State of Illinois
Public Acts
92nd General Assembly

[ Home ]  [ ILCS ] [ Search ] [ Bottom ]
 [ Other General Assemblies ]

Public Act 92-0074

SB865 Enrolled                                LRB9201059JSpcA

    AN ACT concerning insurance.

    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  107.06a, 107.07, 107.15, 179A-5, 179A-10,
179A-15, 179A-20, 179A-25, 179A-30, and 179A-35 as follows:

    (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  or a special purpose limited syndicate, 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 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, XI 1/2,
    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. 90-499, eff.  8-19-97;  90-794,  eff.  8-14-98;
91-278, eff. 7-23-99.)

    (215 ILCS 5/107.07) (from Ch. 73, par. 719.07)
    Sec. 107.07. Admission. Capitalization:
    Syndicate - at least $2,000,000.
    Subscriber - at least $30,000.
    Special Purpose Limited Syndicate - at least $5,000.
    Fees:  (a)  Exchange brokers. An annual fee shall be paid
to the Exchange by any  person  who  presents  risks  to  the
Exchange.  The  annual  fee established by the Exchange shall
not exceed $5,000.
    (b)  The Exchange  may  establish  annual  fees  for  the
admission of syndicates, limited syndicates, and subscribers.
    Standards:   The   Exchange   may   establish  additional
standards for  the  admission  of  subscribers  and  Exchange
brokers.
    Assessments:   The   Exchange  may  make  assessments  of
subscribers or syndicates for the expenses of  operating  the
Exchange.
(Source: P.A. 90-499, eff. 1-1-98.)

    (215 ILCS 5/107.15) (from Ch. 73, par. 719.15)
    Sec.  107.15.   Definitions.  Persons:  A  person  is  an
individual,  partnership, association, corporation or limited
partnership.
    Syndicate:  A  syndicate  is  a  subscriber,   group   of
subscribers, limited syndicate or group of limited syndicates
which  meets  the  minimum  capital  requirement  of  Section
107.07.
    Limited  Syndicate:  A limited syndicate is a corporation
or partnership formed  by  subscribers  for  the  purpose  of
joining   with  syndicates,  other  subscribers,  or  limited
syndicates  to  form  syndicates  or  to   participate   with
syndicates in the insurance or reinsurance of risks.
    Subscriber:  A  subscriber  is  a  person  who has made a
deposit of money pursuant to Section 107.07  permitting  that
person  to  participate  as  a  subscriber  in a syndicate or
limited syndicate.
    Special Purpose  Limited  Syndicate:  A  special  purpose
limited  syndicate  is  any entity formed for the purposes of
participation in the securitization of reinsurance  risks  in
accordance with rules adopted pursuant to Section 107.15b.
    Exchange Broker: A person licensed as an insurance broker
in the State of Illinois or as a reinsurance intermediary who
is  admitted  to  the  Exchange  to  present applications for
insurance.
    Present Applications for  Insurance:  Means  to  make  an
application to a syndicate for an insurance policy.
    Reinsurance: Means reinsuring insurance.
    Minimum  Subscription:  The subscription capital required
for admission as a subscriber to the  Exchange.   Subscribers
shall  at  all  times  maintain  the  minimum  capitalization
required by this Article.
(Source: P.A. 89-206, eff. 7-21-95.)

    (215 ILCS 5/179A-5)
    Sec.   179A-5.  Purpose.   This  Article  is  adopted  to
provide a basis for the creation  of  protected  cells  by  a
domestic  insurer  as  one  means  of  accessing  alternative
sources  of  capital  and achieving the benefits of insurance
securitization.   Investors   in   fully   funded   insurance
securitization  transactions provide funds that are available
to pay the insurer's insurance obligations or  to  repay  the
investors  or  both.   The  creation  of  protected  cells is
intended to be  a  means  to  achieve  more  efficiencies  in
conducting      insurance      securitizations.     Insurance
securitization has been developed as  a  means  of  accessing
alternative  sources  of capital and diversifying credit risk
in order to enhance an insurance company's  ability  to  both
assume risk and stabilize underwriting results.
    Under the terms of the typical debt instrument underlying
an insurance securitization transaction, prepaid principal is
repaid  to  the  investor  on  a specified maturity date with
interest, unless  a  trigger  event  occurs.   The  insurance
securitization   proceeds  secure  both  the  protected  cell
company's  insurance  obligations  proceeds   of   the   debt
instrument   both   collateralize   the  insurance  company's
obligations under  specified  contracts  of  insurance  if  a
trigger event occurs, as well as the protected cell insurance
company's  obligation  to  repay the insurance securitization
investors debt instrument if a trigger event does not  occur.
Traditionally,  Insurance  securitization  transactions  have
been  performed  through  alien companies in order to utilize
efficiencies  available  to  alien  companies  that  are  not
currently available to domestic companies.  This  Article  is
adopted  in  order   to  create more efficiency in conducting
insurance securitization, to allow domestic companies  easier
access    to  alternative  sources of capital, and to promote
the benefits of insurance securitization generally.
(Source: P.A. 91-278, eff. 7-23-99.)

    (215 ILCS 5/179A-10)
    Sec. 179A-10.  Definitions.
    "Domestic company" means an insurance  company  domiciled
in the State of Illinois.
    "Fully  funded"  means that, with respect to any exposure
attributed to a protected  cell,  the  market  value  of  the
protected  cell  assets,  on  the date on which the insurance
securitization is effected, equals  or  exceeds  the  maximum
possible  exposure  attributable  to  the protected cell with
respect to those exposures.
    "General account" means the assets and liabilities  of  a
protected  cell  company other than protected cell assets and
protected cell liabilities.
    "Indemnity trigger" means a transaction term by in  which
relief  of  the  issuer's  obligation  to  repay investors is
triggered by its incurring suffering  a  specified  level  of
losses   under  its  policies  of  insurance  or  reinsurance
contracts.
    "Insurance securitization" means  the  entering  into  of
debt  instruments  supported  in  full  by  cash  or  readily
marketable  securities  with  investors by a domestic company
where  repayment  of  principal  or  interest,  or  both,  to
investors pursuant to the  transaction  terms  is  contingent
upon the occurrence or nonoccurrence of an event with respect
to  which  the  domestic  company  is  exposed  to loss under
policies or contracts of  insurance  or  reinsurance  it  has
issued.
    "Market value" has the meaning given that term in Article
VIII of this Code (Investments of Domestic Companies).
    "Non-indemnity trigger" means a transaction term by which
relief  of  the  issuer's  obligation  to  repay investors is
triggered solely by some event or condition  other  than  the
individual protected cell company incurring a specified level
of losses under its insurance or reinsurance contracts.
    "Protected  cell"  means an identified pool of assets and
liabilities of a domestic company segregated and insulated by
means of this Article from the  remainder  of  the  company's
assets and liabilities.
    "Protected  cell account" means a specifically identified
bank or custodial account established  by  a  protected  cell
company  for the purpose of legally segregating the protected
cell assets of one protected cell  from  the  protected  cell
assets  of  other  protected cells and from the assets of the
protected cell company's general account.
    "Protected  cell  assets"  means  all  assets,   contract
rights,   and   general   intangibles   identified  with  and
attributable to a specific protected cell of a protected cell
company,  including  assets  physically   segregated   in   a
protected cell account.
    "Protected  cell  company"  means a domestic company that
has one or more protected cells.
    "Protected cell company insurance  securitization"  means
the  issuance  of  debt  instruments, the proceeds from which
support the exposures attributed to the protected cell, by  a
protected  cell  company  where  repayment  of  principal  or
interest,  or  both, to investors pursuant to the transaction
terms is contingent upon the occurrence or  nonoccurrence  of
an  event with respect to which the protected cell company is
exposed to loss under insurance or reinsurance  contracts  it
has issued.
    "Protected  cell  liabilities"  means all liabilities and
other obligations  identified  with  and  attributable  to  a
specific   protected   cell  of  a  protected  cell  company.
Protected cell liabilities include  liabilities  representing
the  insurance  obligations  of the protected cell as well as
obligations  of  the  protected  cell  arising  out  of   any
insurance securitization transactions of the protected cell.
    "Protected  cell  company" means a domestic company which
has one or more protected cells.
(Source: P.A. 91-278, eff. 7-23-99.)

    (215 ILCS 5/179A-15)
    Sec. 179A-15.  Establishment of protected cells.
    (a)  A domestic  company  may,  with  the  prior  written
approval  by the Director of a plan of operation submitted by
the domestic company with respect  to  each  protected  cell,
establish  one  or more protected cells in connection with an
insurance securitization. Upon the written  approval  by  the
Director  of  the plan of operation, which shall include, but
not be limited  to,  the  specific  business  and  investment
guidelines  objectives  of  the protected cell, the protected
cell company may, in accordance with  the  approved  plan  of
operation,  attribute  to  the  protected  cell  amounts both
reflective of  insurance  obligations  with  respect  to  its
insurance  business and obligations relating to the insurance
securitization  and  assets  to  fund  those  obligations.  A
protected  cell  shall  have  its  own   distinct   name   or
designation,  which shall include the words "protected cell".
The  protected  cell  company  shall  transfer   all   assets
attributable  to  a  protected cell to one or more separately
established and identified protected  cell  accounts  bearing
the  name  or  designation of that protected cell.  Protected
cell assets shall be held in the protected cell accounts  for
the  purpose  of satisfying the obligations of that protected
cell.
    (b)  All   sales,   exchanges,   transfers,   or    other
attributions  of  assets  and liabilities between a protected
cell and the general account shall be in accordance with  the
plan  of  operation  approved  by  the  Director. or shall be
otherwise  approved  by  the  Director.    Unless   otherwise
approved  by the Director, no sale, exchange, transfer, or No
other attribution of assets or liabilities may be made  by  a
protected  cell  company between the protected cell company's
general account and one  or  more  of  its  protected  cells.
unless,  in  the  case of an attribution to a protected cell,
the attribution is made solely  to  establish  the  protected
cell  or, in the case of an attribution from a protected cell
to the company's general account,  the  attribution  is  made
solely  to  support  the company's insurance obligations that
are the subject of the business of the protected  cell.   Any
sale,  exchange, transfer, or other Any attribution of assets
and liabilities between the general account and  a  protected
cell  or  from  investors  in the form of principal on a debt
instrument issued by a protected cell  company  shall  be  in
cash  or  in  readily  marketable securities with established
market  values  unless  otherwise   approved  in  advance  in
writing by the Director.
    (c)  The creation of a protected cell does not create, in
respect of that protected cell, a legal person separate  from
the protected cell company. Amounts attributed to a protected
cell  under  this  Article, including assets transferred to a
protected cell account,  are  owned  by  the  protected  cell
company  and  the protected cell company may not be, nor hold
itself out to be, a trustee with respect to  those  protected
cell  assets  of that protected cell account. Notwithstanding
the foregoing, the company may allow for a security  interest
to  attach  to  protected  cell  assets  or  a protected cell
account when in favor of a creditor of the protected cell and
otherwise allowed under applicable law.
    (d)  This Article shall not be construed to prohibit  the
protected cell company from contracting with or arranging for
an  investment  advisor,  commodity trading advisor, or other
third  party  to  manage  the  protected  cell  assets  of  a
protected cell, provided that all remuneration, expenses, and
other compensation of the third party advisor or manager  are
payable from the protected cell assets of that protected cell
and  not  from  the  protected cell assets of other protected
cells or the assets of the protected cell  company's  general
account.
    (e)  A  domestic company that is a protected cell company
shall establish such administrative and accounting procedures
as are  necessary  to  properly  identify  the  one  or  more
protected  cells  of  the  protected  cell  company  and  the
protected   cell   assets   and  protected  cell  liabilities
attributable to the protected cells thereto.  It shall be the
duty of the directors of a protected cell company to:
         (1)(i)  keep protected  cell  assets  and  protected
    cell  liabilities  separate  and  separately identifiable
    from the assets and liabilities  of  the  protected  cell
    company's general account; and
         (2)(ii)  keep  protected  cell  assets and protected
    cell  liabilities  attributable  to  one  protected  cell
    separate and separately identifiable from protected  cell
    assets  and  protected  cell  liabilities attributable to
    other protected cells.
    If  this  Section   is   violated   Notwithstanding   the
foregoing,  the  remedy  of  tracing  shall  be applicable to
protected cell assets when  commingled  with  protected  cell
assets  of  other  protected  cells  or  the  assets  of  the
protected  cell  company's  general  account.  The  remedy of
tracing shall not be construed as an exclusive remedy.
    (f)  The protected cell Unless otherwise approved by  the
Director,  the  company  shall, when establishing a protected
cell, attribute to the protected cell assets with a value  at
least  equal  to the reserves and other insurance liabilities
attributed to that protected cell.
(Source: P.A. 91-278, eff. 7-23-99.)

    (215 ILCS 5/179A-20)
    Sec. 179A-20.  Use and operation of protected cells.
    (a)  The protected cell assets of any protected cell  may
not  be  charged  with  liabilities  arising out of any other
business  the  protected  cell  company  may  conduct.    All
contracts  or  other  documentation reflecting protected cell
liabilities the obligations   of  a  protected  cell  to  the
general  account  shall clearly indicate that only the assets
of  the    protected  cell  assets  are  available  for   the
satisfaction  of  those  obligations  of  the  protected cell
liabilities.
    (b)  The  income,  gains,   and   losses,   realized   or
unrealized,  from  protected  cell  assets and protected cell
liabilities must  be  credited  to  or  charged  against  the
protected  cell  without  regard  to  other income, gains, or
losses of  the  protected  cell  company,  including  income,
gains,   or   losses   of  other  protected  cells.   Amounts
attributed to a protected cell and accumulations thereon  may
be invested and reinvested without regard to any requirements
or  limitations  of Article VIII of this Code (Investments of
Domestic Companies), and the investments in a protected  cell
or  cells  may  not  be  taken  into  account in applying the
investment   limitations   otherwise   applicable   to    the
investments of the protected cell company.
    (c)  Unless  otherwise  approved  by the Director, Assets
attributed to a  protected  cell  must  be  valued  at  their
market  value  on  the  date  of valuation, or if there is no
readily available market, then as provided in the contract or
the rules or other written documentation  applicable  to  the
protected cell.
    (d)  A protected cell company shall, in respect of any of
its    protected    cells,    engage    in    fully    funded
indemnity-triggered  insurance  securitization  to support in
full the protected cell exposures liabilities attributable to
that protected cell. A protected cell  company  An  insurance
securitization that is not indemnity-triggered may qualify as
an  insurance  securitization under the terms of this Article
only after the Director adopts rules addressing  the  methods
of:(i)  funding  of  the  portion  of  the  risk  that is not
indemnity  based,  (ii)  accounting,  and  disclosure,  (iii)
risk-based  capital  treatment,  and  (iv)   assessing   risk
associated  with such securitizations and does not support in
full the protected cell obligations of a protected cell shall
be prohibited absent specific permission by the  Director  in
accordance  with  the authority granted under Section 179A-40
and the guidance of the  National  Association  of  Insurance
Commissioners,  as  such guidance is  developed.  A protected
cell company An insurance securitization transaction that  is
not    fully   funded,   whether   indemnity   triggered   or
non-indemnity   triggered    indemnity-triggered    or    not
indemnity-triggered,  is  prohibited.   Protected cell assets
may be used to A protected cell may  pay  interest  or  other
consideration  on  any  outstanding  debt or other obligation
attributable to that protected  cell,  and  nothing  in  this
subsection  shall  be  construed  or interpreted to prevent a
protected cell company from entering into a swap agreement or
other transaction for the account of the protected cell  that
has  the  effect  of  guaranteeing  such  interest  or  other
consideration.
    (e) In  all  cases  in  which  a  protected  cell company
engages in an insurance securitizations  securitization,  the
contracts   or   other   documentation  financial  instrument
effecting   such   transaction   shall   contain   provisions
identifying the protected cell to which the transaction  will
be   attributed.    In   addition,  the  contracts  or  other
documentation financial  instrument  shall  clearly  disclose
that  the  assets  of  that   protected  cell, and only those
assets,  are  available  to  pay  the  obligations  of   that
protected cell. Notwithstanding the foregoing, and subject to
the  provisions  of this Article and any other applicable law
or  rule,  the  failure  to  include  such  language  in  the
contracts or other documentation financial  instrument  shall
not  be  used  as the sole basis by creditors, reinsurers, or
other claimants to circumvent the provisions of this Article.
    (f)  A  protected  cell  company  may  attribute   to   a
protected   cell   account  only  the  insurance  obligations
relating to the protected cell company's general account.   A
protected   cell  may  not  issue  insurance  or  reinsurance
contracts directly to policyholders or reinsureds or have any
obligation  to  the  policyholders  or  reinsureds   of   the
protected cell company's general account.
    (g)(f)  At the cessation of business of a protected cell,
the  protected  cell company shall voluntarily close out wind
up the protected cell  account  in  accordance  with  a  plan
approved by the Director.
(Source: P.A. 91-278, eff. 7-23-99.)

    (215 ILCS 5/179A-25)
    Sec. 179A-25.  Reach of creditors and other claimants.
    (a)  Protected  cell  assets  are shall only be available
only to the creditors of the protected cell company  who  are
creditors in respect of that protected cell and shall thereby
be  entitled,  in  conformity  with  the  provisions  of this
Article, to  have  recourse  to  the  protected  cell  assets
attributable  to  that protected cell., Protected cell assets
and shall be absolutely protected from the creditors  of  the
protected  cell  company  who are not creditors in respect of
that protected cell and who, accordingly, are  shall  not  be
entitled  to  have  recourse  to  the  protected  cell assets
attributable to that protected cell.  Creditors with  respect
to  of  a   protected  cell  shall  not  be  entitled to have
recourse against the protected cell assets of other protected
cells or the assets of the protected cell  company's  general
account.
    Protected  cell assets are available only to creditors of
a protected cell company after all protected cell liabilities
have  been  extinguished  or  otherwise   provided   for   in
accordance  with  the  plan  of  operation  relating  to that
protected cell.
    (b)  When an obligation of a protected cell company to  a
person arises from a transaction, or is otherwise imposed, in
respect of a  protected cell:
         (1)  that  obligation  of the protected cell company
    shall  extend  only  to   the   protected   cell   assets
    attributable  to  that  protected  cell,  and  the person
    shall, in respect of that obligation, be entitled to have
    recourse only to the protected cell  assets  attributable
    to that protected cell; and
         (2)  that  obligation  of the protected cell company
    shall not extend to the  protected  cell  assets  of  any
    other  protected  cell  or  the  assets  of the company's
    general account, and that person shall not, in respect of
    that obligation, be entitled  to  have  recourse  to  the
    protected  cell assets of any other protected cell or the
    assets of the company's general account.
    (c)  When an  obligation  of  a  protected  cell  company
relates solely to the general account,  the obligation of the
protected  cell  company  shall  extend  only  to,  and  that
creditor shall, in respect of that obligation, be entitled to
have  recourse  only  to,  the  assets  of the protected cell
company's general account.
    (d)  A protected cell shall only be authorized to  assume
an  insurance  obligation directly from the company's general
account, and under no circumstances shall a protected cell be
authorized to issue  insurance  or  reinsurance  policies  or
contracts directly to policyholders or reinsureds or have any
obligation  to  the  policyholders  of  the company's general
account. The activities, assets, and obligations relating  to
of  a  protected  cell  are  not subject to the provisions of
Article  XXXIII1/2  (Illinois  Life   and   Health   Guaranty
Association   Law)   or  Article  XXXIV  (Illinois  Insurance
Guaranty Fund), and neither a protected cell nor a  protected
cell  company  protected  cells  shall  not be assessed by or
otherwise be required to contribute to any guaranty  fund  or
guaranty  association  in  this  State  with  respect  to the
activities, assets,  or  obligations  of  a  protected  cell.
Nothing  in  this  subsection  shall affect the activities or
obligations of a company's general account.
    (e)  In no event shall the establishment of one  or  more
protected  cells  alone  constitute  or  be  deemed  to  be a
fraudulent  conveyance,  an  intent  by  the  protected  cell
company to defraud creditors, or the carrying out of business
by the  protected  cell  company  for  any  other  fraudulent
purpose.
(Source: P.A. 91-278, eff. 7-23-99.)

    (215 ILCS 5/179A-30)
    Sec.    179A-30.  Rehabilitation   and   liquidation   of
protected cell companies.
    (a)  Notwithstanding any contrary provision in this Code,
the  rules  promulgated  under  this  Code,  or   any   other
applicable  law  or  rule,  upon any order of rehabilitation,
conservation, or liquidation of a domestic company that is  a
protected  cell  company, the receiver shall be bound to deal
with the protected cell  company's  assets  and  liabilities,
including   protected   cell   assets   and   protected  cell
liabilities, in accordance with the requirements set forth in
this Article.
    (b)  With  respect  to  amounts   recoverable   under   a
protected  cell  company any insurance securitization entered
into or outstanding in any protected cell of a protected cell
company, the amount recoverable by the receiver shall not  be
reduced or diminished as a result of the entry of an order of
rehabilitation,  conservation, or liquidation with respect to
the protected cell company notwithstanding any provisions  to
the   contrary   in  the  contracts  or  other  documentation
financial instrument governing  the  protected  cell  company
such insurance securitization.
(Source: P.A. 91-278, eff. 7-23-99.)
    (215 ILCS 5/179A-35)
    Sec.  179A-35.  No  transaction of an insurance business.
A  protected  cell  insurance  securitization  shall  not  No
insurance securitization effected  under  the  provisions  of
this   Article   shall  be  deemed  to  be  an  insurance  or
reinsurance contract.  An policy or contract of insurance and
no  investor  in   a   protected   cell   company   insurance
securitization  transaction  shall not, by sole means of such
investment, be deemed to be transacting an insurance business
in this State.  The underwriters or selling agents (and their
partners, directors, officers, members, managers,  employees,
agents,   representatives,   and   advisors)  involved  in  a
protected cell company insurance securitization shall not  be
deemed  to  be conducting an insurance or reinsurance agency,
brokerage, intermediary, advisory, or consulting business  by
virtue  of  their activities in connection therewith required
to be licensed as  an  insurance  company  in  the  State  of
Illinois.
(Source: P.A. 91-278, eff. 7-23-99.)

    Section  99.  Effective date.  This Act takes effect upon
becoming law.
    Passed in the General Assembly April 19, 2001.
    Approved July 12, 2001.
    Effective July 12, 2001.

[ Top ]