(215 ILCS 5/179A-15)
Sec. 179A-15.
Establishment of protected cells.
(a) A domestic company may,
with the prior written approval by the Director of a
plan of operation
submitted by the domestic company with respect to each protected cell,
establish one or more
protected cells in connection with an insurance securitization. Upon the
written approval by the Director of the plan of
operation, which shall
include, but not be limited to, the specific business and investment
guidelines
of the protected
cell, the protected cell company may, in accordance with the approved plan
of operation,
attribute to the
protected cell insurance obligations with
respect to
its insurance
business and obligations relating to the insurance securitization and
assets to fund those obligations. A protected cell shall have
its own distinct name
or designation, which shall include the words "protected cell". The protected
cell company
shall transfer all
assets attributable to a protected cell to one or more separately established
and identified
protected cell accounts bearing the name or designation of that protected cell.
Protected cell
assets shall be held in the protected cell accounts for the purpose of
satisfying the obligations of
that protected cell.
(b) All attributions of assets and
liabilities between a protected
cell and the general account shall be in accordance
with the
plan
of operation approved by the Director. No
other
attribution of assets or
liabilities may be made by a protected cell company
between the
protected cell company's general account and its
protected cells.
Any attribution of assets and
liabilities between the general account and a protected cell
or from investors in the form of principal on a debt instrument
issued by a
protected cell company shall be in cash or in readily marketable securities
with
established market values.
(c) The creation of a protected cell does not create, in respect of that
protected cell, a legal person
separate from the protected cell company. Amounts attributed to a protected
cell under this
Article, including
assets transferred to a protected cell account, are owned by the protected
cell company and
the protected cell company may
not be, nor hold itself out to be, a trustee with respect to those protected
cell assets of that
protected cell account. Notwithstanding the foregoing, the company may allow
for a security
interest to attach to protected cell assets or a protected cell account when in
favor of a creditor of
the protected cell and otherwise allowed under applicable law.
(d) This Article shall not be construed to prohibit the protected cell
company from
contracting with or
arranging for an investment advisor, commodity trading advisor, or other third
party to manage
the protected cell assets of a protected cell, provided that all remuneration,
expenses, and other
compensation of the third party advisor or manager are payable from the
protected cell assets of
that protected cell and not from the protected cell assets of other protected
cells or the assets of
the protected cell company's general account.
(e) A protected cell company shall
establish
administrative and
accounting procedures necessary to properly identify the one or more
protected cells of the
protected cell company and the protected cell assets and protected cell
liabilities
attributable to the protected cells. It shall be
the duty of the directors of a protected cell company to:
(1) keep protected cell assets and protected cell |
| liabilities separate and separately identifiable from the assets and liabilities of the protected cell company's general account; and
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(2) keep protected cell assets and protected cell
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| liabilities attributable to one protected cell separate and separately identifiable from protected cell assets and protected cell liabilities attributable to other protected cells.
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If this Section is violated,
the remedy of tracing shall
be
applicable to protected cell assets when commingled with protected cell assets
of other protected
cells or the assets of the protected cell company's general account.
The remedy of tracing shall not be construed as an exclusive remedy.
(f) The protected cell company shall, when
establishing a protected cell, attribute to the protected cell assets with a
value at least equal to the reserves and other insurance liabilities attributed
to that protected cell.
(Source: P.A. 91-278, eff. 7-23-99; 92-74, eff. 7-12-01.)
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(215 ILCS 5/179A-20)
Sec. 179A-20.
Use and operation of protected cells.
(a) The protected cell
assets of any protected
cell may not be charged with liabilities arising out of any other business the
protected cell company may
conduct. All contracts or other documentation reflecting protected cell
liabilities shall clearly indicate that only the
protected cell assets are available
for the satisfaction of those protected cell
liabilities.
(b) The income, gains, and losses, realized or unrealized, from
protected cell
assets and protected cell
liabilities must be credited to or charged against the protected
cell without
regard to other
income, gains, or losses of the protected cell company, including income,
gains, or losses of
other protected
cells. Amounts attributed to a protected cell and accumulations thereon may
be invested and
reinvested without regard to any requirements or limitations of Article VIII of
this Code
(Investments of Domestic Companies), and
the investments in a
protected cell or cells may not be taken into account in applying
the
investment limitations
otherwise applicable to the investments of the protected cell company.
(c) Assets
attributed to a
protected
cell must be valued at
their market value on the date of valuation, or if there is no readily
available market, then as
provided in the contract or the rules or other written documentation applicable
to
the protected cell.
(d) A protected cell company shall, in respect of any of its protected
cells,
engage in fully funded
indemnity-triggered insurance securitization to support in full the protected
cell exposures attributable to that protected cell. A
protected cell company
insurance securitization that is not
indemnity-triggered may qualify as an insurance securitization under the
terms of this Article only after the Director
adopts rules addressing the methods of:(i) funding of the portion of the risk
that is not indemnity based, (ii) accounting, and
disclosure, (iii) risk-based capital treatment, and (iv) assessing risk
associated with
such securitizations. A protected cell company
insurance securitization that is not fully funded, whether
indemnity triggered or non-indemnity triggered, is prohibited.
Protected cell assets may be used to pay interest
or other
consideration on any outstanding debt or other obligation attributable to that
protected cell, and
nothing in this subsection shall be construed or interpreted to prevent a
protected cell company from
entering into a swap agreement or other transaction for the account of the
protected cell that has the effect of
guaranteeing such
interest or other consideration.
(e) In all protected cell company
insurance
securitizations,
the
contracts or other documentation
effecting such transaction shall contain provisions identifying the protected
cell to which the
transaction will be attributed. In addition, the contracts or other
documentation shall
clearly disclose that the
assets of that protected cell, and only those assets, are available to pay the
obligations of
that protected cell.
Notwithstanding the foregoing, and subject to the provisions of this Article
and any other
applicable law or rule, the failure to include such language in the contracts
or other documentation shall not
be used as the sole basis by creditors, reinsurers, or other claimants to
circumvent the provisions
of this Article.
(f) A protected cell company may attribute to a
protected cell account only the insurance obligations relating to the protected
cell
company's general account. A protected cell
may not issue insurance or reinsurance contracts directly to
policyholders or reinsureds or have any obligation to the policyholders or
reinsureds of the protected cell company's general account.
(g) At the cessation of business of a protected cell, the
protected cell
company
shall voluntarily close out the protected cell account in accordance with a plan approved by the
Director.
(Source: P.A. 91-278, eff. 7-23-99; 92-74, eff. 7-12-01.)
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(215 ILCS 5/179A-25)
Sec. 179A-25.
Reach of creditors and other claimants.
(a) Protected cell assets are available only to
the
creditors of the protected cell company
who are creditors in
respect of that protected cell and entitled, in conformity
with the provisions of
this Article, to have recourse to the protected cell assets attributable to
that protected cell. Protected cell assets
shall be absolutely protected from the creditors of the protected cell
company who are not
creditors in respect
of that protected cell and who, accordingly, are not
entitled
to have
recourse to the protected
cell assets attributable to that protected cell. Creditors with respect to a protected
cell shall not be entitled to
have recourse against the protected cell assets of other protected cells or the
assets of the
protected cell company's general account.
Protected cell assets are available only to creditors of a
protected cell company after all protected cell liabilities have been
extinguished or otherwise provided for in accordance with the plan of operation
relating to that protected cell.
(b) When an obligation of a protected cell company to a person arises from a
transaction, or is otherwise imposed, in
respect of a protected cell:
(1) that obligation of the protected cell company |
| shall extend only to the protected cell assets attributable to that protected cell, and the person shall, in respect of that obligation, be entitled to have recourse only to the protected cell assets attributable to that protected cell; and
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(2) that obligation of the protected cell company
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| shall not extend to the protected cell assets of any other protected cell or the assets of the company's general account, and that person shall not, in respect of that obligation, be entitled to have recourse to the protected cell assets of any other protected cell or the assets of the company's general account.
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(c) When an obligation of a protected cell company relates solely to the
general
account, the
obligation of the protected cell company shall extend only to, and that
creditor shall, in
respect of that
obligation, be entitled to have recourse only to, the assets of the protected
cell company's general
account.
(d) The activities, assets, and obligations relating to a protected cell are not
subject to the provisions
of Article XXXIII1/2 (Illinois Life and Health Guaranty Association Law) or
Article XXXIV
(Illinois
Insurance Guaranty Fund), and neither a protected cell nor a protected cell
company shall be assessed by or
otherwise be required to
contribute to any guaranty fund or guaranty association in this State with
respect to the activities, assets, or obligations of a protected cell.
Nothing
in this subsection
shall affect the activities or obligations of a company's general account.
(e) In no event shall the establishment of one or more protected cells alone
constitute or be deemed
to be a fraudulent conveyance, an intent by the protected cell company to
defraud creditors,
or
the carrying out
of business by the protected cell company for any other fraudulent purpose.
(Source: P.A. 91-278, eff. 7-23-99; 92-74, eff. 7-12-01.)
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(215 ILCS 5/179E-10)
Sec. 179E-10.
Exemption from insurance laws within limitations.
(a) An SPRV is subject to the following:
(1) Articles I, XII 1/2, XXIV, XXV (Sections 408 and |
| 412 only), and XXVIII (except for Sections 445, 445.1, 445.2, 445.3, 445.4, and 445.5) of this Code; and
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(2) Sections 132.1 through 134, 137 through 140,
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| 155.01, 155.03, and 155.04 of this Code.
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(b) No other provisions of this Code apply to an SPRV organized under this
Article,
except as otherwise provided in this Article.
(Source: P.A. 92-124, eff. 7-20-01.)
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(215 ILCS 5/179E-15)
Sec. 179E-15.
Definitions.
For purposes of this Article, the following
terms have the indicated meanings:
"Aggregate limit" means the maximum sum payable to the ceding insurer under
an SPRV contract.
"Ceding insurer" means one or more insurers or reinsurers under common
control that enters into an SPRV contract with an SPRV.
"Control" (including the terms "controlling," "controlled by" and "under
common control with") means the possession, direct or indirect, of the power to
direct or cause the direction of the management and policies of a person,
whether through the ownership of voting securities, by contract other than a
commercial contract for goods or non-management services, or otherwise, unless
the power is the result of an official position with or corporate office held
by the person. Control shall be presumed to exist if any person, directly or
indirectly, owns, controls, holds with the power to vote, or holds proxies
representing, 10% or more of the voting securities of any other person. This
presumption may be rebutted by a showing that control does not, in fact, exist.
Notwithstanding the foregoing, for purposes of this Article, the fact that an
SPRV exclusively provides reinsurance to a ceding insurer under an SPRV
contract shall not by itself be sufficient grounds for a finding that the SPRV
or the SPRV organizer or owner is controlled by or under common control with
the ceding insurer.
"Fair Value" means:
(1) as to cash, the amount thereof; and
(2) as to an asset other than cash:
(A) the amount at which that asset could be |
| bought or sold in a current transaction between arms-length, willing parties;
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(B) quoted market price for the asset in active
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| markets should be used if available; and
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(C) if quoted market prices are not available, a
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| value determined using the best information available considering values of like assets and other valuation methods, such as present value of future cash flows, historical value of the same or similar assets or comparison to values of other asset classes the value of which have been historically related to the subject asset.
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"Fully funded" means that, with respect to an SPRV contract, the fair value
of the assets held in trust by or on behalf of the SPRV under the SPRV contract
on the date on which the SPRV contract is effected, equals or exceeds the
aggregate limit as defined in this Article.
"Indemnity trigger" means a transaction term by which the SPRV's obligation
to pay the ceding insurer for losses covered by an SPRV contract is triggered
by the ceding insurer incurring a specified level of losses.
"Insolvency" or "insolvent" means that the SPRV is unable to pay its
obligations when they are due, unless those obligations are the subject of a
bona fide dispute.
"Non-indemnity trigger" means a transaction term by which the SPRV's
obligation to pay the ceding insurer under an SPRV contract arises from the
occurrence or existence of some event or condition other than the ceding
insurer incurring a specified level of losses under its insurance or
reinsurance contracts.
"Permitted investments" means those investments that meet the qualifications
set forth in Section 179E-85.
"Qualified U.S. financial institution" means, for purposes of meeting the
requirements of a trustee under this Article, a financial institution that is
eligible to act as a fiduciary of a trust, and that is:
(1) organized or, in the case of a U.S. branch or
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| agency office of a foreign banking organization, licensed, under the laws of the United States or any state of the United States; and
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(2) regulated, supervised, and examined by federal or
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| state authorities having regulatory authority over banks and trust companies.
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"Special purpose reinsurance vehicle" or "SPRV" means an entity, domiciled in
and organized under the laws of this State, that has received a limited
certificate of authority from the Director under this Article exclusively for
the limited purpose of entering into and effectuating SPRV insurance
securitizations, SPRV contracts, and other related transactions permitted by
this Article.
"SPRV contract" means a contract between the SPRV and the ceding insurer
pursuant to which the SPRV agrees to pay the ceding insurer an agreed amount
upon the occurrence of a triggering event.
"SPRV insurance securitization" means a package of related risk transfer
instruments and facilitating administrative agreements by which proceeds are
obtained by an SPRV through the issuance of securities, which proceeds are held
in trust pursuant to the requirements of this Article to secure the obligations
of the SPRV under an SPRV contract with one or more ceding insurers, wherein
the SPRV's obligation to return the full initial investment to the holders of
those securities, pursuant to the transaction terms, is contingent upon those
funds not being used to pay the obligations of the SPRV to the ceding insurers
under the SPRV Contract.
"SPRV organizer" means one or more persons who have organized or intend to
organize an SPRV under authority obtained pursuant to Section 179E-20.
"SPRV securities" means the securities issued by an SPRV.
"Triggering event" means an event or condition that, if and when it occurs or
exists, obligates the SPRV to make a payment to the ceding insurer under the
provisions of an SPRV contract.
(Source: P.A. 92-124, eff. 7-20-01.)
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(215 ILCS 5/179E-20)
Sec. 179E-20.
Limited certificate of authority.
(a) Within 30 days after receipt by the Director of a complete filing by the
prospective SPRV organizer for authority to form or acquire an SPRV, which
SPRV shall exist and operate expressly for the limited purposes set forth in
this
Article, the application shall be deemed approved and a limited certificate of
authority shall be issued, unless before the expiration of the 30-day period
the
Director approves or disapproves the application in writing.
A limited certificate of authority may not be issued unless the country or
state
of domicile of each ceding insurer has notified the Director in writing that
they have not disapproved the transaction.
A complete filing
of the
application must include the following:
(1) an affidavit verifying that each prospective SPRV |
| organizer the SPRV meets the requirements as set forth in this Article;
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(2) a representation that the prospective SPRV
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| organizer intends to form an SPRV to operate in accordance with the requirements set forth in this Article;
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(3) the proposed name of the subject SPRV;
(4) biographical descriptions of each SPRV organizer
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| setting forth their legal names, any names under which they have or are conducting their affairs, and any affiliations with other persons as defined in Article VIII 1/2, together with such other biographical information as the Director may request;
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(5) the source and form of the minimum capital to be
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(6) any persons with which the SPRV is or, upon
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| formation, will be affiliated as defined in Article VIII 1/2;
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(7) the names and biographical information of the
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| proposed members of the board of directors and principal officers of the SPRV, setting forth their legal names, any names under which they have or are conducting their affairs and any affiliations with other persons as defined in Article VIII 1/2, together with such other biographical information as the Director may request; and
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(8) a plan of operation, consisting of a description
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| of the contemplated insurance securitization, the SPRV contract, and related transactions, which plan of operation must include:
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(A) draft documentation or, at the discretion of
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| the Director, a written summary, of all material agreements that will be entered into to effectuate the insurance securitization and the related SPRV contract, including the names of the ceding insurers, the nature of the risks being assumed, and the maximum amounts, purpose, nature, and interrelationships of the various transactions required to effectuate the insurance securitization;
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(B) the investment strategy of the SPRV and a
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| representation that (i) the investment strategy complies with the investment requirements set forth in this Article and (ii) includes investment practices or other provisions to preserve asset values that will facilitate attainment of full funding during the term of the securitization with assets that can be monetized in response to a triggering event without a substantial loss in value;
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(C) a description of the method by which losses
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| covered by the SPRV contract that may develop after the termination of the contract period are to be addressed under the provisions of the SPRV contract; and
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(D) a representation that the trust agreement and
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| the trusts holding assets that secure the obligations of the SPRV under the SPRV contract and the SPRV contract with the ceding insurers in connection with the contemplated insurance securitization will be structured in accordance with the requirements set forth in this Article.
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(b) The Director may not approve the application or issue a limited
certificate
of authority until he or she has found that the proposed plan of operation
provides a
reasonable expectation of a successful operation, based on the proposed SPRV
organizer, directors, and officers being of known good character and that
there
is no good reason to believe that they are affiliated, directly or indirectly,
through
ownership, control, management, reinsurance transactions, or other insurance or
business relations with any person or persons known to have been involved in
the
improper manipulation of assets, accounts or reinsurance.
(c) Upon approval by the Director of the application and the issuance of a
limited certificate of authority, the SPRV may be acquired or formed and, in
accordance with the approved plan of operation, the SPRV may enter into
contracts
and conduct other activities within the parameters set forth in the filed plan
of
operation.
(d) The limited certificate of authority so issued shall state that the
SPRV's
authorization to be involved in the business of reinsurance is limited to only
the
reinsurance activities that the SPRV is allowed to conduct under this Article.
(e) The SPRV organizer must provide a complete set of the documentation
of
the
insurance securitization to the Director upon closing of the transactions
including, but not
limited to, an opinion of legal counsel with respect to compliance with this
and any other
applicable laws as of the effective date of the transaction. Any material
change of the
SPRV's plan of operation described in items (1) through (8) of subsection (a)
including, but
not limited to, the issuance of new securities to continue the securitization
activities of the
SPRV under this Article after expiration and full satisfaction of the initial
securitization
transactions, requires prior approval of the Director, however, a change in the
counterparty
to swap transactions for an existing securitization as allowed under this
Article shall not be
deemed a material change. Any material change that is not disapproved by the
Director in
writing within 15 days after its submission shall be deemed approved.
(Source: P.A. 92-124, eff. 7-20-01.)
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