215 ILCS 5/ Illinois Insurance Code.

(215 ILCS 5/123C-20) (from Ch. 73, par. 735C-20)

(Section scheduled to be repealed on January 1, 2027)

Sec. 123C-20. Laws applicable. No provisions of this Code, other than those contained in this Article or contained in specific references contained in this Article, shall apply to domestic captive insurance companies.

(Source: P.A. 85-131.)

(215 ILCS 5/123C-21) (from Ch. 73, par. 735C-21)

(Section scheduled to be repealed on January 1, 2027)

Sec. 123C-21. Severability. If any clause, sentence, paragraph, Section or part of this Article or the application thereof to any person or circumstances, shall, for any reason, be adjudged by any court of competent jurisdiction to be invalid, such judgment shall not affect, impair or invalidate the remainder of this Article, and the application thereof to other persons or circumstances, but shall be confined in its operation to the clause, sentence, paragraph, Section or part thereof directly involved in the controversy in which such judgment shall have been rendered and to the person or circumstances involved.

(Source: P.A. 85-131.)

(215 ILCS 5/123C-22) (from Ch. 73, par. 735C-22)

(Section scheduled to be repealed on January 1, 2027)

Sec. 123C-22. Subordinated indebtedness. A captive insurance company organized under this Article may borrow or assume a liability for the repayment of a sum of money upon a written agreement for the loan or advance, with interest at a rate not exceeding the corporate base rate as reported by the largest bank (measured by assets) with its head office located in Chicago, Illinois, as in effect on the first business day of the month, plus 3 percent per annum. Such rate shall be fixed on the execution of the loan and apply for the term of the loan. Such loan and interest thereon shall be repaid only out of surplus of the company in excess of such minimum surplus as is stipulated in and by the agreement. The agreement shall first be submitted to and approved by (A) not less than a majority of the Board of Directors of a stock company or a mutual company, and (B) the Director. Repayment of principal or payment of interest may be made only with the approval of the Director when he is satisfied that the financial condition of the company warrants such action. No loan or advance made under this Section or interest accruing thereon shall form a part of the legal liabilities of the company until authorized for payment by the Director but, until such authorization, all statements published by the company or filed with the Director shall show the amount thereof then remaining unpaid as a special surplus or capital account at the election of the company. Such account shall be considered in determining whether initial minimum capital and surplus requirements have been met. Nothing in this Section shall be construed to mean that a company may not otherwise borrow money, but the amount so borrowed with accrued interest thereon shall be carried by the company as a liability.

(Source: P.A. 86-632.)

(215 ILCS 5/123C-23)

Sec. 123C-23. Approval of captive reinsurance pools. Before determining whether to approve a captive insurance company's participation in a captive reinsurance pool under Section 123C-13 of this Code, the Director may:

(1) require the captive insurance company provide to the Director evidence that the captive reinsurance pool:

(a) is composed only of other captive insurance companies holding a certificate of authority under this Article or a similar law of another jurisdiction; and

(b) will be able to meet the pool's financial obligations; and

(2) impose any other limitation or requirement on the captive insurance company that is necessary and proper to provide adequate security for the captive insurance company.

(Source: P.A. 100-1118, eff. 11-27-18.)

(215 ILCS 5/123C-24)

Sec. 123C-24. Standards for risk management of controlled unaffiliated business. The Director may adopt rules establishing standards to ensure that an affiliated company is able to exercise control of the risk management function of any controlled unaffiliated business to be insured by the captive insurance company.

(Source: P.A. 100-1118, eff. 11-27-18.)

(215 ILCS 5/123C-25)

Sec. 123C-25. Captive managers. Before providing captive management services to a licensed captive insurance company, a captive management company shall register with the Director by providing the information required on a form adopted by the Director.

(Source: P.A. 100-1118, eff. 11-27-18.)

(215 ILCS 5/123C-26)

Sec. 123C-26. Dividends.

A. A captive insurance company shall notify the Director in writing when issuing policyholder dividends.

B. A captive insurance company, with the Director's approval, may issue dividends or distributions to the holders of an equity interest in the captive insurance company. The Director shall adopt rules to implement this subsection B.

(Source: P.A. 100-1118, eff. 11-27-18.)

(215 ILCS 5/123C-27)

Sec. 123C-27. Rulemaking authority. The Director may adopt reasonable rules as necessary to implement the purposes and provisions of this Article.

(Source: P.A. 100-1118, eff. 11-27-18.)

(215 ILCS 5/123C-28)

Sec. 123C-28. Confidentiality.

A. Any information filed by an applicant or captive insurance company under this Article is confidential and privileged for all purposes, including for purposes of the Freedom of Information Act, a response to a subpoena, or evidence in a civil action. Except as provided by subsections B and C of this Section, the information may not be disclosed without the prior written consent of the applicant or captive insurance company to which the information pertains.

B. If the recipient of the information described by subsection A of this Section has the legal authority to maintain the confidential or privileged status of the information and verifies that authority in writing, the Director or his or her designee may disclose the information to any of the following entities functioning in an official capacity:

(1) a director of insurance or an insurance department of another state;

(2) an authorized law enforcement official;

(3) a State's Attorney of this State;

(4) the Attorney General;

(5) a grand jury;

(6) the National Association of Insurance Commissioners if the captive insurance company is affiliated with an insurance company that is part of an insurance holding company system as described in Article VIII 1/2 of this Code;

(7) another state or federal regulator if the applicant or captive insurance company to which the information relates operates in the entity's jurisdiction;

(8) an international insurance regulator or analogous financial agency if the captive insurance company is affiliated with an insurance company that is part of an insurance holding company system as described in Article VIII 1/2 of this Code and the holding company system operates in the entity's jurisdiction; or

(9) members of a supervisory college described by Section 131.20c of this Code, if the captive insurance company is affiliated with an insurance company that is part of an insurance holding company system as described in Article VIII 1/2 of this Code.

C. The Director may use information described by subsection A of this Section in the furtherance of a legal or regulatory action relating to the administration of this Code.

(Source: P.A. 100-1118, eff. 11-27-18.)

(215 ILCS 5/Art. VIID heading) ARTICLE VIID. NONPROFIT RISK ORGANIZATIONS

(Source: P.A. 93-918, eff. 1-1-05.)

(215 ILCS 5/123D-1)

Sec. 123D-1. Purpose; construction. The purpose of this Article is to provide for the organization of and issuance of a certificate of authority to nonprofit risk organizations that insure nonprofit organizations and that will qualify, and continue to qualify, as a qualified charitable risk pool, as defined in subsection (n) of Section 501 of the Internal Revenue Code.

(Source: P.A. 93-918, eff. 1-1-05.)

(215 ILCS 5/123D-5)

Sec. 123D-5. Definitions. As used in this Article:

"Member" means a nonprofit organization that participates as an insured in a nonprofit risk organization.

"Nonmember charitable organization" has the meaning set forth in subsection (n) of Section 501 of the Internal Revenue Code.

"Nonprofit organizations" means organizations described in paragraph (3) of subsection (c), and exempt from taxation under subsection (a), of Section 501 of the Internal Revenue Code.

"Nonprofit risk organization" means a nonprofit company organized to do business solely with nonprofit organizations as a qualified charitable risk pool under subsection (n) of Section 501 of the Internal Revenue Code that is organized in accordance with this Article.

"Startup capital" has the meaning set forth in subsection (n) of Section 501 of the Internal Revenue Code.

(Source: P.A. 93-918, eff. 1-1-05.)

(215 ILCS 5/123D-10)

Sec. 123D-10. Organization of nonprofit risk organizations.

(a) A company organized pursuant to Articles III or IV, including such companies organized as a risk retention group in this State pursuant to Article VIIB of this Code, that satisfies the requirements of this Article may be organized as a nonprofit risk organization.

(b) Notwithstanding any contrary provision in subsection A of Section 123B-3 of this Code, a nonprofit risk organization may be organized as a reciprocal insurance company and qualify for organization under Article VIIB as a risk retention group.

(c) No nonprofit risk organization issued a certificate of authority pursuant to this Article shall be converted into a corporation or other entity organized for pecuniary profit or into a for-profit organization of any kind.

(Source: P.A. 93-918, eff. 1-1-05.)

(215 ILCS 5/123D-15)

Sec. 123D-15. Conduct of insurance business by nonprofit risk organizations.

(a) The Director may, pursuant to this Article, issue a certificate of authority to write the kinds of insurance enumerated in Classes 2 and 3 of Section 4 to a nonprofit risk organization that is a company organized pursuant to Articles III or IV, including such companies organized as a risk retention group in this State pursuant to Article VIIB, if such organization:

(1) complies with the applicable requirements of Articles III or IV and VIIB, if organized as a risk retention group; and

(2) has an initial paid-up capital and surplus at least equal to the amount of applicable paid-up capital and surplus required by Articles III or IV for a newly organized company doing the same kind or kinds of insurance business.

Thereafter, every such nonprofit risk organization shall maintain capital and surplus at least equal to the amount of applicable capital and surplus required to be maintained by companies under Articles III or IV doing the same kind or kinds of insurance business.

(b) Every certificate of authority to engage in an insurance business issued by the Director to any nonprofit risk organization pursuant to the provisions of this Article shall specify the company's name, the location of its principal office, the name and principal address of its attorney-in-fact, if any, and the kind or kinds of insurance business that it is authorized to engage in this State.

(Source: P.A. 93-918, eff. 1-1-05.)

(215 ILCS 5/123D-20)

Sec. 123D-20. Relevant criteria.

(a) A nonprofit risk organization must meet all of the following criteria:

(1) Be organized and operated solely to insure risks of its members.

(2) Directly provide information to its members with respect to loss control and risk management.

(3) Be comprised solely of members.

(4) Be organized under this Article.

(5) Be exempt from Illinois income taxes with respect to its activities or operations in furtherance of the powers conferred upon it by this Article.

(6) Obtain at least $1,000,000 in startup capital from nonmember charitable organizations. The startup capital may take the form of advancements or borrowings in the form permitted by Section 56 or 76 of this Code, as applicable. Startup capital may be used to satisfy the financial requirements contained in this Article applicable to a nonprofit risk organization only to the extent the Director determines that it complies with those requirements.

(7) Be controlled by a board of directors elected by its members.

(8) Require in its organizational documents that:

(A) each member of the nonprofit risk organization shall at all times be an organization described in paragraph (3) of subsection (c) of Section 501 of the Internal Revenue Code and exempt from tax under subsection (a) of Section 501 of the Internal Revenue Code;

(B) any member that receives a final determination that it no longer qualifies as an organization described in paragraph (3) of subsection (c) of Section 501 of the Internal Revenue Code shall immediately notify the nonprofit risk organization of the determination and the effective date of the determination; and

(C) each policy of insurance issued by the nonprofit risk organization shall provide that the policy does not cover the insured with respect to events occurring after the date the final determination was issued to the insured.

(b) An organization shall not cease to qualify as a nonprofit risk organization solely by reason of the failure of any of its members to continue to be an organization described in paragraph (3) of subsection (c) of Section 501 of the Internal Revenue Code if, within a reasonable period of time after the nonprofit risk organization is notified as required under subparagraph (8)(B) of subsection (a) of this Section, the nonprofit risk organization takes such action as may be reasonably necessary to remove the member from the nonprofit risk organization.

(Source: P.A. 93-918, eff. 1-1-05.)

(215 ILCS 5/123D-25)

Sec. 123D-25. Applicability of other provisions of this Code. Except as otherwise provided in this Article, where inconsistent with this Article, or where the context otherwise requires, all of the provisions of this Code and the rules of the Director relating to all insurers and those relating to a company organized pursuant to Articles III or IV or a risk retention group organized in this State pursuant to Article VIIB transacting the same kind or kinds of insurance shall be applicable to a nonprofit risk organization organized and issued a certificate of authority pursuant to this Article. Where any of such provisions of law refer to a corporation, company, or insurer, those references, when read in connection with and applicable to this Article, shall mean such a nonprofit risk organization.

(Source: P.A. 93-918, eff. 1-1-05.)

(215 ILCS 5/123D-30)

Sec. 123D-30. Residual market participation exemption; security funds. A nonprofit risk organization shall not be permitted or required to join or contribute financially to any plan, pool, association, or guaranty or insolvency fund in this State, nor shall any nonprofit risk organization, nor its insureds nor any claimants against the insureds, nor its parent nor any affiliated company, nor any member organization of its association, receive any benefit from any such plan, pool association, or guaranty or insolvency fund for claims arising out of the operations of the nonprofit risk organization. Each nonprofit risk organization must inform each insured, in both the application for insurance and in the policy issued to the insured, that (i) the nonprofit risk organization is not subject to all of the insurance laws and rules of this State, and (ii) State insurance insolvency guaranty funds are not available to the insured for claims arising out of the operations of the nonprofit risk organization.

(Source: P.A. 93-918, eff. 1-1-05.)

(215 ILCS 5/123D-35)

Sec. 123D-35. Rules. The Director shall adopt such rules as may be necessary for the implementation of this Article.

(Source: P.A. 93-918, eff. 1-1-05.)

(215 ILCS 5/Art. VIII heading) ARTICLE VIII. INVESTMENTS OF DOMESTIC COMPANIES

(215 ILCS 5/124) (from Ch. 73, par. 736)

Sec. 124. (Repealed).

(Source: P.A. 83-695. Repealed by P.A. 90-418, eff. 8-15-97.)

(215 ILCS 5/124.1) (from Ch. 73, par. 736.1)

Sec. 124.1. (Repealed).

(Source: P.A. 86-1156. Repealed by P.A. 90-418, eff. 8-15-97.)

(215 ILCS 5/124.2) (from Ch. 73, par. 736.2)

Sec. 124.2. (Repealed).

(Source: P.A. 89-97, eff. 7-7-95. Repealed by P.A. 90-418, eff. 8-15-97.)

(215 ILCS 5/124.3) (from Ch. 73, par. 736.3)

Sec. 124.3. (Repealed).

(Source: P.A. 87-757. Repealed by P.A. 90-418, eff. 8-15-97.)

(215 ILCS 5/124.4) (from Ch. 73, par. 736.4)

Sec. 124.4. (Repealed).

(Source: Laws 1963, p. 3139. Repealed by P.A. 90-418, eff. 8-15-97.)

(215 ILCS 5/124.5) (from Ch. 73, par. 736.5)

Sec. 124.5. (Repealed).

(Source: Laws 1963, p. 3139. Repealed by P.A. 90-418, eff. 8-15-97.)

(215 ILCS 5/124.6) (from Ch. 73, par. 736.6)

Sec. 124.6. (Repealed).

(Source: P.A. 83-695. Repealed by P.A. 90-418, eff. 8-15-97.)

(215 ILCS 5/124.7) (from Ch. 73, par. 736.7)

Sec. 124.7. (Repealed).

(Source: P.A. 83-695. Repealed by P.A. 90-418, eff. 8-15-97.)

(215 ILCS 5/124.7a) (from Ch. 73, par. 736.7a)

Sec. 124.7a. (Repealed).

(Source: P.A. 83-695. Repealed by P.A. 90-418, eff. 8-15-97.)

(215 ILCS 5/124.7b) (from Ch. 73, par. 736.7b)

Sec. 124.7b. (Repealed).

(Source: P.A. 85-1186. Repealed by 90-418, eff. 8-15-97.)

(215 ILCS 5/124.7c) (from Ch. 73, par. 736.7c)

Sec. 124.7c. (Repealed).

(Source: P.A. 83-695. Repealed by 90-418, eff. 8-15-97.)

(215 ILCS 5/124.8) (from Ch. 73, par. 736.8)

Sec. 124.8. (Repealed).

(Source: P.A. 83-695. Repealed by 90-418, eff. 8-15-97.)

(215 ILCS 5/124.9) (from Ch. 73, par. 736.9)

Sec. 124.9. (Repealed).

(Source: Laws 1963, p. 3139. Repealed by 90-418, eff. 8-15-97.)

(215 ILCS 5/124.9a) (from Ch. 73, par. 736.9a)

Sec. 124.9a. (Repealed).

(Source: P.A. 83-695. Repealed by 90-418, eff. 8-15-97.)

(215 ILCS 5/124.10) (from Ch. 73, par. 736.10)

Sec. 124.10. (Repealed).

(Source: P.A. 86-1156. Repealed by 90-418, eff. 8-15-97.)

(215 ILCS 5/124.10a) (from Ch. 73, par. 736.10a)

Sec. 124.10a. (Repealed).

(Source: P.A. 86-1156. Repealed by 90-418, eff. 8-15-97.)

(215 ILCS 5/124.10b) (from Ch. 73, par. 736.10b)

Sec. 124.10b. (Repealed).

(Source: P.A. 83-695. Repealed by 90-418, eff. 8-15-97.)

(215 ILCS 5/124.11) (from Ch. 73, par. 736.11)

Sec. 124.11. (Repealed).

(Source: P.A. 83-695. Repealed by 90-418, eff. 8-15-97.)

(215 ILCS 5/124.12) (from Ch. 73, par. 736.12)

Sec. 124.12. (Repealed).

(Source: Laws 1963, p. 3139. Repealed by 90-418, eff. 8-15-97.)

(215 ILCS 5/124.13) (from Ch. 73, par. 736.13)

Sec. 124.13. (Repealed).

(Source: Laws 1963, p. 3139. Repealed by 90-418, eff. 8-15-97.)

(215 ILCS 5/124.13a) (from Ch. 73, par. 736.13a)

Sec. 124.13a. (Repealed).

(Source: P.A. 83-695. Repealed by 90-418, eff. 8-15-97.)

(215 ILCS 5/124.13b) (from Ch. 73, par. 736.13b)

Sec. 124.13b. (Repealed).

(Source: P.A. 83-695. Repealed by 90-418, eff. 8-15-97.)

(215 ILCS 5/124.13c) (from Ch. 73, par. 736.13c)

Sec. 124.13c. (Repealed).

(Source: P.A. 83-695. Repealed by 90-418, eff. 8-15-97.)

(215 ILCS 5/124.13d) (from Ch. 73, par. 736.13d)

Sec. 124.13d. (Repealed).

(Source: P.A. 83-695. Repealed by 90-418, eff. 8-15-97.)

(215 ILCS 5/124.13e) (from Ch. 73, par. 736.13e)

Sec. 124.13e. (Repealed).

(Source: P.A. 83-695. Repealed by 90-418, eff. 8-15-97.)

(215 ILCS 5/124.14) (from Ch. 73, par. 736.14)

Sec. 124.14. (Repealed).

(Source: Laws 1963, p. 3139. Repealed by 90-418, eff. 8-15-97.)

(215 ILCS 5/124.15) (from Ch. 73, par. 736.15)

Sec. 124.15. (Repealed).

(Source: P.A. 83-695. Repealed by 90-418, eff. 8-15-97.)

(215 ILCS 5/124.17) (from Ch. 73, par. 736.17)

Sec. 124.17. (Repealed).

(Source: P.A. 83-695. Repealed by 90-418, eff. 8-15-97.)

(215 ILCS 5/125a) (from Ch. 73, par. 737a)

Sec. 125a. (Repealed).

(Source: P.A. 84-805. Repealed by 90-418, eff. 8-15-97.)

(215 ILCS 5/125b) (from Ch. 73, par. 737b)

Sec. 125b. (Repealed).

(Source: P.A. 86-1156. Repealed by 90-418, eff. 8-15-97.)

(215 ILCS 5/125.1a) (from Ch. 73, par. 737.1a)

Sec. 125.1a. (Repealed).

(Source: P.A. 83-695. Repealed by P.A. 90-418, eff. 8-15-97.)

(215 ILCS 5/125.2a) (from Ch. 73, par. 737.2a)

Sec. 125.2a. (Repealed).

(Source: P.A. 83-695. Repealed by P.A. 90-418, eff. 8-15-97.)

(215 ILCS 5/125.2b) (from Ch. 73, par. 737.2b)

Sec. 125.2b. (Repealed).

(Source: Laws 1963, p. 3139. Repealed by P.A. 90-418, eff. 8-15-97.)

(215 ILCS 5/125.2c) (from Ch. 73, par. 737.2c)

Sec. 125.2c. (Repealed).

(Source: Laws 1963, p. 3139. Repealed by P.A. 90-418, eff. 8-15-97.)

(215 ILCS 5/125.2d) (from Ch. 73, par. 737.2d)

Sec. 125.2d. (Repealed).

(Source: P.A. 76-710. Repealed by P.A. 90-418, eff. 8-15-97.)

(215 ILCS 5/125.2e) (from Ch. 73, par. 737.2e)

Sec. 125.2e. (Repealed).

(Source: P.A. 77-34. Repealed by P.A. 90-418, eff. 8-15-97.)

(215 ILCS 5/125.2f) (from Ch. 73, par. 737.2f)

Sec. 125.2f. (Repealed).

(Source: P.A. 83-695. Repealed by P.A. 90-418, eff. 8-15-97.)

(215 ILCS 5/125.2g) (from Ch. 73, par. 737.2g)

Sec. 125.2g. (Repealed).

(Source: P.A. 87-575. Repealed by P.A. 90-418, eff. 8-15-97.)

(215 ILCS 5/125.3a) (from Ch. 73, par. 737.3a)

Sec. 125.3a. (Repealed).

(Source: P.A. 83-695. Repealed by P.A. 90-418, eff. 8-15-97.)

(215 ILCS 5/125.4a) (from Ch. 73, par. 737.4a)

Sec. 125.4a. (Repealed).

(Source: P.A. 83-695. Repealed by P.A. 90-418, eff. 8-15-97.)

(215 ILCS 5/125.4b) (from Ch. 73, par. 737.4b)

Sec. 125.4b. (Repealed).

(Source: P.A. 86-1156. Repealed by P.A. 90-418, eff. 8-15-97.)

(215 ILCS 5/125.5b) (from Ch. 73, par. 737.5b)

Sec. 125.5b. (Repealed).

(Source: P.A. 83-695. Repealed by P.A. 90-418, eff. 8-15-97.)

(215 ILCS 5/125.6a) (from Ch. 73, par. 737.6a)

Sec. 125.6a. (Repealed).

(Source: P.A. 83-695. Repealed by P.A. 90-418, eff. 8-15-97.)

(215 ILCS 5/125.9a) (from Ch. 73, par. 737.9a)

Sec. 125.9a. (Repealed).

(Source: P.A. 87-1090. Repealed by P.A. 90-418, eff. 8-15-97.)

(215 ILCS 5/125.9b) (from Ch. 73, par. 737.9b)

Sec. 125.9b. (Repealed).

(Source: P.A. 87-108. Repealed by P.A. 90-418, eff. 8-15-97.)

(215 ILCS 5/125.9c)

Sec. 125.9c. (Repealed).

(Source: P.A. 89-97, eff. 7-7-95. Repealed by 90-418, eff. 8-15-97.)

(215 ILCS 5/125.10a) (from Ch. 73, par. 737.10a)

Sec. 125.10a. (Repealed).

(Source: P.A. 83-695. Repealed by P.A. 90-418, eff. 8-15-97.)

(215 ILCS 5/125.10c) (from Ch. 73, par. 737.10c)

Sec. 125.10c. (Repealed).

(Source: P.A. 86-1156. Repealed by P.A. 90-418, eff. 8-15-97.)

(215 ILCS 5/125.10d) (from Ch. 73, par. 737.10d)

Sec. 125.10d. (Repealed).

(Source: P.A. 83-695. Repealed by P.A. 90-418, eff. 8-15-97.)

(215 ILCS 5/125.11a) (from Ch. 73, par. 737.11a)

Sec. 125.11a. (Repealed).

(Source: P.A. 86-1156. Repealed by P.A. 90-418, eff. 8-15-97.)

(215 ILCS 5/125.12a) (from Ch. 73, par. 737.12a)

Sec. 125.12a. (Repealed).

(Source: P.A. 86-1156. Repealed by P.A. 90-418, eff. 8-15-97.)

(215 ILCS 5/125.12b) (from Ch. 73, par. 737.12b)

Sec. 125.12b. (Repealed).

(Source: P.A. 86-1475. Repealed by P.A. 90-418, eff. 8-15-97.)

(215 ILCS 5/125.12c) (from Ch. 73, par. 737.12c)

Sec. 125.12c. (Repealed).

(Source: P.A. 86-1156. Repealed by P.A. 90-418, eff. 8-15-97.)

(215 ILCS 5/125.14a) (from Ch. 73, par. 737.14a)

Sec. 125.14a. (Repealed).

(Source: P.A. 86-1475. Repealed by P.A. 90-418, eff. 8-15-97.)

(215 ILCS 5/125.15a) (from Ch. 73, par. 737.15a)

Sec. 125.15a. (Repealed).

(Source: P.A. 89-97, eff. 7-7-95. Repealed by P.A. 90-418, eff. 8-15-97.)

(215 ILCS 5/125.15b) (from Ch. 73, par. 737.15b)

Sec. 125.15b. (Repealed).

(Source: P.A. 86-1156. Repealed by P.A. 90-418, eff. 8-15-97.)

(215 ILCS 5/125.16a) (from Ch. 73, par. 737.16a)

Sec. 125.16a. (Repealed).

(Source: P.A. 86-1156. Repealed by P.A. 90-418, eff. 8-15-97.)

(215 ILCS 5/125.17a) (from Ch. 73, par. 737.17a)

Sec. 125.17a. (Repealed).

(Source: P.A. 83-695. Repealed by P.A. 90-418, eff. 8-15-97.)

(215 ILCS 5/125.18a) (from Ch. 73, par. 737.18a)

Sec. 125.18a. (Repealed).

(Source: P.A. 86-1156. Repealed by P.A. 90-418, eff. 8-15-97.)

(215 ILCS 5/125.18b) (from Ch. 73, par. 737.18b)

Sec. 125.18b. (Repealed).

(Source: P.A. 83-695. Repealed by P.A. 90-418, eff. 8-15-97.)

(215 ILCS 5/125.19a) (from Ch. 73, par. 737.19a)

Sec. 125.19a. (Repealed).

(Source: P.A. 83-695. Repealed by P.A. 90-418, eff. 8-15-97.)

(215 ILCS 5/125.20a) (from Ch. 73, par. 737.20a)

Sec. 125.20a. (Repealed).

(Source: P.A. 83-695. Repealed by P.A. 90-418, eff. 8-15-97.)

(215 ILCS 5/125.21a) (from Ch. 73, par. 737.21a)

Sec. 125.21a. (Repealed).

(Source: P.A. 85-1186. Repealed by P.A. 90-418, eff. 8-15-97.)

(215 ILCS 5/125.22a) (from Ch. 73, par. 737.22a)

Sec. 125.22a. (Repealed).

(Source: P.A. 86-1156. Repealed by P.A. 90-418, eff. 8-15-97.)

(215 ILCS 5/125.23a) (from Ch. 73, par. 737.23a)

Sec. 125.23a. (Repealed).

(Source: P.A. 83-695. Repealed by P.A. 90-418, eff. 8-15-97.)

(215 ILCS 5/125.24a) (from Ch. 73, par. 737.24a)

Sec. 125.24a. (Repealed).

(Source: P.A. 83-695. Repealed by P.A. 90-418, eff. 8-15-97.)

(215 ILCS 5/Art. VIII Pt. 1 heading) 1. GENERAL PROVISIONS

(215 ILCS 5/126.1)

Sec. 126.1. Purpose and scope.

A. Purpose. The purpose of this Article is to protect the interests of insureds by promoting insurer solvency and financial strength. This will be accomplished through the application of investment standards that facilitate a reasonable balance of the following objectives:

(1) To preserve principal;

(2) To assure reasonable diversification as to type of investment, issuer and credit quality; and

(3) To allow insurers to allocate investments in a manner consistent with principles of prudent investment management to achieve an adequate return so that obligations to insureds are adequately met and financial strength is sufficient to cover reasonably foreseeable contingencies.

B. Scope. This Article shall apply only to investments and investment practices of domestic insurers and United States branches of alien insurers entered through this State. This Article shall not apply to separate accounts of an insurer except to the extent that the provisions of Article XIV 1/2 so provide.

(Source: P.A. 90-418, eff. 8-15-97.)

(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;

(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; 90-794, eff. 8-14-98.)

(215 ILCS 5/126.3)

Sec. 126.3. General investment qualifications.

A. Insurers may acquire, hold or invest in investments or engage in investment practices as set forth in this Article. Insurers may also acquire, hold or invest in investments not conforming to the requirements of this Article that are not otherwise prohibited by this Code. Investments not conforming to this Article shall not be admitted assets unless they are acquired under other authority of this Code.

B. Subject to subsection C of this Section, an insurer shall not acquire or hold an investment as an admitted asset unless at the time of acquisition it is:

(1) Eligible for the payment or accrual of interest or discount (whether in cash or other forms of income or securities), eligible to receive dividends or other distributions or is otherwise income producing; or

(2) Acquired under Section 126.15B, 126.15C, 126.16, 126.18, 126.20, 126.28C, 126.29, 126.31, or 126.32 or under the authority of Sections of the Code other than this Article.

C. An insurer may acquire or hold as admitted assets investments that do not otherwise qualify as provided in this Article if the insurer has not acquired them for the purpose of circumventing any limitations contained in this Article, if the insurer acquires the investments in the following circumstances and the insurer complies with the provisions of Sections 126.5 and 126.7 as to the investments:

(1) As payment on account of existing indebtedness or in connection with the refinancing, restructuring or workout of existing indebtedness, if taken to protect the insurer's interest in that investment;

(2) As realization on collateral for indebtedness;

(3) In connection with an otherwise qualified investment or investment practice, as interest on or a dividend or other distribution related to the investment or investment practice or in connection with the refinancing of the investment, in each case for no additional or only nominal consideration;

(4) Under a lawful and bona fide agreement of recapitalization or voluntary or involuntary reorganization in connection with an investment held by the insurer; or

(5) Under a bulk reinsurance, merger or consolidation transaction approved by the Director if the assets constitute admissible investments for the ceding, merged or consolidated companies.

D. An investment or portion of an investment acquired by an insurer under subsection C of this Section shall become a nonadmitted asset 3 years (or 5 years in the case of mortgage loans and real estate) from the date of its acquisition, unless within that period the investment has become a qualified investment under a Section of this Article other than subsection C of this Section, but an investment acquired under an agreement of bulk reinsurance, merger or consolidation may be qualified for a longer period if so provided in the plan for reinsurance, merger or consolidation as approved by the Director. Upon application by the insurer and a showing that the nonadmission of an asset held under subsection C of this Section would injure the interests of the insurer, the Director may extend the period for admissibility for an additional reasonable period of time.

E. Except as provided in subsections F and H of this Section, an investment shall qualify under this Article if, on the date the insurer committed to acquire the investment or on the date of its acquisition, it would have qualified under this Article. For the purposes of determining limitations contained in this Article, an insurer shall give appropriate recognition to any commitments to acquire investments.

F. (1) An investment held as an admitted asset by an insurer on the effective date of this amendatory Act of 1997 which qualified immediately prior to the effective date of this amendatory Act of 1997 shall remain qualified as an admitted asset under this Article.

(2) Each specific transaction constituting an investment practice of the type described in this Article immediately prior to the effective date of this amendatory Act of 1997 that was lawfully entered into by an insurer and was in effect on the effective date of this amendatory Act of 1997 shall continue to be permitted under this Article until its expiration or termination under its terms.

G. Unless otherwise specified, an investment limitation computed on the basis of an insurer's admitted assets or capital and surplus shall relate to the amount required to be shown on the statutory balance sheet of the insurer most recently required to be filed (annual or last quarter) with the Director. Solely for purposes of computing any limitation under this Article based upon admitted assets, the insurer shall deduct from the amount of its admitted assets the amount of the liability recorded on such statutory balance sheet for:

(1) The return of acceptable collateral received in a reverse repurchase transaction or a securities lending transaction;

(2) Cash received in a dollar roll transaction; and

(3) The amount reported as borrowed money in such statutory balance sheet to the extent not included in paragraphs (1) and (2) of this subsection.

H. An investment qualified, in whole or in part, for acquisition or holding as an admitted asset may be qualified or requalified at the time of acquisition or a later date, in whole or in part, under any other Section, if the relevant conditions contained in the other Section are satisfied at the time of qualification or requalification.

I. An insurer shall maintain documentation demonstrating that investments were acquired in accordance with this Article, and specifying the Section of this Article under which they were acquired.

J. An insurer shall not enter into an agreement to purchase securities in advance of their issuance for resale to the public as part of a distribution of the securities by the issuer or otherwise guarantee the distribution, except that an insurer may acquire privately placed securities with registration rights.

K. Notwithstanding the provisions of this Article, the Director, for good cause, may order an insurer to nonadmit, limit, dispose of, withdraw from or discontinue an investment or investment practice in accordance with Article XXIV. The authority of the Director under this subsection is in addition to any other authority of the Director.

(Source: P.A. 90-418, eff. 8-15-97.)

(215 ILCS 5/126.4)

Sec. 126.4. Authorization of investments by the board of directors.

A. Within 3 months after the effective date of this amendatory Act of 1997, an insurer's board of directors shall adopt a written plan for acquiring and holding investments and for engaging in investment practices that specifies guidelines as to the quality, maturity and diversification of investments and other specifications including investment strategies intended to assure that the investments and investment practices are appropriate for the business conducted by the insurer, its liquidity needs and its capital and surplus. The board shall review and assess the insurer's technical investment and administrative capabilities and expertise before adopting a written plan concerning an investment strategy or investment practice.

B. Investments acquired and held under this Article shall be acquired and held under the supervision and direction of the board of directors of the insurer. The board of directors shall evidence by formal resolution, at least annually, that it has determined whether all investments have been made in accordance with delegations, standards, limitations and investment objectives prescribed by the board or a committee of the board charged with the responsibility to direct its investments.

C. On no less than a quarterly basis, and more often if deemed appropriate, an insurer's board of directors or committee of the board of directors shall:

(1) Receive and review a summary report on the insurer's investment portfolio, its investment activities and investment practices engaged in under delegated authority, in order to determine whether the investment activity of the insurer is consistent with its written plan; and

(2) Review and revise, as appropriate, the written plan.

D. In discharging its duties under this Section, the board of directors shall require that records of any authorizations or approvals, other documentation as the board may require and reports of any action taken under authority delegated under the plan referred to in subsection A of this Section shall be made available on a regular basis to the board of directors.

E. In discharging their duties under this Section, the directors of an insurer shall perform their duties in good faith and with that degree of care that ordinarily prudent individuals in like positions would use under similar circumstances.

F. If an insurer does not have a board of directors, all references to the board of directors in this Article shall be deemed to be references to the governing body of the insurer having authority equivalent to that of a board of directors.

(Source: P.A. 90-418, eff. 8-15-97.)

(215 ILCS 5/126.5)

Sec. 126.5. Prohibited investments. An insurer shall not, directly or indirectly:

A. Invest in an obligation or security or make a guarantee for the benefit of or in favor of an officer or director of the insurer, except as provided in Section 126.6;

B. Invest in an obligation or security, make a guarantee for the benefit of or in favor of, or make other investments in a business entity of which 10% or more of the voting securities or equity interests are owned directly or indirectly by or for the benefit of one or more officers or directors of the insurer, except pursuant to a transaction entered into in compliance with Section 131.20a of this Code or provided in Section 126.6;

C. Engage on its own behalf or through one or more affiliates in a transaction or series of transactions designed to evade the prohibitions of this Article;

D. (1) Invest in a partnership as a general partner, except that an insurer may make an investment as a general partner:

(a) If all other partners in the partnership are subsidiaries of the insurer or other insurance company affiliates of the insurer;

(b) For the purpose of:

(i) Meeting cash calls committed to prior to the effective date of this amendatory Act of 1997;

(ii) Completing those specific projects or activities of the partnership in which the insurer was a general partner as of the effective date of this amendatory Act of 1997 that had been undertaken as of that date; or

(iii) Making capital improvements to property owned by the partnership on the effective date of this amendatory Act of 1997 if the insurer was a general partner as of that date; or

(c) In accordance with Section 126.3C;

(2) This subsection shall not prohibit a subsidiary or other affiliate of the insurer from becoming a general partner; or

E. Invest in or lend its funds upon the security of shares of its own stock, except as authorized by other provisions of this Code. However, no such shares shall be admitted assets of the insurer.

(Source: P.A. 90-418, eff. 8-15-97.)

(215 ILCS 5/126.6)

Sec. 126.6. Loans to officers and directors.

A. (1) Except as provided in Section 126.6B, an insurer shall not directly or indirectly, unless it has notified the Director in writing of its intention to enter into the transaction at least 30 days prior thereto, or any shorter period as the Director may permit, and the Director has not disapproved it within that period:

(a) Make a loan to or other investment in an officer or director of the insurer or a person in which the officer or director has any direct or indirect financial interest;

(b) Make a guarantee for the benefit of or in favor of an officer or director of the insurer or a person in which the officer or director has any direct or indirect financial interest; or

(c) Enter into an agreement for the purchase or sale of property from or to an officer or director of the insurer or a person in which the officer or director has any direct or indirect financial interest.

(2) For purposes of this Section, an officer or director shall not be deemed to have a financial interest by reason of an interest that is held directly or indirectly through the ownership of equity interests representing less than 2% of all outstanding equity interests issued by a person that is a party to the transaction, or solely by reason of that individual's position as a director or officer of a person that is a party to the transaction.

(3) This subsection does not permit an investment that is prohibited by Section 126.5.

(4) This subsection does not apply to a transaction between an insurer and any of its subsidiaries or affiliates that is entered into in compliance with Section 131.20a of this Code, other than a transaction between an insurer and its officer or director.

B. An insurer may make, without the prior written approval of the Director:

(1) Policy loans in accordance with the terms of the policy or contract and Section 126.19;

(2) Advances to officers or directors for expenses reasonably expected to be incurred in the ordinary course of the insurer's business or guarantees associated with credit or charge cards issued or credit extended for the purpose of financing these expenses;

(3) Loans secured by the principal residence of an existing or new officer of the insurer made in connection with the officer's relocation at the insurer's request, if the loans comply with the requirements of Section 126.15 or 126.28 and the terms and conditions otherwise are the same as those generally available from unaffiliated third parties;

(4) Secured loans to an existing or new officer of the insurer made in connection with the officer's relocation at the insurer's request, if the loans:

(a) Do not have a term exceeding 2 years;

(b) Are required to finance mortgage loans outstanding at the same time on the prior and new residences of the officer;

(c) Do not exceed an amount equal to the equity of the officer in the prior residence; and

(d) Are required to be fully repaid upon the earlier of the end of the 2 year period or the sale of the prior residence; and

(5) Loans and advances to officers or directors made in compliance with state or federal law specifically related to the loans and advances by a regulated non-insurance subsidiary or affiliate of the insurer in the ordinary course of business and on terms no more favorable than available to other customers of the entity.

(Source: P.A. 90-418, eff. 8-15-97.)

(215 ILCS 5/126.7)

Sec. 126.7. Valuation of investments. For the purposes of this Article, the value or amount of an investment acquired or held, or an investment practice engaged in, under this Article, unless otherwise specified in this Code, shall be the value at which assets of an insurer are required to be reported for statutory accounting purposes as determined in accordance with procedures prescribed in published accounting and valuation standards of the NAIC, including the Purposes and Procedures of the Securities Valuation Office, the Valuation of Securities manual, the Accounting Practices and Procedures manual, the Annual Statement Instructions or any successor valuation procedures officially adopted by the NAIC. The Director shall promulgate rules for determining and calculating values to be used in financial statements submitted to the Department for investments not subject to published National Association of Insurance Commissioners valuation standards.

(Source: P.A. 90-418, eff. 8-15-97.)

(215 ILCS 5/126.8)

Sec. 126.8. Rules. The Director may, in accordance with Section 401 of this Code, promulgate rules implementing the provisions of this Article.

(Source: P.A. 90-418, eff. 8-15-97.)

(215 ILCS 5/Art. VIII Pt. 2 heading) 2. LIFE AND HEALTH INSURERS

(215 ILCS 5/126.9)

Sec. 126.9. Applicability. This Part shall apply to the investments and investment practices of companies authorized to transact business under Class 1 of Section 4 of this Code and other companies whose investments and investment practices are regulated as life insurers under this Code, subject to the provisions of Section 126.1B.

(Source: P.A. 90-418, eff. 8-15-97.)

(215 ILCS 5/126.10)

Sec. 126.10. General 3% diversification, medium and lower grade investments, and Canadian investments.

A. General 3% diversification.

(1) Except as otherwise specified in this Article, an insurer shall not acquire, directly or indirectly through an investment subsidiary, an investment under this Article if, as a result of and after giving effect to the investment, the insurer would hold more than 3% of its admitted assets in investments of all kinds issued, assumed, accepted, guaranteed, or insured by a single person.

(2) This 3% limitation shall not apply to the aggregate amounts insured by a single financial guaranty insurer with the highest generic rating issued by a nationally recognized statistical rating organization.

(3) Asset-backed securities shall not be subject to the limitations of paragraph (1) of this subsection, however, except as permitted by subsection A(4) of this Section, an insurer shall not acquire an asset-backed security if, as a result of and after giving effect to the investment, the aggregate amount of asset-backed securities secured by or evidencing an interest in a single asset or single pool of assets held by a trust or other business entity, then held by the insurer would exceed 3% of its admitted assets.

(4) A company's investments in mortgage related securities, as defined by the Secondary Mortgage Market Enhancement Act of 1984 (United States Public Law 98-440) [12 U.S.C. 24, 1451, 1454 et seq.], that are backed by any single pool of mortgages and made pursuant to the authority of that Act, shall not exceed 5% of its admitted assets.

B. Medium and lower grade investments.

(1) An insurer shall not acquire, directly or indirectly through an investment subsidiary, an investment under Sections 126.11, 126.14, and 126.17 or counterparty exposure under Section 126.18D if, as a result of and after giving effect to the investment:

(a) The aggregate amount of medium and lower grade investments then held by the insurer would exceed 20% of its admitted assets;

(b) The aggregate amount of lower grade investments then held by the insurer would exceed 10% of its admitted assets;

(c) The aggregate amount of investments rated 5 or 6 by the SVO then held by the insurer would exceed 3% of its admitted assets;

(d) The aggregate amount of investments rated 6 by the SVO then held by the insurer would exceed 1% of its admitted assets; or

(e) The aggregate amount of lower grade investments then held by the insurer that receive as cash income less than the equivalent yield for Treasury issues with a comparative average life, would exceed 1% of its admitted assets.

(2) An insurer shall not acquire, directly or indirectly through an investment subsidiary, an investment under Sections 126.11, 126.14, and 126.17 or counterparty exposure under Section 126.18D if, as a result of and after giving effect to the investment:

(a) The aggregate amount of medium and lower grade investments issued, assumed, accepted, guaranteed, or insured by any one person or, as to asset-backed securities secured by or evidencing an interest in a single asset or pool of assets, then held by the insurer would exceed 1% of its admitted assets; or

(b) The aggregate amount of lower grade investments issued, assumed, accepted, guaranteed, or insured by any one person or, as to asset-backed securities secured by or evidencing an interest in a single asset or pool of assets, then held by the insurer would exceed 0.5% of its admitted assets.

(3) If an insurer attains or exceeds the limit of any one rating category referred to in this subsection, the insurer shall not thereby be precluded from acquiring investments in other rating categories subject to the specific and multi-category limits applicable to those investments.

C. Canadian investments.

(1) An insurer shall not acquire, directly or indirectly through an investment subsidiary, a Canadian investment authorized by this Article, if as a result of and after giving effect to the investment, the aggregate amount of these investments then held by the insurer would exceed 40% of its admitted assets, or if the aggregate amount of Canadian investments not acquired under Section 126.11B then held by the insurer would exceed 25% of its admitted assets.

(2) However, as to an insurer that is authorized to do business in Canada or that has outstanding insurance, annuity or reinsurance contracts on lives or risks resident or located in Canada and denominated in Canadian currency, the limitations of paragraph (1) of this subsection shall be increased by the greater of:

(a) The amount the insurer is required by Canadian law to invest in Canada or to be denominated in Canadian currency; or

(b) 115% of the amount of its reserves and other obligations under contracts on lives or risks resident or located in Canada.

(Source: P.A. 90-418, eff. 8-15-97.)

(215 ILCS 5/126.11)

Sec. 126.11. Rated credit instruments. Subject to the limitations of subsection F of this Section, an insurer may acquire rated credit instruments:

A. Subject to the limitations of Section 126.10B, but not to the limitations of Section 126.10A, except for that of subsection (4) of Section 126.10A, an insurer may acquire rated credit instruments issued, assumed, guaranteed, or insured by:

(1) The United States; or

(2) A government sponsored enterprise of the United States, if the instruments of the government sponsored enterprise are assumed, guaranteed, or insured by the United States or are otherwise backed or supported by the full faith and credit of the United States.

B. (1) Subject to the limitations of Section 126.10B, but not to the limitations of Section 126.10A, an insurer may acquire rated credit instruments issued, assumed, guaranteed, or insured by:

(a) Canada; or

(b) A government sponsored enterprise of Canada, if the instruments of the government sponsored enterprise are assumed, guaranteed, or insured by Canada or are otherwise backed or supported by the full faith and credit of Canada;

(2) However, an insurer shall not acquire an instrument under this subsection if, as a result of and after giving effect to the investment, the aggregate amount of investments then held by the insurer under this subsection would exceed 40% of its admitted assets.

C. (1) Subject to the limitations of Section 126.10B, but not to the limitations of Section 126.10A, an insurer may acquire rated credit instruments, excluding asset-backed securities:

(a) Issued by a government money market mutual fund, a class one money market mutual fund or a class one bond mutual fund;

(b) Issued, assumed, guaranteed, or insured by a government sponsored enterprise of the United States other than those eligible under subsection A of this Section;

(c) Issued, assumed, guaranteed, or insured by a state, if the instruments are general obligations of the state; or

(d) Issued by a multilateral development bank;

(2) However, an insurer shall not acquire an instrument of any one fund, any one enterprise or entity or any one state under this subsection if, as a result of and after giving effect to the investment, the aggregate amount of investments then held by the insurer in any one fund, enterprise, entity, or state under this subsection would exceed 10% of its admitted assets.

D. Subject to the limitations of Section 126.10, an insurer may acquire preferred stocks that are not foreign investments and that meet the requirements of rated credit instruments if, as a result of and after giving effect to the investment:

(1) The aggregate amount of preferred stocks then held by the insurer under this subsection does not exceed 33 1/3% of its admitted assets; and

(2) The aggregate amount of preferred stocks then held by the insurer under this subsection which are not sinking fund stocks or rated P1 or P2 by the SVO does not exceed 15% of its admitted assets.

E. Subject to the limitations of Section 126.10, in addition to those investments eligible under subsections A, B, C and D of this Section, an insurer may acquire rated credit instruments that are not foreign investments.

F. An insurer shall not acquire special rated credit instruments under this Section if, as a result of and after giving effect to the investment, the aggregate amount of special rated credit instruments then held by the insurer would exceed 5% of its admitted assets. The Director may, by rule, identify certain special rated credit instruments that will be exempt from the limitation imposed by this subsection.

(Source: P.A. 90-418, eff. 8-15-97.)

(215 ILCS 5/126.12)

Sec. 126.12. Insurer investment pools.

A. An insurer may acquire investments in investment pools that:

(1) Invest only in:

(a) Obligations that are rated 1 or 2 by the SVO or have an equivalent of an SVO 1 or 2 rating (or, in the absence of a 1 or 2 rating or equivalent rating, the issuer has outstanding obligations with an SVO 1 or 2 or equivalent rating) by a nationally recognized statistical rating organization recognized by the SVO and have:

(i) A remaining maturity of 397 days or less or a put that entitles the holder to receive the principal amount of the obligation which put may be exercised through maturity at specified intervals not exceeding 397 days; or

(ii) A remaining maturity of 3 years or less and a floating interest rate that resets no less frequently than quarterly on the basis of a current short-term index (federal funds, prime rate, treasury bills, London InterBank Offered Rate (LIBOR) or commercial paper) and is subject to no maximum limit, if the obligations do not have an interest rate that varies inversely to market interest rate changes;

(b) Government money market mutual funds or class one money market mutual funds; or

(c) Securities lending, repurchase, and reverse repurchase transactions that meet all the requirements of Section 126.16, except the quantitative limitations of Section 126.16D; or

(2) Invest only in investments which an insurer may acquire under this Article, if the insurer's proportionate interest in the amount invested in these investments when combined with amount of such investments made directly or indirectly through an investment subsidiary or other insurer investment pool permitted under this subsection A(2) does not exceed the applicable limits of this Article for such investments.

B. For an investment in an investment pool to be qualified under this Article, the investment pool shall not:

(1) Acquire securities issued, assumed, guaranteed or insured by the insurer or an affiliate of the insurer;

(2) Borrow or incur any indebtedness for borrowed money, except for securities lending and reverse repurchase transactions that meet the requirements of Section 126.16 except the quantitative limitations of Section 126.16D; or

(3) Acquire an investment if, as a result of such transaction, the aggregate value of securities then loaned or sold to, purchased from or invested in any one business entity under this Section would exceed 10% of the total assets of the investment pool.

C. The limitations of Section 126.10A shall not apply to an insurer's investment in an investment pool, however an insurer shall not acquire an investment in an investment pool under this Section if, as a result of and after giving effect to the investment, the aggregate amount of investments then held by the insurer under this Section:

(1) In all investment pools investing in investments permitted under subsection A(2) of this Section would exceed 25% of its admitted assets; or

(2) In all investment pools would exceed 35% of its admitted assets.

D. For an investment in an investment pool to be qualified under this Article, the manager of the investment pool shall:

(1) Be organized under the laws of the United States or a state and designated as the pool manager in a pooling agreement;

(2) Be the insurer, an affiliated insurer or a business entity affiliated with the insurer, a qualified bank, a business entity registered under the Investment Advisers Act of 1940 (15 U.S.C. 80a-1 et seq.), as amended or, in the case of a reciprocal insurer or interinsurance exchange, its attorney-in-fact, or in the case of a United States branch of an alien insurer, its United States manager or an affiliate or subsidiary of its United States manager;

(3) Be responsible for the compilation and maintenance of detailed accounting records setting forth:

(a) The cash receipts and disbursements reflecting each participant's proportionate investment in the investment pool;

(b) A complete description of all underlying assets of the investment pool (including amount, interest rate, maturity date (if any) and other appropriate designations); and

(c) Other records which, on a daily basis, allow third parties to verify each participant's investment in the investment pool; and

(4) Maintain the assets of the investment pool in one or more accounts, in the name of or on behalf of the investment pool, under a custody agreement with a qualified bank. The custody agreement shall:

(a) State and recognize the claims and rights of each participant;

(b) Acknowledge that the underlying assets of the investment pool are held solely for the benefit of each participant in proportion to the aggregate amount of its investments in the investment pool; and

(c) Contain an agreement that the underlying assets of the investment pool shall not be commingled with the general assets of the custodian qualified bank or any other person.

E. The pooling agreement for each investment pool shall be in writing and shall provide that:

(1) An insurer and its affiliated insurers or, in the case of an investment pool investing solely in investments permitted under subsection A(1) of this Section, the insurer and its subsidiaries, affiliates or any pension or profit sharing plan of the insurer, its subsidiaries and affiliates or, in the case of a United States branch of an alien insurer, affiliates or subsidiaries of its United States manager, shall, at all times, hold 100% of the interests in the investment pool;

(2) The underlying assets of the investment pool shall not be commingled with the general assets of the pool manager or any other person;

(3) In proportion to the aggregate amount of each pool participant's interest in the investment pool:

(a) Each participant owns an undivided interest in the underlying assets of the investment pool; and

(b) The underlying assets of the investment pool are held solely for the benefit of each participant;

(4) A participant, or in the event of the participant's insolvency, bankruptcy or receivership, its trustee, receiver or other successor-in-interest, may withdraw all or any portion of its investment from the investment pool under the terms of the pooling agreement;

(5) Withdrawals may be made on demand without penalty or other assessment on any business day, but settlement of funds shall occur within a reasonable and customary period thereafter not to exceed 10 business days. Distributions under this paragraph shall be calculated in each case net of all then applicable fees and expenses of the investment pool. The pooling agreement shall provide that the pool manager shall distribute to a participant, at the discretion of the pool manager:

(a) In cash, the then fair market value of the participant's pro rata share of each underlying asset of the investment pool;

(b) In kind, a pro rata share of each underlying asset; or

(c) In a combination of cash and in kind distributions, a pro rata share in each underlying asset; and

(6) The pool manager shall make the records of the investment pool available for inspection by the Director.

F. Except for the formation of the investment pool, transactions and between a domestic insurer and an affiliated insurer investment pool shall not be subject to the requirements of Section 131.20a of this Code.

(Source: P.A. 100-201, eff. 8-18-17.)

(215 ILCS 5/126.13)

Sec. 126.13. Equity interests.

A. Subject to the limitations of Section 126.10, an insurer may acquire directly or indirectly through an investment subsidiary, equity interests in business entities organized under the laws of any domestic jurisdiction.

B. An insurer shall not acquire directly or indirectly through an investment subsidiary an investment under this Section if, as a result of and after giving effect to the investment, the aggregate amount of investments then held by the insurer under this Section would exceed 20% of its admitted assets or, except for mutual funds, the amount of equity interests then held by the insurer that are not listed on a qualified exchange would exceed 5% of its admitted assets. An accident and health insurer shall not be subject to this Section but shall be subject to the same aggregate limitation on equity interests as a property and casualty insurer under Section 126.26 and also to the provisions of Section 126.22 of this Article.

C. An insurer shall not acquire under this Section any investments that the insurer may acquire under Section 126.15.

D. An insurer shall not short sell equity interests unless the insurer covers the short sale by owning the equity interest or an unrestricted right to the equity interest exercisable within 6 months of the short sale.

(Source: P.A. 90-418, eff. 8-15-97.)

(215 ILCS 5/126.14)

Sec. 126.14. Tangible personal property under lease.

A. (1) Subject to the limitations of Section 126.10, an insurer may acquire tangible personal property or equity interests therein located or used wholly or in part within a domestic jurisdiction either directly or indirectly through limited partnership interests and general partnership interests not otherwise prohibited by Section 126.5D, joint ventures, stock of an investment subsidiary or membership interests in a limited liability company, trust certificates, or other similar instruments.

(2) Investments acquired under paragraph (1) of this subsection shall be eligible only if:

(a) The property is subject to a lease or other agreement with a person whose rated credit instruments in the amount of the purchase price of the personal property the insurer could then acquire under Section 126.11; and

(b) The lease or other agreement provides the insurer the right to receive rental, purchase or other fixed payments for the use or purchase of the property, and the aggregate value of the payments, together with the estimated residual value of the property at the end of its useful life and the estimated tax benefits to the insurer resulting from ownership of the property, shall be adequate to return the cost of the insurer's investment in the property, plus a return deemed adequate by the insurer.

B. The insurer shall compute the amount of each investment under this Section on the basis of the out of pocket purchase price and applicable related expenses paid by the insurer for the investment, net of each borrowing made to finance the purchase price and expenses, to the extent the borrowing is without recourse to the insurer.

C. An insurer shall not acquire directly or indirectly through an investment subsidiary an investment under this Section if, as a result of and after giving effect to the investment, the aggregate amount of all investments then held by the insurer under this Section would exceed:

(1) 2% of its admitted assets; or

(2) 0.5% of its admitted assets as to any single item of tangible personal property.

D. For purposes of determining compliance with the limitations of Section 126.10, investments acquired by an insurer under this Section shall be aggregated with those acquired under Section 126.11, and each lessee of the property under a lease referred to in this Section shall be deemed the issuer of an obligation in the amount of the investment of the insurer in the property determined as provided in subsection B of this Section.

E. Nothing in this Section is applicable to tangible personal property lease arrangements between an insurer and its subsidiaries and affiliates under a cost sharing arrangement or agreement permitted under Section 131.20a(1)(a)(iv).

(Source: P.A. 90-418, eff. 8-15-97.)

(215 ILCS 5/126.15)

Sec. 126.15. Mortgage loans and real estate.

A. Mortgage loans.

(1) Subject to the limitations of Section 126.10, an insurer may acquire, either directly or indirectly through limited partnership interests and general partnership interests not otherwise prohibited by Section 126.5D, joint ventures, stock of an investment subsidiary or membership interests in a limited liability company, trust certificates, or other similar instruments, obligations secured by mortgages on real estate situated within a domestic jurisdiction, but a mortgage loan which is secured by other than a first lien shall not be acquired under this subsection (1) unless the insurer is the holder of the first lien. The obligations held by the insurer and any obligations with an equal lien priority, shall not, at the time of acquisition of the obligation, exceed:

(a) 90% of the fair market value of the real estate, if the mortgage loan is secured by a purchase money mortgage or like security received by the insurer upon disposition of the real estate;

(b) 80% of the fair market value of the real estate, if the mortgage loan requires immediate scheduled payment in periodic installments of principal and interest, has an amortization period of 30 years or less and periodic payments made no less frequently than annually. Each periodic payment shall be sufficient to assure that at all times the outstanding principal balance of the mortgage loan shall be not greater than the outstanding principal balance that would be outstanding under a mortgage loan with the same original principal balance, with the same interest rate and requiring equal payments of principal and interest with the same frequency over the same amortization period. Mortgage loans permitted under this subsection are permitted notwithstanding the fact that they provide for a payment of the principal balance prior to the end of the period of amortization of the loan. For residential mortgage loans, the 80% limitation may be increased to 97% if acceptable private mortgage insurance has been obtained; or

(c) 75% of the fair market value of the real estate for mortgage loans that do not meet the requirements of subparagraph (a) or (b) of this paragraph.

(2) For purposes of paragraph (1) of this subsection, the amount of an obligation required to be included in the calculation of the loan-to-value ratio may be reduced to the extent the obligation is insured by the Federal Housing Administration or guaranteed by the Administrator of Veterans Affairs, or their successors.

(3) Subject to the limitations of Section 126.10, an insurer may acquire, either directly or indirectly through limited partnership interests and general partnership interests not otherwise prohibited by Section 126.5D, joint ventures, stock of an investment subsidiary or membership interests in a limited liability company, trust certificates, or other similar instruments, obligations secured by a second mortgage on real estate situated within a domestic jurisdiction, other than as authorized in subsection (1) of this Section 126.15. The obligation held by the insurer shall be the sole second lien priority obligation and shall not, at the time of acquisition of the obligation, exceed 70% of the amount by which the fair market value of the real estate exceeds the amount outstanding under the first mortgage.

(4) A mortgage loan that is held by an insurer under Section 126.3F or acquired under this Section and is restructured in a manner that meets the requirements of a restructured mortgage loan in accordance with the NAIC Accounting Practices and Procedures Manual or successor publication shall continue to qualify as a mortgage loan under this Article.

(5) Subject to the limitations of Section 126.10, credit lease transactions that do not qualify for investment under Section 126.11 with the following characteristics shall be exempt from the provisions of paragraph (1) of this subsection:

(a) The loan amortizes over the initial fixed lease term at least in an amount sufficient so that the loan balance at the end of the lease term does not exceed the original appraised value of the real estate;

(b) The lease payments cover or exceed the total debt service over the life of the loan;

(c) A tenant or its affiliated entity, whose rated credit instruments have a SVO 1 or 2 designation or a comparable rating from a nationally recognized statistical rating organization recognized by the SVO, has a full faith and credit obligation to make the lease payments;

(d) The insurer holds or is the beneficial holder of a first lien mortgage on the real estate;

(e) The expenses of the real estate are passed through to the tenant, excluding exterior, structural, parking and heating, ventilation and air conditioning replacement expenses, unless annual escrow contributions, from cash flows derived from the lease payments, cover the expense shortfall; and

(f) There is a perfected assignment of the rents due pursuant to the lease to, or for the benefit of, the insurer.

B. Income producing real estate.

(1) An insurer may acquire, manage and dispose of real estate situated in a domestic jurisdiction either directly or indirectly through limited partnership interests and general partnership interests not otherwise prohibited by Section 126.5D, joint ventures, stock of an investment subsidiary or membership interests in a limited liability company, trust certificates, or other similar instruments. The real estate shall be income producing or intended for improvement or development for investment purposes under an existing program (in which case the real estate shall be deemed to be income producing).

(2) The real estate may be subject to mortgages, liens or other encumbrances, the amount of which shall, to the extent that the obligations secured by the mortgages, liens or encumbrances are without recourse to the insurer, be deducted from the amount of the investment of the insurer in the real estate for purposes of determining compliance with subsections D(2) and D(3) of this Section.

C. Real estate for the accommodation of business.

An insurer may acquire, manage, and dispose of real estate for the convenient accommodation of the insurer's (which may include its affiliates) business operations, including home office, branch office and field office operations.

(1) Real estate acquired under this subsection may include excess space for rent to others, if the excess space, valued at its fair market value, would otherwise be a permitted investment under subsection B of this Section and is so qualified by the insurer;

(2) The real estate acquired under this subsection may be subject to one or more mortgages, liens or other encumbrances, the amount of which shall, to the extent that the obligations secured by the mortgages, liens or encumbrances are without recourse to the insurer, be deducted from the amount of the investment of the insurer in the real estate for purposes of determining compliance with subsection D(4) of this Section; and

(3) For purposes of this subsection, business operations shall not include that portion of real estate used for the direct provision of health care services by an accident and health insurer for its insureds. An insurer may acquire real estate used for these purposes under subsection B of this Section.

D. Quantitative limitations.

(1) An insurer shall not acquire an investment under subsection A of this Section if, as a result of and after giving effect to the investment, the aggregate amount of all investments then held by the insurer under subsection A of this Section would exceed:

(a) 1% of its admitted assets in mortgage loans covering any one secured location;

(b) 0.25% of its admitted assets in construction loans covering any one secured location; or

(c) 2% of its admitted assets in construction loans in the aggregate.

(2) An insurer shall not acquire an investment under subsection B of this Section if, as a result of and after giving effect to the investment and any outstanding guarantees made by the insurer in connection with the investment, the aggregate amount of investments then held by the insurer under subsection B of this Section plus the guarantees then outstanding would exceed:

(a) 1% of its admitted assets in one parcel or group of contiguous parcels of real estate, except that this limitation shall not apply to that portion of real estate used for the direct provision of health care services by an accident and health insurer for its insureds, such as hospitals, medical clinics, medical professional buildings or other health facilities used for the purpose of providing health services; or

(b) 15% of its admitted assets in the aggregate, but not more than 5% of its admitted assets in real estate to be improved or developed.

(3) An insurer shall not acquire an investment under subsections A or B of this Section if, as a result of and after giving effect to the investment and any guarantees made by the insurer in connection with the investment, the aggregate amount of all investments then held by the insurer under subsections A and B of this Section plus the guarantees then outstanding would exceed 45% of its admitted assets. However, an insurer may exceed this limitation by no more than 30% of its admitted assets if:

(a) This increased amount is invested only in residential mortgage loans;

(b) The insurer has no more than 10% of its admitted assets invested in mortgage loans other than residential mortgage loans;

(c) The loan-to-value ratio of each residential mortgage loan does not exceed 60% at the time the mortgage loan is qualified under this increased authority, and the fair market value is supported by an appraisal no more than 2 years old, prepared by an independent appraiser;

(d) A single mortgage loan qualified under this increased authority shall not exceed 0.5% of its admitted assets;

(e) The insurer files with the Director, and receives approval from the Director for, a plan that is designed to result in a portfolio of residential mortgage loans that is sufficiently geographically diversified; and

(f) The insurer agrees to file annually with the Director records that demonstrate that its portfolio of residential mortgage loans is geographically diversified in accordance with the plan.

(4) The limitations of Section 126.10 shall not apply to an insurer's acquisition of real estate under subsection C of this Section. An insurer shall not acquire real estate under subsection C of this Section if, as a result of and after giving effect to the acquisition, the aggregate amount of real estate then held by the insurer under subsection C of this Section would exceed 10% of its admitted assets. With the permission of the Director, additional amounts of real estate may be acquired under subsection C of this Section.

(Source: P.A. 90-418, eff. 8-15-97.)