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Public Act 92-0124
SB864 Enrolled LRB9205491JScsA
AN ACT concerning reinsurance.
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
adding Article XIE as follows:
(215 ILCS 5/Art. XIE heading new)
ARTICLE XIE. Special Purpose Reinsurance Vehicle Law
(215 ILCS 5/179E-1 new)
Sec. 179E-1. Short title. This Article may be cited as
the Special Purpose Reinsurance Vehicle Law.
(215 ILCS 5/179E-5 new)
Sec. 179E-5. Purpose. This Article is adopted to provide
for the creation of Special Purpose Reinsurance Vehicles
("SPRV") exclusively to facilitate the securitization of one
or more ceding insurers' risk as a means of accessing
alternative sources of capital and achieving the benefits of
securitization. Investors in fully funded insurance
securitization transactions provide funds that are available
to the SPRV to secure the aggregate limit under an SPRV
contract that provides coverage against the occurrence of a
triggering event. The creation of SPRVs is intended to
achieve greater efficiencies in conducting insurance
securitizations, to diversify and broaden insurers' access to
sources of risk bearing capital, and to make insurance
securitization generally available on reasonable terms to as
many U.S. insurers as possible.
Under the terms of the typical securities underlying an
insurance securitization transaction, proceeds from the
issuance of securities are repaid to the investor on a
specified maturity date with interest or dividends unless a
triggering event occurs. The insurance securitization
proceeds are available to pay the SPRV's obligations to the
ceding insurer if the triggering event occurs, as well as
being available to satisfy the SPRV's obligation to repay the
insurance securitization investors if a triggering event does
not occur. Insurance securitization transactions have been
performed by alien companies to utilize efficiencies
available to those alien companies that are not currently
available to domestic companies. This Article is adopted to
allow more efficiency in conducting insurance
securitizations, to allow ceding insurers easier access to
alternative sources of risk bearing capital, and to promote
the benefits of insurance securitization to U.S. insurers.
(215 ILCS 5/179E-10 new)
Sec. 179E-10. Exemption from insurance laws within
limitations.
(a) An SPRV is subject to the following:
(1) Articles I, XII 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; and
(2) Sections 132.1 through 134, 137 through 140,
155.01, 155.03, and 155.04 of this Code.
(b) No other provisions of this Code apply to an SPRV
organized under this Article, except as otherwise provided in
this Article.
(215 ILCS 5/179E-15 new)
Sec. 179E-15. Definitions. For purposes of this Article,
the following terms have the indicated meanings:
"Aggregate limit" means the maximum sum payable to the
ceding insurer under an SPRV contract.
"Ceding insurer" means one or more insurers or
reinsurers under common control that enters into an SPRV
contract with an SPRV.
"Control" (including the terms "controlling," "controlled
by" and "under common control with") means the possession,
direct or indirect, 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 non-management
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 any person,
directly or indirectly, owns, controls, holds with the power
to vote, or holds proxies representing, 10% or more of the
voting securities of any other person. This presumption may
be rebutted by a showing that control does not, in fact,
exist. Notwithstanding the foregoing, for purposes of this
Article, the fact that an SPRV exclusively provides
reinsurance to a ceding insurer under an SPRV contract shall
not by itself be sufficient grounds for a finding that the
SPRV or the SPRV organizer or owner is controlled by or under
common control with the ceding insurer.
"Fair Value" means:
(1) as to cash, the amount thereof; and
(2) as to an asset other than cash:
(A) the amount at which that asset could be
bought or sold in a current transaction between
arms-length, willing parties;
(B) quoted market price for the asset in
active markets should be used if available; and
(C) if quoted market prices are not available,
a value determined using the best information
available considering values of like assets and
other valuation methods, such as present value of
future cash flows, historical value of the same or
similar assets or comparison to values of other
asset classes the value of which have been
historically related to the subject asset.
"Fully funded" means that, with respect to an SPRV
contract, the fair value of the assets held in trust by or on
behalf of the SPRV under the SPRV contract on the date on
which the SPRV contract is effected, equals or exceeds the
aggregate limit as defined in this Article.
"Indemnity trigger" means a transaction term by which the
SPRV's obligation to pay the ceding insurer for losses
covered by an SPRV contract is triggered by the ceding
insurer incurring a specified level of losses.
"Insolvency" or "insolvent" means that the SPRV is unable
to pay its obligations when they are due, unless those
obligations are the subject of a bona fide dispute.
"Non-indemnity trigger" means a transaction term by which
the SPRV's obligation to pay the ceding insurer under an SPRV
contract arises from the occurrence or existence of some
event or condition other than the ceding insurer incurring a
specified level of losses under its insurance or reinsurance
contracts.
"Permitted investments" means those investments that meet
the qualifications set forth in Section 179E-85.
"Qualified U.S. financial institution" means, for
purposes of meeting the requirements of a trustee under this
Article, a financial institution that is eligible to act as a
fiduciary of a trust, and that is:
(1) organized or, in the case of a U.S. branch or
agency office of a foreign banking organization,
licensed, under the laws of the United States or any
state of the United States; and
(2) regulated, supervised, and examined by federal
or state authorities having regulatory authority over
banks and trust companies.
"Special purpose reinsurance vehicle" or "SPRV" means an
entity, domiciled in and organized under the laws of this
State, that has received a limited certificate of authority
from the Director under this Article exclusively for the
limited purpose of entering into and effectuating SPRV
insurance securitizations, SPRV contracts, and other related
transactions permitted by this Article.
"SPRV contract" means a contract between the SPRV and the
ceding insurer pursuant to which the SPRV agrees to pay the
ceding insurer an agreed amount upon the occurrence of a
triggering event.
"SPRV insurance securitization" means a package of
related risk transfer instruments and facilitating
administrative agreements by which proceeds are obtained by
an SPRV through the issuance of securities, which proceeds
are held in trust pursuant to the requirements of this
Article to secure the obligations of the SPRV under an SPRV
contract with one or more ceding insurers, wherein the SPRV's
obligation to return the full initial investment to the
holders of those securities, pursuant to the transaction
terms, is contingent upon those funds not being used to pay
the obligations of the SPRV to the ceding insurers under the
SPRV Contract.
"SPRV organizer" means one or more persons who have
organized or intend to organize an SPRV under authority
obtained pursuant to Section 179E-20.
"SPRV securities" means the securities issued by an SPRV.
"Triggering event" means an event or condition that, if
and when it occurs or exists, obligates the SPRV to make a
payment to the ceding insurer under the provisions of an SPRV
contract.
(215 ILCS 5/179E-20 new)
Sec. 179E-20. Limited certificate of authority.
(a) Within 30 days after receipt by the Director of a
complete filing by the prospective SPRV organizer for
authority to form or acquire an SPRV, which SPRV shall exist
and operate expressly for the limited purposes set forth in
this Article, the application shall be deemed approved and a
limited certificate of authority shall be issued, unless
before the expiration of the 30-day period the Director
approves or disapproves the application in writing. A limited
certificate of authority may not be issued unless the country
or state of domicile of each ceding insurer has notified the
Director in writing that they have not disapproved the
transaction. A complete filing of the application must
include the following:
(1) an affidavit verifying that each prospective
SPRV organizer the SPRV meets the requirements as set
forth in this Article;
(2) a representation that the prospective SPRV
organizer intends to form an SPRV to operate in
accordance with the requirements set forth in this
Article;
(3) the proposed name of the subject SPRV;
(4) biographical descriptions of each SPRV
organizer setting forth their legal names, any names
under which they have or are conducting their affairs,
and any affiliations with other persons as defined in
Article VIII 1/2, together with such other biographical
information as the Director may request;
(5) the source and form of the minimum capital to
be contributed to the SPRV;
(6) any persons with which the SPRV is or, upon
formation, will be affiliated as defined in Article VIII
1/2;
(7) the names and biographical information of the
proposed members of the board of directors and principal
officers of the SPRV, setting forth their legal names,
any names under which they have or are conducting their
affairs and any affiliations with other persons as
defined in Article VIII 1/2, together with such other
biographical information as the Director may request; and
(8) a plan of operation, consisting of a
description of the contemplated insurance securitization,
the SPRV contract, and related transactions, which plan
of operation must include:
(A) draft documentation or, at the discretion
of the Director, a written summary, of all material
agreements that will be entered into to effectuate
the insurance securitization and the related SPRV
contract, including the names of the ceding
insurers, the nature of the risks being assumed, and
the maximum amounts, purpose, nature, and
interrelationships of the various transactions
required to effectuate the insurance securitization;
(B) the investment strategy of the SPRV and a
representation that (i) the investment strategy
complies with the investment requirements set forth
in this Article and (ii) includes investment
practices or other provisions to preserve asset
values that will facilitate attainment of full
funding during the term of the securitization with
assets that can be monetized in response to a
triggering event without a substantial loss in
value;
(C) a description of the method by which
losses covered by the SPRV contract that may develop
after the termination of the contract period are to
be addressed under the provisions of the SPRV
contract; and
(D) a representation that the trust agreement
and the trusts holding assets that secure the
obligations of the SPRV under the SPRV contract and
the SPRV contract with the ceding insurers in
connection with the contemplated insurance
securitization will be structured in accordance with
the requirements set forth in this Article.
(b) The Director may not approve the application or
issue a limited certificate of authority until he or she has
found that the proposed plan of operation provides a
reasonable expectation of a successful operation, based on
the proposed SPRV organizer, directors, and officers being of
known good character and that there is no good reason to
believe that they are affiliated, directly or indirectly,
through ownership, control, management, reinsurance
transactions, or other insurance or business relations with
any person or persons known to have been involved in the
improper manipulation of assets, accounts or reinsurance.
(c) Upon approval by the Director of the application and
the issuance of a limited certificate of authority, the SPRV
may be acquired or formed and, in accordance with the
approved plan of operation, the SPRV may enter into contracts
and conduct other activities within the parameters set forth
in the filed plan of operation.
(d) The limited certificate of authority so issued shall
state that the SPRV's authorization to be involved in the
business of reinsurance is limited to only the reinsurance
activities that the SPRV is allowed to conduct under this
Article.
(e) The SPRV organizer must provide a complete set of
the documentation of the insurance securitization to the
Director upon closing of the transactions including, but not
limited to, an opinion of legal counsel with respect to
compliance with this and any other applicable laws as of the
effective date of the transaction. Any material change of the
SPRV's plan of operation described in items (1) through (8)
of subsection (a) including, but not limited to, the issuance
of new securities to continue the securitization activities
of the SPRV under this Article after expiration and full
satisfaction of the initial securitization transactions,
requires prior approval of the Director, however, a change in
the counterparty to swap transactions for an existing
securitization as allowed under this Article shall not be
deemed a material change. Any material change that is not
disapproved by the Director in writing within 15 days after
its submission shall be deemed approved.
(215 ILCS 5/179E-25 new)
Sec. 179E-25. Limited purpose of SPRV. This Article
authorizes SPRVs to be created for the limited purpose of
entering into insurance securitization transactions with
investors and into related agreements to pay one or more
ceding insurers agreed upon amounts under an SPRV contract
upon the occurrence of triggering events related to the
insurance business of the ceding insurer. An SPRV may not
issue a contract for assumption of risk or indemnification of
loss other than an SPRV contract as defined herein.
(215 ILCS 5/179E-30 new)
Sec. 179E-30. Approved transactions and operation of
SPRVs.
(a) SPRVs authorized under this Article may at any given
time enter into and effectuate SPRV contracts with one or
more ceding insurers, provided that the SPRV contracts
obligate the SPRV to indemnify the ceding insurer for losses
and that contingent obligations of the SPRV under the SPRV
contracts are securitized in full through a single SPRV
insurance securitization and are fully funded and secured
with assets held in trust in accordance with the requirements
of this Article pursuant to agreements contemplated by this
Article and invested in a manner that meets the criteria set
forth in Section 179E-85 of this Article.
(b) An SPRV may enter into such agreements with third
parties and conduct such business as is necessary to fulfill
its obligations and administrative duties incident to the
insurance securitization and the SPRV contract. The
agreements may include entering into swap agreements or other
transactions that have the objective of leveling timing
differences in funding up-front or ongoing transaction
expenses or managing credit or interest rate risk of the
investments in trust to assure that the assets held in trust
will be sufficient to satisfy (i) payment or repayment of the
securities issued pursuant to an insurance securitization
transaction or (ii) the obligations of the SPRV under the
SPRV contract. In fulfilling its function, the SPRV shall
adhere to the following requirements and shall, to the extent
of its powers, ensure that contracts obligating other parties
to perform certain functions incident to its operations are
substantively and materially consistent with the following
requirements and guidelines:
(1) An SPRV shall have a distinct name, which shall
include the designation "SPRV". The name of the SPRV may
not be deceptively similar to, or likely to be confused
with or mistaken for, any other existing business name
registered in this State.
(2) Unless otherwise provided in the plan of
operation, the principal place of business and office of
any SPRV organized under this Article must be located in
this State.
(3) The assets of an SPRV must be preserved and
administered by or on behalf of the SPRV to satisfy the
liabilities and obligations of the SPRV incident to the
insurance securitization and other related agreements,
including the SPRV contract.
(4) Assets of the SPRV that are pledged to secure
obligations of the SPRV to a ceding insurer under an SPRV
contract must be held in trust and administered by a
qualified U.S. financial institution. The qualified U.S.
financial institution may not control, be controlled by,
or be under common control with, the SPRV or the ceding
insurers.
(5) The agreement governing any trust must create
one or more trust accounts into which all pledged assets
must be deposited and held until distributed in
accordance with the trust agreement. The pledged assets
must be held by the trustee at the trustee's office in
the United States and may be held in certificated or
electronic form.
(6) The provisions for withdrawal by ceding
insurers of assets from the trust shall be clean and
unconditional, subject only to the following
requirements:
(A) the ceding insurer shall have the right to
withdraw assets from the trust account at any time,
without notice to the SPRV, subject only to written
notice to the trustee from the ceding insurer that
funds in the amount requested are due and payable by
the SPRV;
(B) no other statement or document need be
presented in order to withdraw assets, except the
ceding insurer may be required to acknowledge
receipt of withdrawn assets;
(C) the trust agreement must indicate that it
is not subject to any conditions or qualifications
outside of the trust agreement;
(D) the trust agreement may not contain
references to any other agreements or documents; and
(E) no reference may be made to the fact that
the funds may represent reinsurance premiums or that
the funds have been deposited for any specific
purpose.
(7) The trust agreement must be established for the
sole use and benefit of the ceding insurer at least to
the full extent of the SPRV's obligations to the ceding
insurer under the SPRV contract. If there is more than
one ceding insurer, a separate trust agreement must be
entered with each ceding insurer and a separate trust
account must be maintained for each ceding insurer.
(8) The trust agreement must provide for the
trustee to:
(A) receive assets and hold all assets in a
safe place;
(B) determine that all assets are in a form so
that the ceding insurer or the trustee, upon
direction by the ceding insurer may, whenever
necessary, negotiate any the assets, without consent
or signature from the SPRV or any other person or
entity;
(C) furnish to the SPRV, the Director, and the
ceding insurer a statement of all assets in the
trust account reported at fair value upon its
inception and at intervals no less frequent than the
end of each calendar quarter;
(D) notify the SPRV and the ceding insurer,
within 10 days, of any deposits to or withdrawals
from the trust account;
(E) upon written demand of the ceding insurer,
immediately take any and all steps necessary to
transfer absolutely and unequivocally all right,
title, and interest in the assets held in the trust
account to the ceding insurer and deliver physical
custody of the assets to the ceding insurer; and
(F) allow no substitutions or withdrawals of
assets from the trust account, except on written
instructions from the ceding insurer.
(9) The trust agreement must provide that at least
30 days, but not more than 45 days, before termination of
the trust account, written notification of termination
shall be delivered by the trustee to the ceding insurer.
(10) The trust agreement may be made subject to and
governed by the laws of any state, in addition to the
requirements for the trust as provided in this Article,
provided that the state is disclosed in the plan of
operation filed with and approved, or deemed approved, by
the Director under Section 179E-20.
(11) The trust agreement must prohibit invasion of
the trust corpus for the purpose of paying compensation
to, or reimbursing the expenses of, the trustee.
(12) The trust agreement must provide that the
trustee shall be liable for its own negligence, willful
misconduct, or lack of good faith.
(13) Notwithstanding the provisions of items
(6)(C), (6)(D), and (6)(E) of this subsection or item
(14)(E) of this subsection, when a trust agreement is
established in conjunction with an SPRV contract, then
the trust agreement may provide that the ceding insurer
must undertake to use and apply any amounts drawn upon
the trust account, without diminution because of the
insolvency of the ceding insurer or the SPRV, for the
following purposes:
(A) to pay or reimburse the ceding insurer
amounts due to the ceding insurer under the specific
SPRV contract including, but not limited to,
unearned premiums due to the ceding insurer, if not
otherwise paid by the SPRV in accordance with the
terms of the agreement; or
(B) when the ceding insurer has received
notification of termination of the trust account,
and when the SPRV's entire "obligations" under the
specific SPRV contract remain unliquidated and
undischarged 10 days prior to the termination date,
to withdraw amounts equal to those obligations and
deposit those amounts in a separate account, in the
name of the ceding insurer, in any qualified U.S.
financial institution, apart from its general
assets, in trust for those uses and purposes
specified in item (13)(A) of this subsection as may
remain executory after the withdrawal and for any
period after the termination date. "Obligations"
within the meaning of this subsection may, without
duplication, include:
(i) losses and loss expenses paid by the
ceding insurer, but not recovered from the
SPRV;
(ii) reserves for losses reported and
outstanding;
(iii) reserves for losses incurred but
not reported;
(iv) reserves for loss expenses;
(v) reserves for unearned premiums; and
(vi) any other amounts that, together
with (iv), represent the aggregate limit
remaining under the SPRV contract if the period
of coverage or the agreed upon period of loss
development has yet to expire.
The provisions to be included in the trust agreement
pursuant to this item (13) may, in lieu thereof, be included
in the underlying SPRV contract.
(14) An SPRV contract must contain provisions that:
(A) require the SPRV to enter into a trust
agreement specifying what recoverables or reserves,
or both, the agreement is to cover and to establish
a trust account for the benefit of the ceding
insurer;
(B) stipulate that assets deposited in the
trust account must be valued according to their
current fair value, and may consist only of
permitted investments;
(C) require the SPRV, before depositing assets
with the trustee, to execute assignments,
endorsements in blank, or transfer legal title to
the trustee of all shares, obligations, or any other
assets requiring assignments, in order that the
ceding insurer, or the trustee upon the direction of
the ceding insurer, may whenever necessary negotiate
the assets without consent or signature from the
SPRV or any other entity;
(D) require that all settlements of account
between the ceding insurer and the SPRV be made in
cash or its equivalent; and
(E) stipulate that the SPRV and the ceding
insurer agree that the assets in the trust account,
established under the provisions of the SPRV
contract, may be withdrawn by the ceding insurer at
any time, notwithstanding any other provisions in
the SPRV contract, and shall be utilized and applied
by the ceding insurer or any successor by operation
of law of the ceding insurer, including (subject to
the provisions of Section 179E-80), but without
further limitation, any liquidator, rehabilitator,
receiver, or conservator of the ceding insurer,
without diminution because of insolvency on the part
of the ceding insurer or the SPRV, only for the
following purposes:
(i) to transfer all of those assets into
the trust account for the benefit of the
ceding insurer under the terms of the SPRV
contract and in compliance with this Article;
and
(ii) to pay any other amounts the ceding
insurer claims are due under the SPRV contract.
(15) The SPRV contract entered into by the SPRV may
contain provisions that give the SPRV the right to seek
approval from the ceding insurer to withdraw from the
trust all or part of the assets contained in it and
transfer the assets to the SPRV, provided that:
(A) at the time of the withdrawal, the SPRV
replaces the withdrawn assets with other qualified
assets having a fair value equal to the fair value
of the assets withdrawn and that meet the
requirements of Section 179E-85; and
(B) after the withdrawals and transfer, the
fair value of the assets in trust securing the
obligations of the SPRV under the SPRV contract is
no less than an amount needed to satisfy the fully
funded requirement of the SPRV contract. The ceding
insurer shall be the sole judge as to the
application of these provisions, but shall not
unreasonably nor arbitrarily withhold its approval.
(16) The investors in the SPRV must agree, and be
contractually obligated to so do, that any obligation to
repay principal, interest, or dividends on the securities
issued by the SPRV shall be reduced upon the occurrence
of a triggering event, to the extent that the assets of
the SPRV held in trust for the benefit of the ceding
insurer are remitted to the ceding insurer in fulfillment
of the obligations of the SPRV under the SPRV contract.
(17) Assets held by an SPRV in trust must be valued
at their fair value.
(18) The proceeds from the sale of securities by
the SPRV to investors must be deposited with the trustee
as contemplated by this Article, and must be held or
invested by the trustee in accordance with the
requirements of Section 179E-85.
(19) An SPRV organized under this Article, may
engage only in fully funded indemnity triggered SPRV
contracts to support in full the ceding insurers'
exposures assumed by the SPRV, except that an SPRV may
engage in an SPRV contract that is non-indemnity
triggered after the Director, in accordance with the
authority granted under Section 179E-100 of this Article,
adopts rules addressing the treatment of the portion of
the risk that is not indemnity based, including
accounting, disclosure, risk-based capital treatment, and
the manner in which risks associated with the
non-indemnity based SPRV contract may be evaluated and
managed. An SPRV may not at any time enter into an SPRV
contract that is not fully funded, whether indemnity
triggered or non-indemnity triggered. Assets of the SPRV
may be used to pay interest or other consideration on any
outstanding debt or other obligation of the SPRV, and
nothing in this item shall be construed or interpreted to
prevent an SPRV from entering into a swap agreement or
other transaction that has the effect of guaranteeing
interest or other consideration.
(20) The contracts or other documentation relating
to an SPRV insurance securitization must contain
provisions identifying the SPRV that will enter into the
special purpose reinsurance securitization. The contracts
or other documentation must clearly disclose that the
assets of the SPRV, and only those assets, are available
to pay the obligations of that SPRV. Notwithstanding the
foregoing, and subject to the provisions of this Article
and any other applicable law or rule, the failure to
include this language in the contracts or other
documentation may not be used as the sole basis by
creditors, reinsurers, or other claimants to circumvent
the provisions of this Article.
(21) Under no circumstances may an SPRV be
authorized to:
(A) issue or otherwise administer primary
insurance policies;
(B) have any obligation to the policyholders
or reinsureds of the ceding insurer;
(C) enter into an SPRV contract with a person
that is not licensed or otherwise authorized to
conduct the business of insurance or reinsurance in
at least its state or country of domicile; or
(D) assume or retain exposure to insurance or
reinsurance losses for its own account that is not
initially fully funded by proceeds from an SPRV
securitization that meets the requirements of this
Article.
(22) At the cessation of business of an SPRV the
limited certificate of authority granted by the Director
shall expire and the SPRV shall no longer be authorized
to conduct activities under this Article unless and until
a new certificate of authority is issued pursuant to a
new filing in accordance with Section 179E-20.
(23) It is unlawful for an SPRV to loan or
otherwise invest, or place any of its assets in custody,
trust, or under management with, or to borrow money or
receive a loan from (other than by issuance of the
securities pursuant to an SPRV insurance securitization),
or advance from, anyone convicted of a felony, anyone who
is untrustworthy or of known bad character, or anyone
convicted of a criminal offense involving the conversion
or misappropriation of fiduciary funds or insurance
accounts, theft, deceit, fraud, misrepresentation, or
corruption.
(215 ILCS 5/179E-35 new)
Sec. 179E-35. Powers.
(a) An SPRV authorized under this Article shall have the
necessary powers to enter into contracts and to conduct such
other commercial activities as are necessary to fulfill the
purposes of this Article. Those activities may include, but
are not limited to, entering into SPRV contracts, issuing
securities of the SPRV and complying with the terms thereof,
entering into trust, swap, and other agreements as may be
necessary to effectuate an insurance securitization in
compliance with the limitations and pursuant to the
authorities granted to the SPRV under this Article or the
plan of operation approved or deemed approved by the
Director.
(b) An SPRV organized or doing business under this
Article shall, by the name adopted by the SPRV, in law, be
capable of suing or being sued, and may make or enforce
contracts in relation to the business of the SPRV; may have
and use a common seal, and in the name of the SPRV or by a
trustee chosen by the board of directors, shall, in law, be
capable of taking, purchasing, holding and disposing of real
and personal property for carrying into effect the purposes
of its organization; and may by its board of directors,
trustees, officers, or managers, make by-laws and amendments
thereto not inconsistent with the laws or the constitution of
this State or of the United States, which by-laws shall
define the manner of electing directors, trustees, or
managers and officers of the SPRV, together with their
qualifications and duties and fixing their term of office.
(215 ILCS 5/179E-40 new)
Sec. 179E-40. Affiliation. Notwithstanding the
provisions of Article VIII 1/2, the SPRV, the SPRV organizer,
and subsequent debt or equity investors in SPRV securities
shall not be deemed affiliates of the ceding insurer by
virtue of the SPRV contract between the ceding insurer and
the SPRV, the securities of the SPRV, or related agreements
necessary to implement the SPRV insurance securitization. An
SPRV may not be controlled by, may not control, and may not
be under common control with any ceding insurer that is a
party to an SPRV contract.
(215 ILCS 5/179E-45 new)
Sec. 179E-45. Capitalization. An SPRV must have minimum
initial capital of not less than $5,000. All of the initial
capital must be received by the SPRV in cash. The minimum
initial capital required and all other funds of the SPRV in
excess of its minimum initial capital, including funds held
in trust to secure the obligations of the SPRV pursuant to
its obligations under the SPRV contracts, shall be invested
as provided in Section 179E-85.
(215 ILCS 5/179E-50 new)
Sec. 179E-50. Dividends. An SPRV may not declare or pay
dividends in any form to its owners unless the dividends do
not decrease the capital of the SPRV below $5,000, and after
giving effect to the dividends, the assets of the SPRV,
including assets held in trust pursuant to the terms of the
insurance securitization, are sufficient to meet its
obligations. Dividends may be declared by the board of
directors of the SPRV if the declaration of dividends would
not violate the provisions of this Article or jeopardize the
fulfillment of the obligations of the SPRV or the trustee
pursuant to the SPRV insurance securitization, the SPRV
contract or any related transaction.
(215 ILCS 5/179E-55 new)
Sec. 179E-55. Records and financial reports.
(a) The records of the SPRV must be maintained in this
State and must be available for examination by the
Department. The Director shall have the right to examine the
records of an SPRV at any time. No later than 5 months after
the fiscal year end of the SPRV, the SPRV must file with the
Director an audit by a certified public accounting firm of
the financial statements of the SPRV and the trust accounts.
(b) No later than March 1 of each year, an SPRV
organized under this Article must file with the Director a
statement of operations, including, but not limited to, a
statement of income, a balance sheet, and a detailed listing
of invested assets, including identification of assets held
in trust to secure the SPRV's obligations under the SPRV
contract, for the year ending the previous December 31. The
statements shall be prepared in accordance with Section 136
of this Code on such forms and shall reveal such information
as shall be required by the Director.
(c) An SPRV must keep its books and records in a manner
so that its financial condition, affairs, and operations can
be ascertained, its financial statements filed with the
Director can be readily verified, and its compliance with the
provisions of this Article can be determined. An SPRV may
cause any or all of the books or records to be photographed,
reproduced on film, or stored and reproduced electronically.
(d) All original books, records, documents, accounts,
and vouchers, or reproductions of those items, must be
preserved and kept available in this State for the purpose of
examination and until authority to destroy or otherwise
dispose of the records is secured from the Director. The
original records may, however, be kept and maintained outside
this State if, according to a plan adopted by the SPRV's
board of directors and approved by the Director, it maintains
other suitable records.
(215 ILCS 5/179E-60 new)
Sec. 179E-60. Officers and directors.
(a) The directors of an SPRV shall elect such officers
they deem necessary to carry out the purposes of the SPRV
pursuant to this Article. The provisions of Section 10 of
this Code relating to the indemnification of officers and
directors apply to and govern SPRVs organized under this
Article.
(b) An SPRV authorized to do business in this State must
notify the Director of the appointment or election of any new
officers or directors within 30 days after the appointment or
election.
(c) If, after notice and hearing afforded to the officer
or director, and after a finding that the officer or director
is incompetent or untrustworthy or of known bad character,
the Director shall order the removal of the person. If the
SPRV does not comply with a removal order within 30 days, the
Director may suspend that SPRV's limited certificate of
authority until such time as the order is complied with.
(d) An SPRV may not make loans to any SPRV organizer,
owner, director, officer, manager, or affiliate.
(215 ILCS 5/179E-65 new)
Sec. 179E-65. Fees and taxes. The Director may charge
fees to reimburse the Director for expenses and costs
incurred by the Department incident to the examination of
financial statements and review of the plan of operation and
to reimburse other such activities of the Director related to
the formation and ongoing operation of an SPRV. An SPRV is
not be subject to State premium or other State taxes
incidental to the operation of its business as long as the
business remains within the limitations of this Article.
(215 ILCS 5/179E-70 new)
Sec. 179E-70. Dissolution. An SPRV operating under this
Article may be dissolved by a vote of its board of directors
at any time after the Director has approved that action. A
voluntary dissolution may not be effected or allowed until
and unless all of the obligations of the SPRV pursuant to the
insurance securitization have been fully and finally
satisfied pursuant to their terms. In the case of voluntary
dissolution, the disposition of the affairs of the SPRV
(including the settlement of all outstanding obligations)
shall be made by the officers or directors of the SPRV, and
when the liquidation has been completed and a final
statement, in acceptable form, filed with and approved, or
deemed approved, by the Director, the provisions for
voluntary dissolution under the laws of this State shall be
followed to dissolve the SPRV.
(215 ILCS 5/179E-75 new)
Sec. 179E-75. Conservation, rehabilitation, or
liquidation.
(a) The provisions of Articles XIII and XIII 1/2 apply
to an SPRV, except to the extent modified in this Section.
(b) Notwithstanding the provisions of Section 188 of
this Code, the Director may apply by petition to the Circuit
Court of Cook County, the Circuit Court of Sangamon County,
or the circuit court of the county in which an SPRV has or
last had its principal office for an order authorizing the
Director to conserve, rehabilitate or liquidate an SPRV
domiciled in this State solely on one or more of the
following grounds:
(1) there has been embezzlement, wrongful
sequestration, dissipation, or diversion of the assets of
the SPRV intended to be used to pay amounts owed to the
ceding insurer or the holders of SPRV securities; or
(2) the SPRV is insolvent and the holders of a
majority in outstanding principal amount of each class of
SPRV securities request or consent to conservation,
rehabilitation, or liquidation under this Article.
The court shall not grant relief under item (1) of this
subsection unless, after notice and a hearing, the Director,
who has the burden of proof, establishes by clear and
convincing evidence that the relief should be granted.
(c) Notwithstanding any contrary provision in this Code,
the rules promulgated under this Code, or any other
applicable law or rule, upon any order of conservation,
rehabilitation, or liquidation of the SPRV, the receiver
shall be bound to deal with the SPRV's assets and
liabilities, in accordance with the requirements set forth in
this Article.
(d) With respect to amounts recoverable under an SPRV
contract, the amount recoverable by the receiver may not be
reduced or diminished as a result of the entry of an order of
conservation, rehabilitation, or liquidation with respect to
the ceding insurer notwithstanding any provisions to the
contrary in the contracts or other documentation governing
the SPRV insurance securitization.
(e) Notwithstanding the provisions of Article XIII and
XIII 1/2 of this Code, any application, petition, or
temporary restraining order or injunction issued under those
Articles, with respect to a ceding insurer shall not prohibit
the transaction of any business by an SPRV, including any
payment by an SPRV made pursuant to an SPRV security, or any
action or proceeding against an SPRV or its assets.
(f) Notwithstanding the provisions of Articles XIII and
XIII 1/2 of this Code, the commencement of a summary
proceeding or other interim proceeding commenced before a
formal delinquency proceeding with respect to an SPRV, and
any order issued by the court thereunder, shall not prohibit:
(1) the payment by an SPRV made pursuant to an SPRV
security or SPRV contract; or
(2) the SPRV from taking any action required to
make the payment.
(g) Notwithstanding any other provision of Articles XIII
and XIII 1/2 of this Code or other State law:
(1) a receiver of a ceding insurer may not avoid a
non-fraudulent transfer by a ceding insurer to an SPRV of
money or other property made pursuant to an SPRV
contract; and
(2) a receiver of an SPRV may not void a
non-fraudulent transfer by the SPRV of money or other
property made to a ceding insurer pursuant to an SPRV
contract or made to or for the benefit of any holder of
an SPRV security on account of the SPRV security.
(h) With the exception of the fulfillment of the
obligations under an SPRV contract, and notwithstanding any
other provisions of this Article or other law of this State
to the contrary, the assets of an SPRV, including assets held
in trust, may not be consolidated with or included in the
estate of a ceding insurer in any delinquency proceeding
against the ceding insurer under this Article for any
purpose, including, without limitation, distribution to
creditors of the ceding insurer.
(i) Notwithstanding any other provision of this Article:
(1) A domiciliary receiver of an SPRV domiciled in
another state shall be vested by operation of law with
the title to all of the assets, property, contracts, and
rights of action, and all of the books, accounts, and
other records of the SPRV located in this State. The
domiciliary receiver shall have the immediate right to
recover all of the vested property, assets, and causes of
action of the SPRV located in this State.
(2) An ancillary proceeding may not be commenced or
prosecuted in this State against an SPRV domiciled in
another state.
(215 ILCS 5/179E-80 new)
Sec. 179E-80. SPRV not subject to guaranty funds,
residual market, or similar arrangements.
(a) An SPRV or the activities, assets, and obligations
relating to the SPRV are not subject to the provisions of
Articles XXXIII 1/2 and XXXIV of this Code, and an SPRV may
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 an SPRV
or the ceding insurer.
(b) An SPRV may not be required to participate in
residual market, FAIR plan, or other similar plans to provide
insurance coverage, take out policies, assume risks, make
capital contributions, pay or be otherwise obligated for
assessments, surcharges, or fees, or otherwise support or
participate in such plans or arrangements.
(215 ILCS 5/179E-85 new)
Sec. 179E-85. Asset and investment limitations.
(a) Assets of the SPRV held in trust to secure
obligations under the SPRV contract must at all times be held
in:
(1) cash and cash equivalents;
(2) securities listed by the Securities Valuation
Office of the NAIC and qualifying as admitted assets
under statutory accounting convention in its state of
domicile; and
(3) any other form of security acceptable to the
Director.
(b) An SPRV may enter into swap agreements or other
transactions that have the objective of leveling timing
differences in funding of up-front or ongoing transaction
expenses or managing credit or interest rate risk of the
investments in the trust to ensure that the investments are
sufficient to assure payment or repayment of:
(1) the securities (and related interest or
principal payments) issued pursuant to an SPRV insurance
securitization transaction; or
(2) the SPRV's obligations under the SPRV contract.
(215 ILCS 5/179E-90 new)
Sec. 179E-90. Credit for reinsurance for the SPRV
contract. An SPRV contract meeting the requirements under
this Article shall be granted credit for reinsurance
treatment or shall otherwise qualify as an asset or a
reduction from liability for reinsurance ceded by a domestic
insurer to an assuming insurer under Section 173.1 of this
Code for the benefit of the ceding insurer, provided and only
to the extent that (i) the fair value of the assets held in
trust for the benefit of the ceding insurer equal or exceed
the obligations due and payable to the ceding insurer by the
SPRV under the SPRV contract, (ii) the assets are held in
trust in accordance with the requirements set forth in this
Article, (iii) the assets are administered in the manner and
pursuant to arrangements as set forth in this Article, and
(iv) the assets are held or invested in one or more of the
forms allowed in Section 179E-85.
(215 ILCS 5/179E-95 new)
Sec. 179E-95. Insurance securitization deemed not to be
transaction of insurance business. The securities issued by
the SPRV under an SPRV insurance securitization shall not be
deemed to be insurance or reinsurance contracts. An investor
in securities issued pursuant to an SPRV insurance
securitization or any holder of those securities shall not,
by sole means of the investment or holding, 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 an SPRV 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.
(215 ILCS 5/179E-100 new)
Sec. 179E-100. Authority to adopt rules. The Director
may promulgate rules necessary to effectuate the purposes of
this Article. Any rules so promulgated will not affect any
existing SPRV insurance securitization in effect at the time
of the promulgation.
Section 99. Effective date. This Act takes effect upon
becoming law.
Passed in the General Assembly May 01, 2001.
Approved July 20, 2001.
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