions. As used in this Article:
A. "Affiliate" or "Affiliated company" shall have the
meaning set forth in subsection (a) of Section 131.1 (and,
for purposes of such definition, the definitions of "control"
and "person", as set forth in subsections (b) and (e) of
Section 131.1, respectively, shall be applicable).
B. "Association" means any entity meeting the
requirements set forth in either of the following paragraphs
(1), (2) or (3):
(1) any organized association of individuals, legal
representatives, corporations (whether for profit or not
for profit), partnerships, trusts, associations, units of
government or other organizations, or any combination of
the foregoing, that has been in continuous existence for
at least one year, the member organizations of which
collectively:
(a) own, control, or hold with power to vote
(directly or indirectly) all of the outstanding
voting securities of an association captive
insurance company incorporated as a stock insurer;
or
(b) have complete voting control (directly or
indirectly) over an association captive insurance
company organized as a mutual insurer;
(2) any organized association of individuals, legal
representatives, corporations (whether for profit or not
for profit), partnerships, trusts, associations, units of
government or other organizations, or any combination of
the foregoing:
(a) whose member organizations are engaged in
businesses or activities similar or related with
respect to the liability of which such members are
exposed by virtue of any related, similar, or common
business, trade, product, services, premises, or
operations; and
(b) whose member organizations:
(i) directly or indirectly own or
control, and hold with power to vote, at least
80% of all of the outstanding voting securities
of an association captive insurance company
incorporated as a stock insurer; or
(ii) directly or indirectly have at least
80% of the voting control over an association
captive insurance company organized as a mutual
insurer; or
(3) any risk retention group, as defined in
subsection (11) of Section 123B-2, domiciled in this
State and organized under this Article; however,
beginning 6 months after the effective date of this
amendatory Act of 1995, a risk retention group shall no
longer qualify as an association under this Article.
Provided, however, that with respect to each of the
associations described in paragraphs (1), (2) and (3) above,
no member organization may (i) own, control, or hold with
power to vote in excess of 25% of the voting securities of an
association captive insurance company incorporated as a stock
insurer, or (ii) have more than 25% of the voting control of
an association captive insurance company organized as a
mutual insurer.
C. "Association captive insurance company" means any
company that insures risks of (i) the member organizations of
an association, and (ii) their affiliated companies.
D. "Captive insurance company" means any pure captive
insurance company, association captive insurance company or
industrial insured captive insurance company organized under
the provisions of this Article.
E. "Director" means the Director of the Department of
Insurance.
F. "Industrial insured" means an insured which (together
with its affiliates) at the time of its initial procurement
of insurance from an industrial insured captive insurance
company:
(1) has available to it advice with respect to the
purchase of insurance through the use of the services of
a full-time employee acting as an insurance manager or
buyer or the services of a regularly and continuously
retained qualified insurance consultant; and
(2) pays aggregate annual premiums in excess of
$100,000 $35,000 for insurance on all risks except
for life, accident and health; and
(3) either (i) has at least 25 full-time employees,
or (ii) has gross assets in excess of $3,000,000, or
(iii) has annual gross revenues in excess of $5,000,000.
G. "Industrial insured captive insurance company" means
any company that insures risks of industrial insureds that
are members of the industrial insured group, and their
affiliated companies.
H. "Industrial insured group" means any group of
industrial insureds that collectively:
(1) directly or indirectly (including ownership or
control through a company which is wholly owned by such
group of industrial insureds) own or control, and hold
with power to vote, all of the outstanding voting
securities of an industrial insured captive insurance
company incorporated as a stock insurer; or
(2) directly or indirectly (including control
through a company which is wholly owned by such group of
industrial insureds) have complete voting control over an
industrial insured captive insurance company organized as
a mutual insurer; provided, however, that no member
organization may (i) own, control, or hold with power to
vote in excess of 25% of the voting securities of an
industrial insured captive insurance company incorporated
as a stock insurer, or (ii) have more than 25% of the
voting control of an industrial insured captive insurance
company organized as a mutual insurer.
I. "Member organization" means any individual, legal
representative, corporation (whether for profit or not for
profit), partnership, association, unit of government, trust
or other organization that belongs to an association or an
industrial insured group.
J. "Parent" means a corporation, partnership, individual
or other legal entity that directly or indirectly owns,
controls, or holds with power to vote more than 50% of the
outstanding voting securities of a company.
K. "Personal risk liability" means liability to other
persons for (i) damage because of injury to any person, (ii)
damage to property, or (iii) other loss or damage, in each
case resulting from any personal, familial, or household
responsibilities or activities, but does not include legal
liability for damages (including costs of defense, legal
costs and fees, and other claims expenses) because of
injuries to other persons, damage to their property, or other
damage or loss to such other persons resulting from or
arising out of:
(i) any business (whether for profit or not for
profit), trade, product, services (including professional
services), premises, or operations; or
(ii) any activity of any state or local government,
or any agency or political subdivision thereof.
L. "Pure captive insurance company" means any company
that insures only risks of its parent or affiliated companies
or both.
M. "Unit of government" includes any state, regional or
local government, or any agency or political subdivision
thereof, or any district, authority, public educational
institution or school district, public corporation or other
unit of government in this State or any similar unit of
government in any other state.
(Source: P.A. 89-97, eff. 7-7-95.)
(215 ILCS 5/126.2)
Sec. 126.2. Definitions. For purposes of this Article:
A. "Acceptable collateral" means:
(1) As to securities lending transactions, and for
the purpose of calculating counterparty exposure amount,
cash, cash equivalents, letters of credit, direct
obligations of, or securities that are fully guaranteed
as to principal and interest by, the government of the
United States or any agency of the United States, or by
the Federal National Mortgage Association or the Federal
Home Loan Mortgage Corporation, and as to lending foreign
securities, sovereign debt rated 1 by the SVO;
(2) As to repurchase transactions, cash, cash
equivalents and direct obligations of, or securities that
are fully guaranteed as to principal and interest by, the
government of the United States or an agency of the
United States, or by the Federal National Mortgage
Association or the Federal Home Loan Mortgage
Corporation; and
(3) As to reverse repurchase transactions, cash and
cash equivalents.
B. "Acceptable private mortgage insurance" means
insurance written by a private insurer protecting a mortgage
lender against loss occasioned by a mortgage loan default and
issued by a licensed mortgage insurance company, with an SVO
1 designation or a rating issued by a nationally recognized
statistical rating organization equivalent to an SVO 1
designation, that covers losses to an 80% loan-to-value
ratio.
C. "Accident and health insurance" means protection
which provides payment of benefits for covered sickness or
accidental injury, excluding credit insurance, disability
insurance, accidental death and dismemberment insurance and
long-term care insurance.
D. "Accident and health insurer" means a licensed life
or health insurer or health service corporation whose
insurance premiums and required statutory reserves for
accident and health insurance constitute at least 95% of
total premium considerations or total statutory required
reserves, respectively.
E. "Admitted assets" means assets defined by Section 3.1
of this Code permitted to be reported as admitted assets on
the statutory financial statement of the insurer most
recently required to be filed with the Director, but
excluding assets of separate accounts, the investments of
which are not subject to the provisions of this Article
except to the extent that the provisions of Article XIV 1/2
so provide.
F. "Affiliate" means, as to any person, another person
that, directly or indirectly through one or more
intermediaries, controls, is controlled by, or is under
common control with the person.
G. "Asset-backed security" means a security or other
instrument, excluding shares in a mutual fund, evidencing an
interest in, or the right to receive payments from, or
payable from distributions on, an asset, a pool of assets or
specifically divisible cash flows which are legally
transferred to a trust or another special purpose
bankruptcy-remote business entity, on the following
conditions:
(1) The trust or other business entity is
established solely for the purpose of acquiring specific
types of assets or rights to cash flows, issuing
securities and other instruments representing an interest
in or right to receive cash flows from those assets or
rights, and engaging in activities required to service
the assets or rights and any credit enhancement or
support features held by the trust or other business
entity; and
(2) The assets of the trust or other business
entity consist solely of interest bearing obligations or
other contractual obligations representing the right to
receive payment from the cash flows from the assets or
rights. However, the existence of credit enhancements,
such as letters of credit or guarantees, or support
features such as swap agreements, shall not cause a
security or other instrument to be ineligible as an
asset-backed security.
H. "Business entity" includes a sole proprietorship,
corporation, limited liability company, association,
partnership, joint stock company, joint venture, mutual fund,
trust, joint tenancy or other similar form of business
organization, whether organized for profit or not for profit.
I. "Cap" means an agreement obligating the seller to
make payments to the buyer, with each payment based on the
amount by which a reference price or level or the performance
or value of one or more underlying interests exceeds a
predetermined number, sometimes called the strike rate or
strike price.
J. "Capital and surplus" means the sum of the capital
and surplus of the insurer required to be shown on the
statutory financial statement of the insurer most recently
required to be filed with the Director.
K. "Cash equivalents" means short-term, highly rated and
highly liquid investments or securities readily convertible
to known amounts of cash without penalty and so near maturity
that they present insignificant risk of change in value. Cash
equivalents include government money market mutual funds and
class one money market mutual funds. For purposes of this
definition:
(1) "Short-term" means investments with a remaining
term to maturity of 90 days or less; and
(2) "Highly rated" means an investment rated "P-1"
by Moody's Investors Service, Inc., or "A-1" by Standard
and Poor's division of The McGraw Hill Companies, Inc. or
its equivalent rating by a nationally recognized
statistical rating organization recognized by the SVO.
L. "Class one bond mutual fund" means a mutual fund that
at all times qualifies for investment using the bond class
one reserve factor under the Purposes and Procedures of the
Securities Valuation Office or any successor publication.
M. "Class one money market mutual fund" means a money
market mutual fund that at all times qualifies for investment
using the bond class one reserve factor under the Purposes
and Procedures of the Securities Valuation Office or any
successor publication.
N. "Code" means the Illinois Insurance Code.
O. "Collar" means an agreement to receive payments as
the buyer of an option, cap or floor and to make payments as
the seller of a different option, cap or floor.
P. "Commercial mortgage loan" means a mortgage loan,
other than a residential mortgage loan.
Q. "Construction loan" means a loan of less than 3 years
in term, made for financing the cost of construction of a
building or other improvement to real estate, that is secured
by the real estate.
R. "Control" means the possession, directly or
indirectly, of the power to direct or cause the direction of
the management and policies of a person, whether through the
ownership of voting securities, by contract (other than a
commercial contract for goods or nonmanagement services), or
otherwise, unless the power is the result of an official
position with or corporate office held by the person. Control
shall be presumed to exist if a person, directly or
indirectly, owns, controls, holds with the power to vote or
holds proxies representing 10% or more of the voting
securities of another person. This presumption may be
rebutted by a showing that control does not exist in fact.
The Director may determine, after furnishing all interested
persons notice and an opportunity to be heard and making
specific findings of fact to support the determination, that
control exists in fact, notwithstanding the absence of a
presumption to that effect.
S. "Counterparty exposure amount" means:
(1) The amount of credit risk attributable to a
derivative instrument entered into with a business entity
other than through a qualified exchange, qualified
foreign exchange, or cleared through a qualified
clearinghouse ("over-the-counter derivative instrument").
The amount of credit risk equals:
(a) The market value of the over-the-counter
derivative instrument if the liquidation of the
derivative instrument would result in a final cash
payment to the insurer; or
(b) Zero if the liquidation of the derivative
instrument would not result in a final cash payment
to the insurer.
(2) If over-the-counter derivative instruments are
entered into under a written master agreement which
provides for netting of payments owed by the respective
parties, and the domicile of the counterparty is either
within the United States or if not within the United
States, within a foreign jurisdiction listed in the
Purposes and Procedures of the Securities Valuation
Office as eligible for netting, the net amount of credit
risk shall be the greater of zero or the net sum of:
(a) The market value of the over-the-counter
derivative instruments entered into under the
agreement, the liquidation of which would result in
a final cash payment to the insurer; and
(b) The market value of the over-the-counter
derivative instruments entered into under the
agreement, the liquidation of which would result in
a final cash payment by the insurer to the business
entity.
(3) For open transactions, market value shall be
determined at the end of the most recent quarter of the
insurer's fiscal year and shall be reduced by the market
value of acceptable collateral held by the insurer or
placed in escrow by one or both parties.
T. "Covered" means that an insurer owns or can
immediately acquire, through the exercise of options,
warrants or conversion rights already owned, the underlying
interest in order to fulfill or secure its obligations under
a call option, cap or floor it has written, or has set aside,
pursuant to a custodial or escrow agreement, cash or cash
equivalents with a market value equal to the amount required
to fulfill its obligations under a put option it has written,
in an income generation transaction.
U. "Credit tenant loan" means a mortgage loan which is
made primarily in reliance on the credit standing of a major
tenant, structured with an assignment of the rental payments
to the lender with real estate pledged as collateral in the
form of a first lien.
V. (1) "Derivative instrument" means an agreement,
option, instrument or a series or combination thereof:
(a) To make or take delivery of, or assume or
relinquish, a specified amount of one or more
underlying interests, or to make a cash settlement
in lieu thereof; or
(b) That has a price, performance, value or
cash flow based primarily upon the actual or
expected price, level, performance, value or cash
flow of one or more underlying interests.
(2) Derivative instruments include options,
warrants used in a hedging transaction and not attached
to another financial instrument, caps, floors, collars,
swaps, forwards, futures and any other agreements,
options or instruments substantially similar thereto or
any series or combination thereof and any agreements,
options or instruments permitted under rules adopted
under Section 126.8. Derivative instruments shall not
include an investment authorized by Sections 126.11
through 126.17, 126.19 and 126.24 through 126.30.
W. "Derivative transaction" means a transaction
involving the use of one or more derivative instruments.
X. "Direct" or "directly," when used in connection with
an obligation, means the designated obligor is primarily
liable on the instrument representing the obligation.
Y. "Dollar roll transaction" means 2 simultaneous
transactions with settlement dates no more than 96 days
apart, so that in one transaction an insurer sells to a
business entity, and in the other transaction the insurer is
obligated to purchase from the same business entity,
substantially similar securities of the following types:
(1) Asset-backed securities issued, assumed or
guaranteed by the Government National Mortgage
Association, the Federal National Mortgage Association or
the Federal Home Loan Mortgage Corporation or their
respective successors; and
(2) Other asset-backed securities referred to in
Section 106 of Title I of the Secondary Mortgage Market
Enhancement Act of 1984 (15 U.S.C. 77r1), as amended.
Z. "Domestic jurisdiction" means the United States,
Canada, any state, any province of Canada or any political
subdivision of any of the foregoing.
AA. "Equity interest" means any of the following that
are not rated credit instruments: common stock; preferred
stock; trust certificate; equity investment in an investment
company other than a money market mutual fund or a class one
bond mutual fund; investment in a common trust fund of a bank
regulated by a federal or state agency; an ownership interest
in minerals, oil or gas, the rights to which have been
separated from the underlying fee interest in the real estate
where the minerals, oil or gas are located; instruments which
are mandatorily, or at the option of the issuer, convertible
to equity; limited partnership interests and those general
partnership interests authorized under Section 126.5(D);
member interests in limited liability companies; warrants or
other rights to acquire equity interests that are created by
the person that owns or would issue the equity to be
acquired; or instruments that would be rated credit
instruments except for the provisions of subsection RRR(2) of
this Section.
BB. "Equivalent securities" means:
(1) In a securities lending transaction, securities
that are identical to the loaned securities in all
features including the amount of the loaned securities,
except as to certificate number if held in physical form,
but if any different security shall be exchanged for a
loaned security by recapitalization, merger,
consolidation or other corporate action, the different
security shall be deemed to be the loaned security;
(2) In a repurchase transaction, securities that
are identical to the purchased securities in all features
including the amount of the purchased securities, except
as to the certificate number if held in physical form; or
(3) In a reverse repurchase transaction, securities
that are identical to the sold securities in all features
including the amount of the sold securities, except as to
the certificate number if held in physical form.
CC. "Floor" means an agreement obligating the seller to
make payments to the buyer in which each payment is based on
the amount by which a predetermined number, sometimes called
the floor rate or price, exceeds a reference price, a level,
or the performance or value of one or more underlying
interests.
DD. "Foreign currency" means a currency other than that
of a domestic jurisdiction.
EE. (1) "Foreign investment" means an investment in a
foreign jurisdiction, or an investment in a person, real
estate or asset domiciled in a foreign jurisdiction, that
is substantially of the same type as those eligible for
investment under this Article, other than under Sections
126.17 and 126.30. An investment shall not be deemed to
be foreign if the issuing person, qualified primary
credit source or qualified guarantor is a domestic
jurisdiction or a person domiciled in a domestic
jurisdiction, unless:
(a) The issuing person is a shell business
entity; and
(b) The investment is not assumed, accepted,
guaranteed, or insured or otherwise backed by a
domestic jurisdiction or a person, that is not a
shell business entity, domiciled in a domestic
jurisdiction.
(2) For purposes of this definition:
(a) "Shell business entity" means a business
entity having no economic substance, except as a
vehicle for owning interests in assets issued, owned
or previously owned by a person domiciled in a
foreign jurisdiction;
(b) "Qualified guarantor" means a guarantor
against which an insurer has a direct claim for full
and timely payment, evidenced by a contractual right
for which an enforcement action can be brought in a
domestic jurisdiction; and
(c) "Qualified primary credit source" means
the credit source to which an insurer looks for
payment as to an investment and against which an
insurer has a direct claim for full and timely
payment, evidenced by a contractual right for which
an enforcement action can be brought in a domestic
jurisdiction.
FF. "Foreign jurisdiction" means a jurisdiction other
than a domestic jurisdiction.
GG. "Forward" means an agreement (other than a future)
to make or take delivery of, or effect a cash settlement
based on the actual or expected price, level, performance or
value of, one or more underlying interests.
HH. "Future" means an agreement, traded on a qualified
exchange or qualified foreign exchange, to make or take
delivery of, or effect a cash settlement based on the actual
or expected price, level, performance or value of, one or
more underlying interests and includes an insurance future.
II. "Government money market mutual fund" means a money
market mutual fund that at all times:
(1) Invests only in obligations issued, guaranteed,
or insured by the federal government of the United States
or collateralized repurchase agreements composed of these
obligations; and
(2) Qualifies for investment without a reserve
under the Purposes and Procedures of the Securities
Valuation Office or any successor publication.
JJ. "Government sponsored enterprise" means a:
(1) Governmental agency; or
(2) Corporation, limited liability company,
association, partnership, joint stock company, joint
venture, trust or other entity or instrumentality
organized under the laws of any domestic jurisdiction to
accomplish a public policy or other governmental purpose.
KK. "Guaranteed or insured," when used in connection
with an obligation acquired under this Article, means the
guarantor or insurer has agreed to:
(1) Perform or insure the obligation of the obligor
or purchase the obligation; or
(2) Be unconditionally obligated until the
obligation is repaid to maintain in the obligor a minimum
net worth, fixed charge coverage, stockholders' equity or
sufficient liquidity to enable the obligor to pay the
obligation in full.
LL. "Hedging transaction" means:
(1) A derivative transaction that is entered into
and maintained to reduce:
(a) the risk of a change in the value, yield,
price, cash flow, or quantity of assets or
liabilities that the insurer has acquired or
incurred or anticipates acquiring or incurring; or
(b) the currency exchange rate risk or the
degree of exposure as to assets or liabilities that
the insurer has acquired or incurred or anticipates
acquiring or incurring; or
(2) Such other derivative transactions as may be
specified to constitute hedging transactions in rules
adopted pursuant to Section 126.8.
MM. "High grade investment" means a rated credit
instrument; rated 1, 2, P1, P2, PSF1 or PSF2 by the SVO.
NN. "Income" means, as to a security, interest, accrual
of discount, dividends or other distributions, such as
rights, tax or assessment credits, warrants and distributions
in kind.
OO. "Income generation transaction" means (1) a
derivative transaction involving the writing of covered call
options, covered put options, covered caps or covered floors
that is intended to generate income or enhance return, or (2)
such other derivative transactions as may be specified to
constitute income generation transactions in rules adopted
pursuant to Section 126.8.
PP. "Initial margin" means the amount of cash,
securities or other consideration initially required to be
deposited to establish a futures position.
QQ. "Insurance future" means a future relating to an
index or pool that is based on insurance-related items.
RR. "Insurance futures option" means an option on an
insurance future.
SS. "Investment company" means an investment company as
defined in Section 3(a) of the Investment Company Act of 1940
(15 U.S.C. 80a-1 et seq.), as amended, and a person
described in Section 3(c) of that Act.
TT. "Investment company series" means an investment
portfolio of an investment company that is organized as a
series company and to which assets of the investment company
have been specifically allocated.
UU. "Investment practices" means transactions of the
types described in Section 126.16, 126.18, 126.29 or 126.31.
VV. "Investment subsidiary" means a subsidiary of an
insurer engaged or organized to engage exclusively in the
ownership and management of assets authorized as investments
for the insurer if such subsidiary agrees to limit its
investment in any asset so that its investments will not
cause the amount of the total investment of the insurer to
exceed any of the investment limitations or avoid any other
provisions of this Article applicable to the insurer. As used
in this subsection, the total investment of the insurer shall
include:
(1) Direct investment by the insurer in an asset;
and
(2) The insurer's proportionate share of an
investment in an asset by an investment subsidiary of the
insurer, which shall be calculated by multiplying the
amount of the subsidiary's investment by the percentage
of the insurer's ownership interest in the subsidiary.
WW. "Investment strategy" means the techniques and
methods used by an insurer to meet its investment objectives,
such as active bond portfolio management, passive bond
portfolio management, interest rate anticipation, growth
investing and value investing.
XX. "Letter of credit" means a clean, irrevocable and
unconditional letter of credit issued or confirmed by, and
payable and presentable at, a financial institution on the
list of financial institutions meeting the standards for
issuing letters of credit under the Purposes and Procedures
of the Securities Valuation Office or any successor
publication. To constitute acceptable collateral for the
purposes of Sections 126.16 and 126.29, a letter of credit
must have an expiration date beyond the term of the subject
transaction.
YY. "Limited liability company" means a business
organization, excluding partnerships and ordinary business
corporations, organized or operating under the laws of the
United States or any state thereof that limits the personal
liability of investors to the equity investment of the
investor in the business entity.
ZZ. "Lower grade investment" means a rated credit
instrument rated 4, 5, 6, P4, P5, P6, PSF4, PSF5, or PSF6 by
the SVO.
AAA. "Market value" means:
(1) As to cash and letters of credit, the amounts
thereof; and
(2) As to a security as of any date, the price for
the security on that date obtained from a generally
recognized source or the most recent quotation from such
a source or, to the extent no generally recognized source
exists, the price for the security as determined in good
faith by the insurer, plus accrued but unpaid income
thereon to the extent not included in the price as of
that date.
BBB. "Medium grade investment" means a rated credit
instrument rated 3, P3, or PSF 3 by the SVO.
CCC. "Money market mutual fund" means a mutual fund that
meets the conditions of 17 Code of Federal Regulations Par.
270.2a-7, under the Investment Company Act of 1940 (15 U.S.C.
80a-1 et seq.), as amended or renumbered.
DDD. "Mortgage loan" means an obligation secured by a
mortgage, deed of trust, trust deed or other consensual lien
on real estate.
EEE. "Multilateral development bank" means an
international development organization of which the United
States is a member.
FFF. "Mutual fund" means an investment company or, in
the case of an investment company that is organized as a
series company, an investment company series, that, in either
case, is registered with the United States Securities and
Exchange Commission under the Investment Company Act of 1940
(15 U.S.C. 80a-1 et seq.), as amended.
GGG. "NAIC" means the National Association of Insurance
Commissioners.
HHH. "Obligation" means a bond, note, debenture, trust
certificate including an equipment trust certificate,
production payment, negotiable bank certificate of deposit,
bankers' acceptance, credit tenant loan, loan secured by
financing net leases and other evidence of indebtedness for
the payment of money (or participations, certificates or
other evidences of an interest in any of the foregoing),
whether constituting a general obligation of the issuer or
payable only out of certain revenues or certain funds pledged
or otherwise dedicated for payment.
III. "Option" means an agreement giving the buyer the
right to buy or receive (a "call option"), sell or deliver (a
"put option"), enter into, extend or terminate or effect a
cash settlement based on the actual or expected price, level,
performance or value of one or more underlying interests and
includes an insurance futures option.
JJJ. "Person" means an individual, a business entity, a
multilateral development bank or a government or quasi
governmental body, such as a political subdivision or a
government sponsored enterprise.
KKK. "Potential exposure" means the amount determined in
accordance with the NAIC Annual Statement Instructions.
LLL. "Preferred stock" means preferred, preference or
guaranteed stock of a business entity authorized to issue the
stock, that has a preference in liquidation over the common
stock of the business entity.
MMM. "Qualified bank" means:
(1) A national bank, state bank or trust company
that at all times is no less than adequately capitalized
as determined by standards adopted by United States
banking regulators and that either is regulated by state
banking laws or is a member of the Federal Reserve
System; or
(2) A bank or trust company incorporated or
organized under the laws of a country other than the
United States that is regulated as a bank or trust
company by that country's government or an agency thereof
and that at all times is no less than adequately
capitalized as determined by the standards adopted by
international banking authorities.
NNN. "Qualified business entity" means a business entity
that is:
(1) An issuer of obligations or preferred stock
that are rated 1 or 2 by the SVO or an issuer of
obligations, preferred stock or derivative instruments
that are rated the equivalent of 1 or 2 by the SVO or by
a nationally recognized statistical rating organization
recognized by the SVO; or
(2) A primary dealer in United States government
securities, recognized by the Federal Reserve Bank of New
York; or.
(3) With respect to securities lending arrangements
under Sections 126.16 and 126.29, an affiliate of an
entity that is a qualified business entity pursuant to
paragraph (1) or (2) of this subsection NNN, whose
arrangement with the insurer is guaranteed by the
affiliated entity that is a qualified business entity
under paragraph (1) or (2).
OOO. "Qualified clearinghouse" means a clearinghouse
for, and subject to the rules of, a qualified exchange or a
qualified foreign exchange, which provides clearing services,
including acting as a counterparty to each of the parties to
a transaction such that the parties no longer have credit
risk as to each other.
PPP. "Qualified exchange" means:
(1) A securities exchange registered as a national
securities exchange, or a securities market regulated
under the Securities Exchange Act of 1934 (15 U.S.C. 78
et seq.), as amended;
(2) A board of trade or commodities exchange
designated as a contract market by the Commodity Futures
Trading Commission or any successor thereof;
(3) Private Offerings, Resales and Trading through
Automated Linkages (PORTAL);
(4) A designated offshore securities market as
defined in Securities Exchange Commission Regulation S,
17 C.F.R. Part 230, as amended; or
(5) A qualified foreign exchange.
QQQ. "Qualified foreign exchange" means a foreign
exchange, board of trade or contract market located outside
the United States, its territories or possessions:
(1) That has received regulatory comparability
relief under Commodity Futures Trading Commission (CFTC)
Rule 30.10 (as set forth in Appendix C to Part 30 of the
CFTC's Regulations, 17 C.F.R. Part 30);
(2) That is, or its members are, subject to the
jurisdiction of a foreign futures authority that has
received regulatory comparability relief under CFTC Rule
30.10 (as set forth in Appendix C to Part 30 of the
CFTC's Regulations, 17 C.F.R. Part 30) as to futures
transactions in the jurisdiction where the exchange,
board of trade or contract market is located; or
(3) Upon which foreign stock index futures
contracts are listed that are the subject of no-action
relief issued by the CFTC's Office of General Counsel,
provided that an exchange, board of trade or contract
market that qualifies as a "qualified foreign exchange"
only under this subsection shall only be a "qualified
foreign exchange" as to foreign stock index futures
contracts that are the subject of no-action relief.
RRR. (1) "Rated credit instrument" means an obligation
or other instrument which gives its holder a contractual
right to receive cash or another rated credit instrument
from another entity, if the instrument:
(a) Is rated or required to be rated by the
SVO;
(b) In the case of an instrument with a
maturity of 397 days or less, is issued, guaranteed,
or insured by an entity that is rated by, or another
instrument of such entity is rated by, the SVO or by
a nationally recognized statistical rating
organization recognized by the SVO;
(c) In the case of an instrument with a
maturity of 90 days or less, the instrument has been
issued, assumed, accepted, guaranteed, or insured by
a qualified bank;
(d) Is a share of a class one bond mutual
fund; or
(e) Is a share of a money market mutual fund.
(2) However, "rated credit instrument" does not
mean:
(a) An instrument that is mandatorily, or at
the option of the issuer, convertible to an equity
interest; or
(b) A security that has a par value and whose
terms provide that the issuer's net obligation to
repay all or part of the security's par value is
determined by reference to the performance of an
equity, a commodity, a foreign currency or an index
of equities, commodities, foreign currencies or
combinations thereof.
SSS. "Real estate" means:
(1) (a) Real property;
(b) Interests in real property, such as
leaseholds, minerals and oil and gas that have not
been separated from the underlying fee interest;
(c) Improvements and fixtures located on or in
real property; and
(d) The seller's equity in a contract
providing for a deed of real estate.
(2) As to a mortgage on a leasehold estate, real
estate shall include the leasehold estate only if it has
an unexpired term (including renewal options exercisable
at the option of the lessee) extending beyond the
scheduled maturity date of the obligation that is secured
by a mortgage on the leasehold estate by a period equal
to at least 20% of the original term of the obligation or
10 years, whichever is greater.
TTT. "Replication transaction" means a derivative
transaction that is intended to replicate the performance of
one or more assets that an insurer is authorized to acquire
under this Article. A derivative transaction that is entered
into as a hedging transaction shall not be considered a
replication transaction.
UUU. "Repurchase transaction" means a transaction in
which an insurer purchases securities from a business entity
that is obligated to repurchase the purchased securities or
equivalent securities from the insurer at a specified price,
either within a specified period of time or upon demand.
VVV. "Required liabilities" means total liabilities
required to be reported on the statutory financial statement
of the insurer most recently required to be filed with the
Director.
WWW. "Residential mortgage loan" means a loan primarily
secured by a mortgage on real estate improved with a one to
four family residence.
XXX. "Reverse repurchase transaction" means a
transaction in which an insurer sells securities to a
business entity and is obligated to repurchase the sold
securities or equivalent securities from the business entity
at a specified price, either within a specified period of
time or upon demand.
YYY. "Secured location" means the contiguous real estate
owned by one person.
ZZZ. "Securities lending transaction" means a
transaction in which securities are loaned by an insurer to a
business entity that is obligated to return the loaned
securities or equivalent securities to the insurer, either
within a specified period of time or upon demand.
AAAA. "Series company" means an investment company that
is organized as a series company, as defined in Rule 18f-2(a)
adopted under the Investment Company Act of 1940 (15 U.S.C.
80a-1 et seq.), as amended.
BBBB. "Sinking fund stock" means preferred stock that:
(1) Is subject to a mandatory sinking fund or
similar arrangement that will provide for the redemption
(or open market purchase) of the entire issue over a
period not longer than 40 years from the date of
acquisition; and
(2) Provides for mandatory sinking fund
installments (or open market purchases) commencing not
more than 10.5 years from the date of issue, with the
sinking fund installments providing for the purchase or
redemption, on a cumulative basis commencing 10 years
from the date of issue, of at least 2.5% per year of the
original number of shares of that issue of preferred
stock.
CCCC. "Special rated credit instrument" means a rated
credit instrument that is:
(1) An instrument that is structured so that, if it
is held until retired by or on behalf of the issuer, its
rate of return, based on its purchase cost and any cash
flow stream possible under the structure of the
transaction, may become negative due to reasons other
than the credit risk associated with the issuer of the
instrument; however, a rated credit instrument shall not
be a special rated credit instrument under this
subsection if it is:
(a) A share in a class one bond mutual fund;
(b) An instrument, other than an asset-backed
security, with payments of par value fixed as to
amount and timing, or callable but in any event
payable only at par or greater, and interest or
dividend cash flows that are based on either a fixed
or variable rate determined by reference to a
specified rate or index;
(c) An instrument, other than an asset-backed
security, that has a par value and is purchased at a
price no greater than 110% of par;
(d) An instrument, including an asset-backed
security, whose rate of return would become negative
only as a result of a prepayment due to casualty,
condemnation or economic obsolescence of collateral
or change of law;
(e) An asset-backed security that relies on
collateral that meets the requirements of
subparagraph (b) of this paragraph, the par value of
which collateral:
(i) Is not permitted to be paid sooner
than one half of the remaining term to maturity
from the date of acquisition;
(ii) Is permitted to be paid prior to
maturity only at a premium sufficient to
provide a yield to maturity for the investment,
considering the amount prepaid and reinvestment
rates at the time of early repayment, at least
equal to the yield to maturity of the initial
investment; or
(iii) Is permitted to be paid prior to
maturity at a premium at least equal to the
yield of a treasury issue of comparable
remaining life; or
(f) An asset-backed security that relies on
cash flows from assets that are not prepayable at
any time at par, but is not otherwise governed by
subparagraph (e) of this paragraph, if the
asset-backed security has a par value reflecting
principal payments to be received if held until
retired by or on behalf of the issuer and is
purchased at a price no greater than 105% of such
par amount.
(2) An asset-backed security that:
(a) Relies on cash flows from assets that are
prepayable at par at any time;
(b) Does not make payments of par that are
fixed as to amount and timing; and
(c) Has a negative rate of return at the time
of acquisition if a prepayment threshold assumption
is used with such prepayment threshold assumption
defined as either:
(i) Two (2) times the prepayment
expectation reported by a recognized, publicly
available source as being the median of
expectations contributed by broker dealers or
other entities, except insurers, engaged in the
business of selling or evaluating such
securities or assets. The prepayment
expectation used in this calculation shall be,
at the insurer's election, the prepayment
expectation for pass-through securities of the
Federal National Mortgage Association, the
Federal Home Loan Mortgage Corporation, the
Government National Mortgage Association, or
for other assets of the same type as the assets
that underlie the asset- backed security, in
either case with a gross weighted average
coupon comparable to the gross weighted average
coupon of the assets that underlie the
asset-backed security; or
(ii) Another prepayment threshold
assumption specified by the Director by rule
promulgated under Section 126.8.
(3) For purposes of subparagraph 2 of this
subsection, if the asset-backed security is purchased in
combination with one or more other asset-backed
securities that are supported by identical underlying
collateral, the insurer may calculate the rate of return
for these specific combined asset-backed securities in
combination. The insurer must maintain documentation
demonstrating that such securities were acquired and are
continuing to be held in combination.
DDDD. "State" means a state, territory or possession of
the United States of America, the District of Columbia or the
Commonwealth of Puerto Rico.
EEEE. "Substantially similar securities" means
securities that meet all criteria for substantially similar
securities specified in the NAIC Accounting Practices and
Procedures Manual, as amended, and in an amount that
constitutes good delivery form as determined from time to
time by the PSA The Bond Market Trade Association.
FFFF. "Subsidiary" means, as to any person, an affiliate
controlled by such person, directly or indirectly through one
or more intermediaries.
GGGG. "SVO" means the Securities Valuation Office of the
NAIC or any successor office established by the NAIC.
HHHH. "Swap" means an agreement to exchange or to net
payments at one or more times based on the actual or expected
price, level, performance or value of one or more underlying
interests.
IIII. "Underlying interest" means the assets,
liabilities, other interests or a combination thereof
underlying a derivative instrument, such as any one or more
securities, currencies, rates, indices, commodities or
derivative instruments.
JJJJ. "Unrestricted surplus" means the amount by which
total admitted assets exceed 125% of the insurer's required
liabilities.
KKKK. "Warrant" means an instrument that gives the
holder the right to purchase an underlying financial
instrument at a given price and time or at a series of prices
and times outlined in the warrant agreement. Warrants may be
issued alone or in connection with the sale of other
securities, for example, as part of a merger or
recapitalization agreement, or to facilitate divestiture of
the securities of another business entity.
(Source: P.A. 90-418, eff. 8-15-97.)
(215 ILCS 5/143) (from Ch. 73, par. 755)
Sec. 143. Policy forms.
(1) Life, accident and health. No company transacting
the kind or kinds of business enumerated in Classes 1 (a), 1
(b) and 2 (a) of Section 4 shall issue or deliver in this
State a policy or certificate of insurance or evidence of
coverage, attach an endorsement or rider thereto, incorporate
by reference bylaws or other matter therein or use an
application blank in this State until the form and content of
such policy, certificate, evidence of coverage, endorsement,
rider, bylaw or other matter incorporated by reference or
application blank has been filed with and approved by the
Director and the appropriate filing fee under Section 408 has
been paid, except that any such endorsement or rider that
unilaterally reduces benefits and is to be attached to a
policy subsequent to the date the policy is issued must be
filed with, reviewed, and formally approved by the Director
prior to the date it is attached to a policy issued or
delivered in this State. It shall be the duty of the
Director to withhold approval of any such policy,
certificate, endorsement, rider, bylaw or other matter
incorporated by reference or application blank filed with him
if it contains provisions which encourage misrepresentation
or are unjust, unfair, inequitable, ambiguous, misleading,
inconsistent, deceptive, contrary to law or to the public
policy of this State, or contains exceptions and conditions
that unreasonably or deceptively affect the risk purported to
be assumed in the general coverage of the policy. In all
cases the Director shall approve or disapprove any such form
within 60 days after submission unless the Director extends
by not more than an additional 30 days the period within
which he shall approve or disapprove any such form by giving
written notice to the insurer of such extension before
expiration of the initial 60 days period. The Director shall
withdraw his approval of a policy, certificate, evidence of
coverage, endorsement, rider, bylaw, or other matter
incorporated by reference or application blank if he
subsequently determines that such policy, certificate,
evidence of coverage, endorsement, rider, bylaw, other
matter, or application blank is misrepresentative, unjust,
unfair, inequitable, ambiguous, misleading, inconsistent,
deceptive, contrary to law or public policy of this State, or
contains exceptions or conditions which unreasonably or
deceptively affect the risk purported to be assumed in the
general coverage of the policy or evidence of coverage.
If a previously approved policy, certificate, evidence of
coverage, endorsement, rider, bylaw or other matter
incorporated by reference or application blank is withdrawn
for use, the Director shall serve upon the company an order
of withdrawal of use, either personally or by mail, and if by
mail, such service shall be completed if such notice be
deposited in the post office, postage prepaid, addressed to
the company's last known address specified in the records of
the Department of Insurance. The order of withdrawal of use
shall take effect 30 days from the date of mailing but shall
be stayed if within the 30-day period a written request for
hearing is filed with the Director. Such hearing shall be
held at such time and place as designated in the order given
by the Director. The hearing may be held either in the City
of Springfield, the City of Chicago or in the county where
the principal business address of the company is located. The
action of the Director in disapproving or withdrawing such
form shall be subject to judicial review under the
Administrative Review Law.
This subsection shall not apply to riders or endorsements
issued or made at the request of the individual policyholder
relating to the manner of distribution of benefits or to the
reservation of rights and benefits under his life insurance
policy.
(2) Casualty, fire, and marine. The Director shall
require the filing of all policy forms issued or delivered by
any company transacting the kind or kinds of business
enumerated in Classes 2 (except Class 2 (a)) and 3 of Section
4. In addition, he may require the filing of any generally
used riders, endorsements, certificates, application blanks,
and other matter incorporated by reference in any such policy
or contract of insurance along with the appropriate filing
fee under Section 408. Companies that are members of an
organization, bureau, or association may have the same filed
for them by the organization, bureau, or association. If the
Director shall find from an examination of any such policy
form, rider, endorsement, certificate, application blank, or
other matter incorporated by reference in any such policy so
filed that it (i) violates any provision of this Code, (ii)
contains inconsistent, ambiguous, or misleading clauses, or
(iii) contains exceptions and conditions that will
unreasonably or deceptively affect the risks that are
purported to be assumed by the policy, he shall order the
company or companies issuing these forms to discontinue their
use. Nothing in this subsection shall require a company
transacting the kind or kinds of business enumerated in
Classes 2 (except Class 2 (a)) and 3 of Section 4 to obtain
approval of these forms before they are issued nor in any way
affect the legality of any policy that has been issued and
found to be in conflict with this subsection, but such
policies shall be subject to the provisions of Section 442.
(3) This Section shall not apply (i) to surety contracts
or fidelity bonds, (ii) to policies issued to an industrial
insured as defined in Section 121-2.08 except for workers'
compensation policies, nor (iii) to riders or endorsements
prepared to meet special, unusual, peculiar, or extraordinary
conditions applying to an individual risk.
(Source: P.A. 87-1090; 88-313.)
(215 ILCS 5/144) (from Ch. 73, par. 756)
Sec. 144. Limitation of risk.
(1) No company authorized to transact any of the kind of
business enumerated in Classes 2 and 3 of Section 4 in this
State may expose itself to any loss on any one risk or hazard
to an amount exceeding 10% of its admitted assets in excess
of its liabilities excluding, in the case of a stock company,
its capital stock liability. No portion of any such risk or
hazard which has been reinsured in a domestic or an approved
foreign or alien company, in accordance with this Code, shall
be included in determining the limitation of risk prescribed
herein.
(2) Any company transacting the kind of business
enumerated in clause (g) of Class 2 of Section 4 may expose
itself to a risk or hazard in excess of the amount prescribed
in subsection (1) if it is protected in excess of that amount
by the following:
(a) The co-suretyship of such a company similarly
authorized; or
(b) By deposit with it in pledge or conveyance to
it in trust for its protection of property; or
(c) By conveyance or mortgage for its protection;
or
(d) In case a suretyship obligation was made on
behalf or on account of a fiduciary holding property in a
trust capacity, by deposit or other disposition of a
portion of the property so held in trust that no future
sale, mortgage, pledge or other disposition can be made
thereof without the consent of such company except by a
judgment or order of a court of competent jurisdiction.
(3) A company designated in subsection (2) may also
execute transportation or warehouse bonds for United States
Internal Revenue taxes to an amount equal to 50% of its
capital and surplus. When the penalty of the suretyship
obligation exceeds the amount of a judgment described therein
as appealed from and thereby secured, or exceeds the amount
of the subject matter in controversy or of the estate in the
custody of the fiduciary for the performance of whose duties
it is conditioned, the bond may be executed if the actual
amount of the judgment or the subject matter in controversy
or estate not subject to supervision or control of the surety
is not in excess of such limitation. When the penalty of the
suretyship obligation executed for the performance of a
contract exceeds the contract price, the latter shall be
taken as the basis for estimating the limit of risk within
the meaning of this Section.
(4) Whenever the ratio of the annual premium volume in
proportion to the policyholder surplus of any company
transacting the kinds of business authorized in Class 2 and
Class 3 of Section 4 when reviewed in conjunction with the
kinds and nature of risks insured, the financial condition of
the company and its ownership including but not limited to
the liquidity of assets, relationship of surplus to
liabilities and adequacy of outstanding loss reserves,
creates a condition such that the further assumption of risks
might be hazardous to policyholders, creditors or the general
public, then the Director may order such company to take one
or more of the following steps:
(a) to reduce the loss exposure by reinsurance;
(b) to reduce the volume of new business being
accepted;
(c) to suspend the writing of new business for a
period not to exceed 3 months;
(d) to increase and maintain the company's surplus
by a contribution to surplus which will raise the surplus
for such a period of time and by such an amount as the
Director may deem necessary and essential; or
(e) to reduce general or acquisition expenses by
specified methods.
(f) (Blank).
(5) The provisions of this Section do not apply to
domestic, foreign, and alien Lloyds.
The company may, within 10 days after receipt of an Order
of the Director under this Section, request that the Director
hold a hearing to determine whether the Order of the Director
should be modified in any way. A request for a hearing by a
company under this Section stays any Order of the Director
entered under this Section until such time as the Director
has entered an Order pursuant to the hearing.
(Source: P.A. 89-97, eff. 7-7-95.)
(215 ILCS 5/445) (from Ch. 73, par. 1057)
Sec. 445. Surplus line.
(1) Surplus line defined; surplus line insurer
unauthorized company requirements. Surplus line insurance is
insurance on an Illinois risk of the kinds specified in
Classes 2 and 3 of Section 4 of this Code procured from an
unauthorized company or a domestic surplus line insurer as
defined in Section 445a after the insurance producer
representing the insured or the surplus line producer is
unable, after diligent effort, to procure said insurance from
companies which are authorized to transact business in this
State other than domestic surplus line insurers as defined in
Section 445a.
Insurance producers may procure surplus line insurance
only if licensed as a surplus line producer under this
Section and may procure that insurance only from an
unauthorized company or from a domestic surplus line insurer
as defined in Section 445a:
(a) that based upon information available to the
surplus line producer has a policyholders surplus of not
less than $15,000,000 determined in accordance with
accounting rules that are applicable to authorized
companies; and
(b) that has standards of solvency and management
that are adequate for the protection of policyholders;
and
(c) where an unauthorized company does not meet the
standards set forth in (a) and (b) above, a surplus line
producer may, if necessary, procure insurance from that
company only if prior written warning of such fact or
condition is given to the insured by the insurance
producer or surplus line producer.
(2) Surplus line producer; license. Any licensed
producer who is a resident of this State may be licensed as a
surplus line producer upon:
(a) passing a written examination. The examination
shall reasonably test the knowledge of the applicant
concerning the surplus line law and the responsibilities
assumed by a surplus line producer thereunder. The
examination provided for by this Section shall be
conducted under rules and regulations prescribed by the
Director. The Director may administer the examination or
may make arrangements, including contracting with an
outside testing service, for administering such
examinations. Any charges assessed by the Director or
the testing service for administering such examinations
shall be paid directly by the individual applicants.
Each applicant required to take an examination shall, at
the time of request for examination, enclose with the
application a non-refundable $10 application fee payable
to the Director plus an examination administration fee.
If the Director administers the examination, the
application fee and examination administration fee shall
be combined and made payable to the Director. If the
Director designates an outside testing service to
administer the examination, the applicant shall make a
separate examination administration fee remittance
payable to the designated testing service for the total
fees the testing service charges for each of the various
services being requested by the applicant. An applicant
who fails to appear for the examination as scheduled, or
appears but fails to pass, shall not be entitled to any
refund, and shall be required to submit a new request for
examination together with all the requisite fees before
being rescheduled for another examination at a later
date;
(b) payment of an annual license fee of $200; and
(c) procurement of the surety bond required in
subsection (4) of this Section.
Each surplus line producer so licensed shall keep a
separate account of the business transacted thereunder which
shall be open at all times to the inspection of the Director
or his representative.
The examination requirement in (a) above shall not apply
to insurance producers who were licensed under the Illinois
surplus line law or individuals designated to act for a
partnership, association or corporation licensed under the
Illinois surplus line law on February 27, 1985.
(3) Taxes and reports.
(a) Surplus line tax and penalty for late payment.
Each surplus line producer shall file with the
Director on or before February 1 and August 1 of each
year a report in the form prescribed by the Director on
all surplus line insurance procured from unauthorized
insurers during the preceding 6 month period ending
December 31 or June 30 respectively, and on the filing of
such report shall pay to the Director for the use and
benefit of the State a sum equal to 3% of the gross
premiums less returned premiums upon all surplus line
insurance procured or cancelled during the preceding 6
months.
Any surplus line producer who fails to pay the full
amount due under this subsection is liable, in addition
to the amount due, for such penalty and interest charges
as are provided for under Section 412 of this Code. The
Director, through the Attorney General, may institute an
action in the name of the People of the State of
Illinois, in any court of competent jurisdiction, for the
recovery of the amount of such taxes and penalties due,
and prosecute the same to final judgment, and take such
steps as are necessary to collect the same.
(b) Fire Marshal Tax.
Each surplus line producer shall file with the
Director on or before March 31 of each year a report in
the form prescribed by the Director on all fire insurance
procured from unauthorized insurers subject to tax under
Section 12 of the Fire Investigation Act and shall pay to
the Director the fire marshal tax required thereunder.
(c) Taxes and fees charged to insured. The taxes
imposed under this subsection and the countersigning fees
charged by the Surplus Line Association of Illinois may
be charged to and collected from surplus line insureds.
(4) Bond. Each surplus line producer, as a condition to
receiving a surplus line producer's license, shall execute
and deliver to the Director a surety bond to the People of
the State in the penal sum of $20,000, with a surety which is
authorized to transact business in this State, conditioned
that the surplus line producer will pay to the Director the
tax, interest and penalties levied under subsection (3) of
this Section.
(5) Submission of documents to Surplus Line Association
of Illinois. Each surplus line producer shall submit every
insurance contract issued under his or her license to the
Surplus Line Association of Illinois for recording and
countersignature. The insurance contracts submitted shall
set forth:
(a) the name of the insured;
(b) the description and location of the insured
property or risk;
(c) the amount insured;
(d) the gross premiums charged or returned;
(e) the name of the unauthorized insurer or
domestic surplus line insurer as defined in Section 445a
from whom coverage has been procured company;
(f) the kind or kinds of insurance procured; and
(g) amount of premium subject to tax required by
Section 12 of the Fire Investigation Act.
Proposals, endorsements and other documents which
are incidental to the insurance but which does not affect
the premium charged are exempted from countersignature.
The submission of insuring contracts to the Surplus
Line Association of Illinois constitutes a certification
by the surplus line producer or by the insurance producer
who presented the risk to the surplus line producer for
placement as a surplus line risk that after diligent
effort the required insurance could not be procured from
companies which are authorized to transact business in
this State other than domestic surplus line insurers as
defined in Section 445a and that such procurement was
otherwise in accordance with the surplus line law.
(6) Countersignature required. It shall be unlawful for
an insurance producer to deliver any unauthorized company
insurance contract or domestic surplus line insurer contract
unless such insurance contract is countersigned by the
Surplus Line Association of Illinois.
(7) Inspection of records. Each surplus line producer
shall maintain separate records of the business transacted
under his or her license, which records shall be open at all
times for inspection by the Director and by the Surplus Line
Association of Illinois.
(8) Violations and penalties. The Director may suspend
or revoke or refuse to renew a surplus line producer license
for any violation of this Code. In addition to or in lieu of
suspension or revocation, the Director may subject a surplus
line producer to a civil penalty of up to $1,000 for each
cause for suspension or revocation. Such penalty is
enforceable under subsection (5) of Section 403A of this
Code.
(9) Director may declare insurer company ineligible. If
the Director determines that the further assumption of risks
might be hazardous to the policyholders of an unauthorized
insurer company, the Director may order the Surplus Line
Association of Illinois not to countersign insurance
contracts evidencing insurance in such insurer company and
order surplus line producers to cease procuring insurance
from such insurer company.
(10) Service of process upon Director. All insurance
contracts delivered under this Section from unauthorized
insurers shall contain a provision designating the Director
and his successors in office the true and lawful attorney of
the insurer company upon whom may be served all lawful
process in any action, suit or proceeding arising out of such
insurance and further designate the surplus line producer or
other resident of this State an agent of the unauthorized
insurer company to which a copy of such process shall be
forwarded by the Director for delivery to the insurer
company. Service of process made upon the Director to be
valid hereunder must state the name of the insured, the name
of the unauthorized insurer company and identify the contract
of insurance. The Director at his option is authorized to
forward a copy of the process to the Surplus Line Association
of Illinois for delivery to the surplus line producer or
other designated resident of this State or the Director may
deliver the process to the unauthorized insurer company by
other means which he considers to be reasonably prompt and
certain.
(11) The Illinois Surplus Line law does not apply to
insurance of property and operations of railroads or aircraft
engaged in interstate or foreign commerce, insurance of
vessels, crafts or hulls, cargoes, marine builder's risks,
marine protection and indemnity, or other risks including
strikes and war risks insured under ocean or wet marine forms
of policies.
(12) Surplus line insurance procured under this Section,
including insurance procured from a domestic surplus line
insurer, is not subject to the provisions of the Illinois
Insurance Code other than Sections 123, 123.1, 401, 401.1,
402, 403, 403A, 408, 412, 445, 445.1, 445.2, 445.3, 445.4,
and all of the provisions of Article XXXI to the extent that
the provisions of Article XXXI are not inconsistent with the
terms of this Act.
(Source: P.A. 88-627, eff. 9-9-94.)
(215 ILCS 5/445a new)
Sec. 445a. Domestic surplus line insurer.
(a) A domestic insurer possessing policyholder surplus
of at least $15,000,000 may pursuant to a resolution by its
board of directors, and with the written approval of the
Director, be designated as a "domestic surplus line insurer".
(b) A domestic surplus line insurer may only insure in
this State an Illinois risk procured from a surplus line
producer pursuant to Section 445 of this Code.
(c) A domestic surplus line insurer must agree not to
issue a policy designed to satisfy the financial
responsibility requirements of the Illinois Vehicle Code, the
Workers' Compensation Act, or the Workers' Occupational
Diseases Act. A domestic surplus line insurer is not subject
to the provisions of Articles XXXIII, XXXIII 1/2, XXXIV,
XXXVIIIA, Section 468, or Section 478.1 of this Code.
Section 10. The Dental Service Plan Act is amended by
changing Section 35 as follows:
(215 ILCS 110/35) (from Ch. 32, par. 690.35)
Sec. 35. Investments; reserves; deficiencies.
(a) The funds of any dental service plan corporation may
be invested only in accordance with the requirements provided
by law for the investment of funds of life insurance
companies.
(b) As an allocation of net worth, each dental service
plan corporation shall maintain a special contingent reserve.
The special contingent reserve for a corporation that is
beginning operations shall be equal to 5% of its net earned
subscription revenue for dental care services through
December 31st of the year in which it is certified, but in no
event less than that $100,000. In subsequent years, unless
waived by the Director, the corporation shall accumulate
additions to the contingent reserve in an amount which is
equal to 2% of its net earned subscription revenue for each
calendar year. For purposes of this Section, "net earned
subscription revenue" means premium minus reinsurance
expenses. Maintenance of the contingent reserve requires
that net worth equals or exceeds the contingent reserve at
any balance sheet date. The special contingent reserve shall
be provided in cash and securities in combination and form
acceptable to the Director.
(c) Additional accumulations under Section 35(b) will no
longer be required when at such time that the total special
contingent reserve required by Section 35(b) is equal to or
greater than 5% of the corporation's average annual net
earned subscription revenue for the corporation's preceding 2
two calendar years. Additional accumulations under
subsection (b) of this Section shall no longer be required
when the total special contingent reserve required by
subsection (b) of this Section is equal to $1,500,000.
(d) A deficiency in meeting amounts required in
subsection (b) Section 6(b) or (c) of this Section will
require, upon notice from the Director, (1) filing of a plan
for correction of the deficiency, acceptable to the Director,
within 20 days from receipt of notice, and (2) correction of
the deficiency within a reasonable time, not to exceed 60
days from receipt of notice unless an extension of time is
granted by the Director. Such a deficiency will be deemed an
impairment, and failure to correct the deficiency in the
prescribed time shall be grounds for rehabilitation,
liquidation, conservation, or dissolution pursuant to Section
38.
(Source: P.A. 84-209; revised 2-25-98.)
Section 15. The Employee Leasing Company Act is amended
by changing Sections 10, 15, 20, 25, 30, 40, and 50 and
adding Section 56 as follows:
(215 ILCS 113/10)
Sec. 10. Applicability. This Act applies to all lessors
and insurers conducting business in this State and to
policies issued, renewed, or delivered after the effective
date of this amendatory Act of 1998.
(Source: P.A. 90-499, eff. 1-1-98.)
(215 ILCS 113/15)
Sec. 15. Definitions. In this Act:
"Department" means the Illinois Department of Insurance.
"Employee leasing arrangement" means a contractual an
arrangement, including long-term temporary arrangements
whereby a lessor obligates itself to perform specified
employer responsibilities as to leased employees including
the securing of workers' compensation insurance. For
purposes of this Act, "employee leasing arrangement" does not
include "temporary help arrangement". under contract or
otherwise, whereby one business or other entity leases all or
a majority number of its workers from another business.
Employee leasing arrangements include, but are not limited
to, full service employee leasing arrangements, long-term
temporary arrangements, and any other arrangement that
involves the allocation of employment responsibilities among
2 or more entities. For purposes of this Act, "employee
leasing arrangement" does not include arrangements to provide
temporary help service. "Temporary help service" means a
service whereby an organization hires its own employees and
assigns them to clients for a finite time period to support
or supplement the client's work force in special work
situations such as employee absences, temporary skill
shortages, and seasonal workloads.
"Leased employee" or "worker" means a person performing
services for a lessee under an employee leasing arrangement.
"Lessee" or "client company" means an entity that obtains
any all or part of its work force from another entity through
an employee leasing arrangement or that employs the services
of an entity through an employee leasing arrangement.
"Lessor" or "employee leasing company" means an entity
that leases any of its workers grants a written lease to a
lessee through an employee leasing arrangement.
"Long-term temporary arrangement" means an arrangement
where one company leases all or a majority number of workers
employees from one company are leased to another for a period
in excess of 6 months or consecutive periods equal to or
greater than one year.
"Premium subject to dispute" means the insured has
provided a written notice of dispute of the premium to the
insurer or service carrier, has initiated any applicable
proceeding for resolving these disputes as prescribed by law
or rating organization rule, or has initiated litigation
regarding the premium dispute. The insured must have
detailed the specific areas of dispute and provided an
estimate of the premium the insured believes to be correct.
The insured must have paid any undisputed portion of the
bill.
"Residual market mechanism" means the residual market
mechanism as defined in Section 468 of the Illinois Insurance
Code.
"Temporary help arrangement" means a service whereby an
organization hires its own employees and assigns them to
clients for a finite time period to support or supplement the
client's work force in special work situations such as, but
not limited to, employee absences, temporary skill shortages,
seasonal workloads, and special assignments and projects.
(Source: P.A. 90-499, eff. 1-1-98.)
(215 ILCS 113/20)
Sec. 20. Registration.
(a) A lessor shall register with the Department prior to
becoming a qualified self-insured for workers' compensation
or becoming eligible to be issued a workers' compensation and
employers' liability insurance policy. An employee leasing
company may not engage in business in this State without
first registering with the Department. A corporation,
partnership, sole proprietorship, or other business entity
that provides staff, personnel, or employees to be employed
in this State to other businesses pursuant to a lease
arrangement or agreement shall, before becoming eligible to
be issued any policy of workers' compensation insurance,
register with the Department. The registration shall:
(1) identify the name of the lessor;
(2) identify the address of the principal place of
business of the lessor and the address of each office it
maintains within this State;
(3) include the lessor's taxpayer or employer
identification number;
(4) include a list by jurisdiction of each and
every name that the lessor has operated under in the
preceding 5 years including any alternative names and
names of predecessors and, if known, successor business
entities;
(5) include a list of the officers and directors of
the lessor and employee leasing company or its
predecessors, successors, or alter egos in the preceding
5 years; and
(6) include a $500 fee for the registration and
each annual renewal thereafter.
Amounts received as registration fees shall be deposited
into the Insurance Producer Administration Fund. list of each
and every cancellation or nonrenewal of workers' compensation
insurance that has been issued to the lessor or any
predecessor in the preceding 5 years. The list shall include
the policy or certificate number, name of insurer or other
provider of coverage, date of cancellation, and reason for
cancellation. If coverage has not been cancelled or
nonrenewed, the registration shall include a sworn affidavit
signed by the chief executive officer of the lessor attesting
to that fact.
Each employee leasing company registrant shall pay to the
Department upon initial registration, and upon each renewal
annually thereafter, a registration fee of $500.
Each employee leasing company shall maintain accounting
and employment records relating to all employee leasing
activities for a minimum of 3 calendar years.
(b) (Blank) Any lessor of employees whose workers'
compensation insurance has been terminated within the past 5
years in any jurisdiction due to a determination that an
employee leasing arrangement was being utilized to avoid
premium otherwise payable by lessees shall be ineligible to
register with the Department or to remain registered, if
previously registered.
(c) Lessors registering Persons filing registration
statements pursuant to this Section shall notify the
Department within 30 days as to any changes in any
information provided pursuant to this Section.
(d) The Department shall maintain a list of those
lessors of employees who are satisfactorily registered with
the Department.
(e) The Department may prescribe any forms that are
necessary to promote the efficient administration of this
Section.
(f) Any lessor of employees that was doing business in
this State prior to enactment of this Act shall register with
the Department within 60 days of the effective date of this
Act.
(Source: P.A. 90-499, eff. 1-1-98.)
(215 ILCS 113/25)
Sec. 25. Record keeping and reporting requirement.
(a) A lessor shall maintain accounting and employment
records relating to all employee leasing arrangements for a
minimum of 4 calendar years. A lessor shall maintain the
address of each office it maintains in this State, at its
principal place of business.
(b) A lessor shall maintain sufficient information in a
manner consistent with a licensed rating organization's data
submission requirements to permit the rating organization
licensed under Section 459 of the Illinois Insurance Code to
calculate an experience modification factor for the lessee.
(c) Upon written request of a lessee with an annual
payroll attributed to it in excess of $200,000, the lessor
shall provide the lessee's experience modification factor to
the lessee within 30 days of the request.
(d) Upon request of a lessee with an annual payroll
attributed to it of less than $200,000, the lessor shall
provide the loss information required to be maintained by
this Section to the lessee within 30 days of the request.
(e) Nothing in this Section shall preclude a licensed
rating organization from calculating the experience
modification factor for each lessee nor an insurer from
maintaining and furnishing on behalf of the lessor, such
information as required by this Section. A lessor shall
maintain and furnish once every 12 months or in the event of
a termination of the employee leasing arrangement sufficient
information to the insurer, who shall submit such information
to permit the calculation of an experience modification
factor by a rating organization licensed under Section 459 of
the Illinois Insurance Code for each lessee. This
information shall be submitted in a manner consistent with a
licensed rating organization's data submission requirements
and shall include but not be limited to the following:
(1) the lessee's corporate name, or operating name
if not a corporation, and address;
(2) the lessee's taxpayer or employer
identification number;
(3) the lessee's risk identification number;
(4) a listing of all leased employees associated
with each lessee, the applicable classification code, and
payroll; and
(5) claims information grouped by lessee and any
other information necessary to permit the calculation of
an experience modification factor for each lessee.
(f) (b) In the event that a lessee's experience
modification factor exceeds the lessor's experience
modification factor by 50% at the inception of the employee
leasing arrangement, the lessee's experience modification
factor shall be utilized to calculate the premium or costs
charged to the lessee for workers' compensation coverage for
a period of 2 years. Thereafter, the premium charged by the
insurer insurance company for inclusion of a lessee under a
lessor's policy may be calculated on the basis of the
lessor's experience modification factor.
(Source: P.A. 90-499, eff. 1-1-98.)
(215 ILCS 113/30)
Sec. 30. Responsibility for policy issuance and
continuance.
(a) When a workers' compensation policy written to cover
leased employees is issued to the lessor employee leasing
company as the named insured, the lessee client company shall
be identified thereon by the attachment of an appropriate
endorsement indicating that the policy provides coverage for
leased employees in accordance with Illinois law. The
endorsement shall, at a minimum, provide for the following:
(1) Coverage under the endorsement policy shall be
limited to the named insured's employees leased to the
lessees.
(2) The experience of the employees leased to the
particular lessee shall be separately maintained by the
lessor as provided in Section 25.
(3) Cancellation of the policy shall not affect the
rights and obligations of the named insured as an
employee leasing company with respect to any other
workers' compensation and employers' liability policy
issued to the named insured.
(b) (Blank). The insurer of the lessor may take all
reasonable steps to ascertain exposure under the policy and
collect the appropriate premium through the following
procedures:
(1) complete description of the lessor's
operations;
(2) periodic reporting of the covered lessee's
payroll, classifications, experience rating modification
factors, and jurisdictions with exposure. This reporting
must be supplemented by a submission of Internal Revenue
Service Form 941 or its equivalent to the carrier on a
quarterly basis;
(3) physical inspection of the client company
premises;
(4) audit of the lessor's operations; and
(5) any other reasonable measures to determine the
appropriate premium.
(c) The lessor shall notify the insurer or a licensed
rating organization 30 days prior to the effective date of
termination or immediately upon notification of cancellation
by the lessor of an employee leasing arrangement with the
lessee in order to allow sufficient time to calculate an
experience modification factor for the lessee.
(d) The insurer lessor shall provide proof of workers'
compensation insurance to the lessor and to each applicable
lessee within 30 days of the coverage being effected or
changed effective date. Notice of any coverage changes shall
be provided to the lessor and to each lessee within 30 days
of the effective date of the change.
(e) Calculation of a lessor's or lessee's premium shall
be done in accordance with the insurer's Nothing in this Act
shall limit an insurer from utilizing schedule credits,
debits, or other rating manual plans filed with the
Department for calculation of a lessor's or lessee's premium.
(Source: P.A. 90-499, eff. 1-1-98.)
(215 ILCS 113/40)
Sec. 40. Insurer or service carrier audit. Insurers
shall audit policies issued through the residual market
pursuant to Section 30 of this Act within 90 days of the
policy effective date and may conduct quarterly audits
thereafter. Insurers may audit policies issued through the
voluntary market within 90 days of the policy effective date
and shall conduct audits during the normal course of business
thereafter. The purpose of the audit will be to determine
whether all classifications, experience modification factors,
and estimated payroll utilized with respect to the
development of the premium charged to the lessor are
appropriate.
(Source: P.A. 90-499, eff. 1-1-98.)
(215 ILCS 113/50)
Sec. 50. Grounds for removal of eligibility; order;
hearing; review.
(a) Any registration issued under this Act may be
revoked or an application for registration may be denied if
the Director finds that the lessor or applicant:
(1) has willfully violated any provision of this
Act or any rule promulgated by the Director;
(2) has intentionally made a material misstatement
in the application for a registration;
(3) has obtained or attempted to obtain a
registration through misrepresentation or fraud;
(4) has misappropriated or converted to his own, or
improperly withheld, money required to be held in a
fiduciary capacity;
(5) has used fraudulent, coercive, or dishonest
practices, or has demonstrated incompetence,
untrustworthiness, or financial irresponsibility;
(6) has been, within the past 3 years, convicted of
a felony, unless the person demonstrates to the Director
sufficient rehabilitation to warrant the public trust;
(7) has failed to appear without reasonable cause
or excuse in response to a subpoena lawfully issued by
the Director;
(8) has had its registration or license suspended
or revoked or its application denied in any other state,
district, territory, or province; Any registration issued
under this Act may be revoked or an application for
registration may be denied, if the Director finds that
the lessor or applicant;
(1) has willfully violated any provision of the Act
or any rule or regulation promulgated by the Director;
(b) (a) When the Director of Insurance has cause to
believe that grounds for the refusal, denial, or revocation
removal of a registration registrant's eligibility under this
Section exists, the Director he or she shall issue an order
to the lessor employee leasing company stating the grounds
upon which the refusal, denial, or revocation removal is
based. The order shall be sent to the lessor employee
leasing company by certified or registered mail. The lessor
employee leasing company may in writing request a hearing in
writing within 30 days of the mailing receipt of the order.
If no written request is received by the Director made, the
order shall be final upon the expiration of the 30 days.
(c) (b) If the lessor employee leasing company requests
a hearing pursuant to this Section, the Director shall issue
a written notice of hearing sent to the lessor employee
leasing company by certified or registered mail stating the
following:
(1) a specified time for the hearing, which may not
be less than 20 days nor more than 30 days after the
mailing receipt of the notice of hearing; and
(2) a specific place for the hearing, which may be
either in the city of Springfield or Chicago or in the
county where the lessor's employee leasing company's
principal place of business is located.
(d) (c) After the hearing, or upon the failure of the
lessor employee leasing company to appear at the hearing, the
Director of Insurance shall take such action as is deemed
advisable on written findings that shall be served on the
lessor employee leasing company. The action of the Director
of Insurance shall be subject to review under and in
accordance with the Administrative Review Law.
(Source: P.A. 90-499, eff. 1-1-98.)
(215 ILCS 113/56 new)
Sec. 56. Rulemaking authority. The Director shall have
the authority to promulgate rules to enforce this Act.
(215 ILCS 113/35 rep.)
(215 ILCS 113/55 rep.)
Section 20. The Employee Leasing Company Act is amended
by repealing Sections 35 and 55.
Section 25. The Farm Mutual Insurance Company Act of
1986 is amended by changing Sections 4 and 12 as follows:
(215 ILCS 120/4) (from Ch. 73, par. 1254)
Sec. 4. Definition of Admitted Assets. Admitted assets
shall include those investments permitted under Section 12 of
this Act and in addition thereto, only the following:
(1) Cash funds held in the company's office and under
the company's control.
(2) Interest due and accrued on bonds, certificates of
deposit and other investments permitted by this Act that are
not in default.
(3) Dividends declared and unpaid on mutual funds,
common stock, and preferred stock, permitted by this Act.
(4) (3) Amounts recoverable from solvent insurance
companies licensed to do business in this State.
(5) (4) Tax refunds due from the United States or the
State of Illinois.
(6) (5) Premiums receivable on policies not over 90 days
past due. The due date of the premium shall be considered to
be the first day of the coverage period for which the premium
is payable.
(Source: P.A. 88-364.)
(215 ILCS 120/12) (from Ch. 73, par. 1262)
Sec. 12. Investments. Without the prior approval of the
Director, the funds of any company operating under or
regulated by the provisions of this Act, shall be invested
only in the following:
(1) Direct obligations of the United States of
America, or obligations of agencies or instrumentalities
of the United States to the extent guaranteed or insured
as to the payment of principal and interest by the United
States of America;
(2) Bonds which are direct, general obligations of
the State of Illinois;
(3) Bonds which are direct, general obligations of
political subdivisions of the State of Illinois, subject
to the following conditions:
(a) Maximum of 5% of admitted assets in any
one political subdivision;
(b) Maximum of 30% 35% of admitted assets in
all political subdivisions in the aggregate;
(4) Bonds that are obligations of the Federal
National Mortgage Association subject to a maximum
investment of 10% of admitted assets in the aggregate;
(5) Bonds that are obligations of the Federal Home
Loan Mortgage Corporation subject to a maximum investment
of 10% of admitted assets in the aggregate;
(6) Mutual funds subject to the following
conditions:
(a) Maximum of 3% of policyholders' surplus in
any one balanced or growth mutual fund that invests
in common stock;
(b) Maximum of 5% of admitted assets in any
one bond or income mutual fund or any one
non-governmental money market mutual fund;
(c) Maximum of 10% of admitted assets in any
one governmental money market mutual fund;
(d) Maximum of 25% of admitted assets in all
mutual funds in the aggregate;
(7) Common stock and preferred stock subject to the
following conditions:
(a) Common stock and preferred stock shall be
traded on the New York Stock Exchange or the
American Stock Exchange or listed on the National
Association of Securities Dealers Automated
Quotation (NASDAQ) system;
(b) Maximum of 3% of policyholders' surplus in
excess of $400,000 in any one common stock or
preferred stock issuer provided that the net
unearned premium reserve does not exceed
policyholders' surplus;
(8) Investments authorized under subdivision (a) of
item (6) and subdivision (a) of item (7) of this Section
shall not in the aggregate exceed 10% of policyholders'
surplus;
(9) (4) Funds on deposit in solvent banks and
savings and loan associations which are insured by
qualify for insurance with the Federal Deposit Insurance
Corporation; however, the uninsured portion of funds held
in any one such bank or association shall not exceed 5%
of the company's policyholders' surplus;
(5) Funds on deposit with savings and loan
associations, provided that all funds invested in such
associations are insured by the Federal Deposit Insurance
Corporation;
(10) (6) Real estate for home office building
purposes, provided that such investments are approved by
the Director of Insurance on the basis of a showing by
the company that the company has adequate assets
available for such investment and that the proposed
acquisition does not exceed the reasonable normal value
of such property.
An investment that qualified under this Section at the
time it was acquired by the company shall continue to qualify
under this Section.
Investments permitted under this Section shall be
registered in the name of the company and under its direct
control or shall be held in a custodial account with a bank
or trust company that is qualified to administer trusts in
Illinois under the Corporate Fiduciary Act and that has an
office in Illinois. However, securities may be held in
street form and in the custody of a licensed dealer for a
period not to exceed 30 days.
Notwithstanding the provisions of this Act, the Director
may, after notice and hearing, order a company to limit or
withdraw from certain investments or discontinue certain
investments or investment practices to the extent the
Director finds those investments or investment practices
endanger the solvency of the company.
(Source: P.A. 88-364.)
Section 30. The Voluntary Health Services Plans Act is
amended by changing Section 20 as follows:
(215 ILCS 165/20) (from Ch. 32, par. 614)
Sec. 20. The funds of any health services plan
corporation shall be handled in accordance with the following
rules:
(a) All loans made to original capital of the
corporation may be repayable only out of earned surplus.
(b) The funds of the corporation may be invested in
accordance with the requirements provided by law for the
investment of funds of life insurance companies and may also
be invested in equipment of the corporation provided such
investment in equipment shall not exceed more than 30% of the
total admitted assets. The value of such equipment shall be
depreciated at a rate as rapidly as is provided under the
Internal Revenue Code.
(c) Every health services plan corporation, after its
first fiscal year of doing business, shall accumulate and
maintain a special contingent reserve over and above its
reserves and liabilities at the rate of 2% annually of its
subscription income net of reinsurance so long as the special
contingent reserve does not exceed 8% of its annual net
income for the preceding 12 month period. Additional
accumulations shall no longer be required at such time that
the total special contingent reserve is equal to $1,500,000.
(Source: P.A. 81-1203.)
Section 99. Effective date. This Act takes effect upon
becoming law except that Section 25 takes effect January 1,
1999.