215 ILCS 5/ Illinois Insurance Code.

(215 ILCS 5/123B-3) (from Ch. 73, par. 735B-3)

(Section scheduled to be repealed on January 1, 2027)

Sec. 123B-3. Risk retention groups organized in this State.

A. A risk retention group shall either:

(1) pursuant to the provisions of Articles II or III, be organized to write only liability insurance and, except as provided elsewhere in this Article, must comply with all of the laws, rules, regulations and requirements applicable to such insurers organized in this State and with Section 123B-4 of this Article to the extent such requirements are not a limitation on laws, rules, regulations or requirements of this State; or

(2) pursuant to the provisions of Article VIIC, be organized to write only liability insurance as a captive insurance company and, except as provided elsewhere in this Article, must comply with all of the laws, rules, regulations and requirements applicable to such insurers organized in this State and with Section 123B-4 of this Article to the extent such requirements are not a limitation on laws, rules, regulations or requirements of this State.

Except that, as of the effective date of this amendatory Act of 1995, a new risk retention group must qualify under paragraph (1) of this subsection.

B. Before it may offer insurance in any state, each risk retention group shall also submit for approval to the Director a plan of operation or a feasibility study and revisions of such plan or study if the group intends to offer any additional lines of liability insurance. In the event of any subsequent material change in any item of its plan or study, such risk retention group shall submit an appropriate revision to the Director within 10 days of any such change for approval by the Director. The group shall not offer any additional kinds of liability insurance, in this State or in any other state, until a revision of such plan or study is approved by the Director.

C. At the time of filing its application for organization, the risk retention group shall provide to the Director in summary form the following information: the identity of the initial members of the group, the identity of those individuals who organized the group or who will provide administrative services or otherwise influence or control the activities of the group, the amount and nature of initial capitalization, the coverages to be afforded, and the states in which the group intends to operate. Upon receipt of this information, the Director shall forward the information to the NAIC. Providing notification to the NAIC is in addition to and shall not be sufficient to satisfy the requirements of Section 123B-4 of this Code or any other provisions of this Article.

D. The name under which a risk retention group may be organized and licensed shall include the phrase "Risk Retention Group".

E. Notwithstanding any other provision to the contrary, all risk retention groups chartered in this State shall file an annual statement with the Department and NAIC. The annual statement shall be in a form prescribed by the Director. The statement may be required to be in diskette form. The statement shall be completed in accordance with the annual statement instructions and the NAIC Accounting Practices and Procedures Manual.

F. As used in this subsection F:

"Board of directors" means the governing body of the risk retention group elected by shareholders or members to establish policy, elect or appoint officers and committees, and make other governing decisions.

"Director" means a natural person designated in the articles of the risk retention group, or designated, elected, or appointed by any other manner, name, or title, to act as a director.

"Material relationship" means a relationship of a person with the risk retention group that includes, but is not limited to:

(a) The receipt in any one 12-month period of compensation or payment of any other item of value by the person, a member of the person's immediate family, or any business with which the person is affiliated from the risk retention group or a consultant or services provider to the risk retention group is greater than or equal to 5% of the risk retention group's gross written premium for the 12-month period or 2% of its surplus, whichever is greater, as measured at the end of any fiscal quarter falling in a 12-month period. The person or immediate family member of that person is not independent until one year after his or her compensation from the risk retention group falls below the threshold.

(b) A relationship with the auditor as follows: a director or an immediate family member of a director who is affiliated with or employed in a professional capacity by a present or former internal or external auditor of the risk retention group is not independent until one year after the end of the affiliation, employment, or auditing relationship.

(c) A relationship with a related entity as follows: a director or an immediate family member of a director who is employed as an executive officer of another company where any of the risk retention group's present executives serve on that other company's board of directors is not independent until one year after the end of the service or the employment relationship.

Within one year after the effective date of this amendatory Act of the 99th General Assembly, existing risk retention groups shall be in compliance with the following governance standards and new risk retention groups shall be in compliance with the standards at the time of licensure:

(1) The board of directors of the risk retention group shall have a majority of independent directors. If the risk retention group is a reciprocal, then the attorney-in-fact shall adhere to the same standards regarding independence of operations and governance as imposed on the risk retention group's board of directors or subscribers advisory committee under these standards and, to the extent permissible under State law, service providers of a reciprocal risk retention group shall contract with the risk retention group and not the attorney-in-fact.

No director qualifies as independent unless the board of directors affirmatively determines that the director has no material relationship with the risk retention group. Each risk retention group shall disclose these determinations to the Department at least annually and the Director may approve or refute the board's determination. For this purpose, any person that is a direct or indirect owner of or subscriber in the risk retention group (or is an officer, director, or employee of an owner and insured, unless some other position of the officer, director, or employee constitutes a material relationship), as contemplated by 15 U.S.C. 3901(a)(4)(E)(ii), shall be deemed independent.

A material relationship shall not be deemed to exist by reason that a majority of the membership of the related entity's board of directors is the same as the membership of the board of directors of the risk retention group unless the director decides otherwise.

(2) The term of any material service provider contract with the risk retention group shall not exceed 5 years. Any contract, or its renewal, shall require the approval of the majority of the risk retention group's independent directors. The risk retention group's board of directors shall have the right to terminate any service provider, audit, or actuarial contracts at any time for cause after providing adequate notice as defined in the contract. The service provider contract is deemed material if the amount to be paid for the contract is greater than or equal to 5% of the risk retention group's annual gross written premium or 2% of its surplus, whichever is greater.

No service provider in a material relationship with the risk retention group shall enter into a contract with the risk retention group unless the risk retention group has notified the Director of Insurance in writing of its intention to enter into a transaction at least 30 days prior thereto and the Director of Insurance has not disapproved it within that period.

For the purposes of this paragraph (2), "service providers" includes captive managers, auditors, accountants, actuaries, investment advisors, lawyers, managing general underwriters, and other parties responsible for underwriting, determination of rates, collection of premium, adjusting and settling claims or preparation of financial statements.

"Lawyers" does not include defense counsel retained by the risk retention group to defend claims, unless the amount of fees paid to the lawyers meet the definition of a material relationship.

(3) The risk retention group's board of directors shall adopt a written policy in the plan of operation as approved by the board that requires the board to:

(a) ensure that all owner-insureds of the risk retention group receive evidence of ownership interest;

(b) develop a set of governance standards applicable to the risk retention group;

(c) oversee the evaluation of the risk retention group's management, including, but not limited to, the performance of the captive manager, managing general underwriter, or other party or parties responsible for underwriting, determination of rates, collection of premium, adjusting or settling claims or the preparation of financial statements;

(d) review and approve the amount to be paid for all material service providers; and

(e) review and approve at least annually:

(i) the risk retention group's goals and objectives relevant to the compensation of officers and service providers;

(ii) the officers' and service providers' performance in light of those goals and objectives; and

(iii) the continued engagement of the officers and material service providers.

(4) The risk retention group shall have an audit committee composed of at least 3 independent board members as defined in this subsection F. A non-independent board member may participate in the activities of the audit committee, if invited by the members, but cannot be a member of the committee.

The audit committee shall have a written charter that defines the committee's purpose, which at a minimum must be to:

(a) assist board oversight of: (I) the integrity of the financial statements, (II) the compliance with legal and regulatory requirements, and (III) the qualifications, independence, and performance of the independent auditor and actuary;

(b) discuss the annual audited financial statements and quarterly financial statements with management;

(c) discuss the annual audited financial statements with its independent auditor and, if advisable, discuss its quarterly financial statements with its independent auditor;

(d) discuss policies with respect to risk assessment and risk management;

(e) meet separately and periodically, either directly or through a designated representative of the committee, with management and independent auditors;

(f) review with the independent auditor any audit problems or difficulties and management's response;

(g) set clear hiring policies of the risk retention group as to the hiring of employees or former employees of the independent auditor;

(h) require the external auditor to rotate the lead or coordinating audit partner having primary responsibility for the risk retention group's audit as well as the audit partner responsible for reviewing that audit so that neither individual performs audit services for more than 5 consecutive fiscal years; and

(i) report regularly to the board of directors.

The Department may waive the requirement to establish an audit committee composed of independent board members if the risk retention group is able to demonstrate to the Department that it is impracticable to do so and the risk retention group's board of directors itself is otherwise able to accomplish the purposes of an audit committee as described in this paragraph (4).

(5) The board of directors shall adopt and disclose governance standards, either through electronic or other means, and provide information to members and insureds upon request, including, but not limited to:

(a) a process by which the directors are elected by the owner or insureds;

(b) director qualification standards;

(c) director responsibilities;

(d) director access to management and, as necessary and appropriate, independent advisors;

(e) director compensation;

(f) director orientation and continuing education;

(g) the policies and procedures that are followed for management succession; and

(h) the policies and procedures that are followed for annual performance evaluation of the board.

(6) The board of directors shall adopt and disclose a code of business conduct and ethics for directors, officers, and employees and promptly disclose to the board of directors any waivers of the code for directors or executive officers. The code of business conduct and ethics shall include, but is not limited to, the following topics:

(a) conflicts of interest;

(b) matters covered under the corporate opportunities doctrine under the state of domicile;

(c) confidentiality;

(d) fair dealing;

(e) protection and proper use of risk retention group assets;

(f) compliance with all applicable laws, rules, and regulations; and

(g) the required reporting of any illegal or unethical behavior that affects the operation of the risk retention group.

(7) The captive manager, president, or chief executive officer of the risk retention group shall promptly notify the Department in writing if he or she becomes aware of any material non-compliance with any of these governance standards.

(Source: P.A. 99-512, eff. 1-1-17.)

(215 ILCS 5/123B-4) (from Ch. 73, par. 735B-4)

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

Sec. 123B-4. Risk retention groups not organized in this State. Any risk retention group organized and licensed in a state other than this State and seeking to do business as a risk retention group in this State shall comply with the laws of this State as follows:

A. Notice of operations and designation of the Director as agent.

Before offering insurance in this State, a risk retention group shall submit to the Director on a form prescribed by the NAIC:

(1) a statement identifying the state or states in which the risk retention group is organized and licensed as a liability insurance company, its date of organization, its principal place of business, and such other information, including information on its membership, as the Director may require to verify that the risk retention group is qualified under subsection (11) of Section 123B-2 of this Article;

(2) a copy of its plan of operations or a feasibility study and revisions of such plan or study submitted to its state of domicile; provided, however, that the provision relating to the submission of a plan of operation or a feasibility study shall not apply with respect to any line or classification of liability insurance which (a) was defined in the Product Liability Risk Retention Act of 1981 before October 27, 1986, and (b) was offered before such date by any risk retention group which had been organized and operating for not less than 3 years before such date; and

(3) a statement of registration which designates the Director as its agent for the purpose of receiving service of legal documents or process, together with a filing fee of $200 payable to the Director.

A risk retention group shall submit a copy of any material revision to its plan of operation or feasibility study required by subsection B of Section 123B-3 of this Code within 30 days after the date of the approval of the revision by the Director or, if no such approval is required, within 30 days after filing.

B. Financial condition. Any risk retention group doing business in this State shall submit to the Director:

(1) a copy of the group's financial statement submitted to the state in which the risk retention group is organized and licensed, which shall be certified by an independent public accountant and contain a statement of opinion on loss and loss adjustment expense reserves made by a member of the American Academy of Actuaries or a qualified loss reserve specialist (under criteria established by the NAIC);

(2) a copy of each examination of the risk retention group as certified by the public official conducting the examination;

(3) upon request by the Director, a copy of any information or document pertaining to any outside audit performed with respect to the risk retention group; and

(4) such information as may be required to verify its continuing qualification as a risk retention group under subsection (11) of Section 123B-2.

C. Taxation.

(1) Each risk retention group shall be liable for the payment of premium taxes and taxes on premiums of direct business for risks resident or located within this State, and shall report to the Director the net premiums written for risks resident or located within this State. Such risk retention group shall be subject to taxation, and any applicable fines and penalties related thereto, on the same basis as a foreign admitted insurer.

(2) To the extent licensed insurance producers are utilized pursuant to Section 123B-11, they shall report to the Director the premiums for direct business for risks resident or located within this State which such licensees have placed with or on behalf of a risk retention group not organized in this State.

(3) To the extent that licensed insurance producers are utilized pursuant to Section 123B-11, each such producer shall keep a complete and separate record of all policies procured from each such risk retention group, which record shall be open to examination by the Director, as provided in Section 506.1 of this Code. These records shall, for each policy and each kind of insurance provided thereunder, include the following:

(a) the limit of the liability;

(b) the time period covered;

(c) the effective date;

(d) the name of the risk retention group which issued the policy;

(e) the gross premium charged; and

(f) the amount of return premiums, if any.

D. Compliance With unfair claims practices provisions. Any risk retention group, its agents and representatives shall be subject to the unfair claims practices provisions of Sections 154.5 through 154.8 of this Code.

E. Deceptive, false, or fraudulent practices. Any risk retention group shall comply with the laws of this State regarding deceptive, false, or fraudulent acts or practices. However, if the Director seeks an injunction regarding such conduct, the injunction must be obtained from a court of competent jurisdiction.

F. Examination regarding financial condition. Any risk retention group must submit to an examination by the Director to determine its financial condition if the commissioner of insurance of the jurisdiction in which the group is organized and licensed has not initiated an examination or does not initiate an examination within 60 days after a request by the Director. Any such examination shall be coordinated to avoid unjustified repetition and conducted in an expeditious manner and in accordance with the NAIC's Examiner Handbook.

G. Notice to purchasers. Every application form for insurance from a risk retention group and the front page and declaration page of every policy issued by a risk retention group shall contain in 10 point type the following notice: "NOTICE This policy is issued by your risk retention group. Your risk retention group is not subject to all of the insurance laws and regulations of your state. State insurance insolvency guaranty fund protection is not available for your risk retention group".

H. Prohibited acts regarding solicitation or sale. The following acts by a risk retention group are hereby prohibited:

(1) the solicitation or sale of insurance by a risk retention group to any person who is not eligible for membership in such group; and

(2) the solicitation or sale of insurance by, or operation of, a risk retention group that is in a hazardous financial condition or is financially impaired.

I. Prohibition on ownership by an insurance company. No risk retention group shall be allowed to do business in this State if an insurance company is directly or indirectly a member or owner of such risk retention group, other than in the case of a risk retention group all of whose members are insurance companies.

J. Prohibited coverage. No risk retention group may offer insurance policy coverage prohibited by Articles IX or XI of this Code or declared unlawful by the Illinois Supreme Court; provided however, a risk retention group organized and licensed in a state other than this State that selects the law of this State to govern the validity, construction, or enforceability of policies issued by it is permitted to provide coverage under policies issued by it for penalties in the nature of compensatory damages including, without limitation, punitive damages and the multiplied portion of multiple damages, so long as coverage of those penalties is not prohibited by the law of the state under which the risk retention group is organized.

K. Delinquency proceedings. A risk retention group not organized in this State and doing business in this State shall comply with a lawful order issued in a voluntary dissolution proceeding or in a conservation, rehabilitation, liquidation, or other delinquency proceeding commenced by the Director or by another state insurance commissioner if there has been a finding of financial impairment after an examination under subsection F of Section 123B-4 of this Article.

L. Compliance with injunctive relief. A risk retention group shall comply with an injunctive order issued in another state by a court of competent jurisdiction or by a United States District Court based on a finding of financial impairment or hazardous financial condition.

M. Penalties. A risk retention group that violates any provision of this Article will be subject to fines and penalties applicable to licensed insurers generally, including revocation of its license or the right to do business in this State, or both.

N. (Blank).

(Source: P.A. 99-512, eff. 1-1-17.)

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

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

Sec. 123B-5. Compulsory associations.

A. No risk retention group shall be required or permitted to join or contribute financially to the Illinois Insurance Guaranty Fund, or any other plan, pool, association or guaranty or insolvency fund or any similar mechanism, in this State, nor shall any risk retention group, or its insureds or claimants against its insureds, receive any benefit from any such fund or any such plan, pool, association or guaranty or insolvency fund for claims arising under the insurance policies issued by such risk retention group.

B. When a purchasing group obtains insurance covering its members' risks from an insurer not authorized in this State or a risk retention group, no such risks, wherever resident or located, shall be covered by an insurance guaranty fund or similar mechanism in this State.

C. When a purchasing group obtains insurance covering its members' risks from an authorized insurer, only risks resident or located in this State shall be covered by the State guaranty fund subject to the provisions of Article XXXIV.

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

(215 ILCS 5/123B-6) (from Ch. 73, par. 735B-6)

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

Sec. 123B-6. Countersignatures not required. Notwithstanding any contrary provision of this Code, a policy of insurance issued to a risk retention group or any member of that group shall not be required to be countersigned.

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

(215 ILCS 5/123B-7) (from Ch. 73, par. 735B-7)

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

Sec. 123B-7. Purchasing groups - exemption from certain laws relating to the group purchase of insurance. Any purchasing group meeting the criteria established under the provisions of the federal Liability Risk Retention Act of 1986 shall be exempt from any law of this State prohibiting the creation of risk purchasing of groups for the purchase of insurance; any countersignature requirements as provided in this Code; and any prohibition of group purchasing or any law that would discriminate against a purchasing group or its members, prohibit a purchasing group from obtaining insurance on a group basis or because the group has not been in existence for a minimum period of time or because any member has not belonged to the group for a minimum period of time, require that a purchasing group must have a minimum number of members, common ownership or affiliation, or certain legal form, or require that a certain percentage of a purchasing group must obtain insurance on a group basis. In addition, an insurer shall be exempt from any law of this State which prohibits providing, or offering to provide, to a purchasing group or its members advantages based on their loss and expense experience not afforded to other persons with respect to rates, policy forms, coverages or other matters. A purchasing group shall be subject to all other applicable laws of this State.

(Source: P.A. 99-512, eff. 1-1-17.)

(215 ILCS 5/123B-8) (from Ch. 73, par. 735B-8)

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

Sec. 123B-8. Notice and registration requirements of purchasing groups.

A. A purchasing group that intends to do business in this State shall, prior to doing business, furnish notice to the Director, on a form prescribed by the Director, that shall:

(1) identify the state in which the group is domiciled;

(2) specify the lines and classifications of liability insurance which the purchasing group intends to purchase;

(3) identify the insurance company from which the group intends to purchase its insurance and the domicile of such company;

(4) specify the method by which, and the person or persons, if any, through whom insurance will be offered to its members whose risks are resident or located in this State;

(5) identify the principal place of business of the group;

(6) identify all other states in which the group intends to do business; and

(7) provide such other information as may be required by the Director to verify that the purchasing group is qualified under subsection (10) of Section 123B-2 of this Article.

B. A purchasing group shall, within 10 days, notify the Director of any changes in any item set forth in subsection A of this Section.

C. The purchasing group shall register with and designate the Director as its agent solely for the purpose of receiving service of legal documents or process, for which a filing fee of $100 payable to the Director shall be required, except that such requirements shall not apply in the case of a purchasing group:

(1) which in any state of the United States:

(a) was domiciled before April 2, 1986; and

(b) is domiciled on and after October 27, 1986, in any state of the United States;

(2) which:

(a) before October 27, 1986, purchased insurance from an insurance carrier licensed in any state; and

(b) since October 27, 1986, purchased its insurance from an insurance carrier licensed in any state;

(3) which was a purchasing group under the requirements of the Product Liability Risk Retention Act of 1981 before October 27, 1986; and

(4) which does not purchase insurance that was not authorized for purposes of an exemption under that Act, as in effect before October 27, 1986.

D. Any purchasing group which was doing business in this State prior to August 3, 1987, shall, within 30 days after that date, furnish notice to the Director pursuant to the provisions of subsection A of this Section and furnish such information as may be required pursuant to subsection B of this Section.

(Source: P.A. 87-1090.)

(215 ILCS 5/123B-9) (from Ch. 73, par. 735B-9)

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

Sec. 123B-9. Restrictions on insurance purchased by purchasing groups.

A. A purchasing group may not purchase insurance from a risk retention group that is not organized in a state or from an insurer not admitted in the state in which the purchasing group is located, unless the purchase is effected through a licensed surplus line producer acting pursuant to the surplus lines laws and regulations of such state.

B. No purchasing group may offer insurance policy coverage prohibited by this Code or declared unlawful by the Illinois Supreme Court.

C. A purchasing group which obtains liability insurance from an insurer not admitted in this State or a risk retention group shall inform each of the members of such group which has a risk resident or located in this State that such risk is not protected by an insurance insolvency guaranty fund in this State, and that such risk retention group or such insurer may not be subject to all insurance laws and regulations of this State.

D. No purchasing group may purchase insurance providing for a deductible or an aggregate limit unless the deductible or aggregate limit applies separately to each individual member of the purchasing group.

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

(215 ILCS 5/123B-10) (from Ch. 73, par. 735B-10)

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

Sec. 123B-10. Administrative and procedural authority regarding risk retention groups and purchasing groups. The Director is authorized to make use of any of the powers established under this Code to enforce the laws of this State so long as those powers are not specifically preempted by the Product Liability Risk Retention Act of 1981, as amended by the Risk Retention Amendments of 1986. This includes, but is not limited to, the Director's administrative authority to investigate, issue subpoenas, conduct depositions and hearings, issue orders (including without limitation orders pursuant to Article XII 1/2 and Section 401.1), and impose penalties. With regard to any investigation, administrative proceedings, or litigation, the Director can rely on the procedural law and regulations of this State.

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

(215 ILCS 5/123B-11) (from Ch. 73, par. 735B-11)

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

Sec. 123B-11. Duty on producers to obtain license.

A. Any person offering, acting or seeking to solicit, sell, purchase, administer or otherwise service a liability insurance contract between a purchasing group located in this State and a risk retention group or insurance company, and any person offering, acting or seeking to solicit, sell, purchase, administer or otherwise service membership contracts, certificates or agreements for enrollment in any purchasing group to any resident of this State, must obtain a license to act as an insurance producer for casualty lines of insurance under Article XXXI; provided, however, that the foregoing provisions of this subsection A, and the following provisions of this Section 123B-11, shall not apply, if:

(1) such purchasing group is composed entirely of industrial insureds (as defined in subsection F of Section 123C-1);

(2) any such purchasing group, that obtains liability insurance from an insurer or risk retention group for one or more members of such group which has risks resident or located in this State, shall file a report in writing with the Director not later than April 1 of each year, in the form prescribed by the Director, signed and sworn to by an officer of such group, setting forth such information as the Director may require to determine whether taxes due this State with respect to the purchase of such insurance have properly been paid; and

(3) such purchasing group filing a report under paragraph (2) shall furnish to each insurer or risk retention group whose name is set forth in such report a written statement, showing:

(a) the name and address of the purchasing group making such report;

(b) such additional information as the Director may require with respect to the liability insurance obtained by such purchasing group from such insurer or risk retention group; and

(c) that such information has been filed with the Director.

The written statement required under the preceding sentence shall be furnished in a separate mailing by first-class mail to the insurer or risk retention group on or before April 1 of the year following the calendar year for which the report under paragraph (2) was made and shall be in such form as the Director may prescribe.

B. Any such person shall be subject to all requirements of and regulations under Article XXXI, except that:

(1) such person shall be exempt from any residency requirement imposed by statute or rule, if he or she states in writing that the activities to be carried out under the license will be limited to those described in subsection A of this Section; and

(2) where such person does not qualify for the exemption set forth in paragraph (1) of subsection B of this Section, all residency requirements under the laws of this State shall be applicable; and

(3) where such person engages in activities, as a licensed insurance producer, beyond those described in subsection A of this Section, all books, records, statements and accounts required to be established and maintained with respect to activities described in subsection A shall be established and maintained on a segregated basis, separate and apart from all other books, records, statements and accounts regarding the licensee's other transactions. All premiums, commissions or other funds collected as a result of the activities described in subsection A shall be segregated from all other funds of the licensee, shall be held in separate accounts and shall in no event be commingled with any other funds held by the licensee; and

(4) in addition to any other statutory bonding requirements, any person required to be licensed by this Section shall file with his license application, and thereafter maintain, a fidelity bond in favor of the people of this State executed by a surety company and payable to any party injured by the licensee's breach of a fiduciary duty under the terms of the bond. Such bond shall be continuous in form and maintained in the amount of the greater of $50,000 or 5% of premiums or contributions projected to be received or collected by the applicant from Illinois residents during the next succeeding year as a result of activities under this Section, but not to exceed $1,000,000. Such bond shall remain in force and effect until the surety is released from liability by the Director or until the bond is cancelled by the surety. The surety may cancel the bond and be released from further liability thereunder upon 30 days' written notice in advance to the Director. Such cancellation shall not affect any liability incurred or accrued thereunder before the termination of the 30 day period. Upon receipt of any notice of cancellation, the Director shall immediately notify the licensee.

C. Activities described under subsection A of this Section shall require licensing if carried out, in whole or in part, within this State either directly or indirectly by the use of the mails, advertising or other means of communication with a terminal located in this State.

D. In addition to any other lawful duties, any person engaging in the activities described in subsection A of this Section shall be obligated to exercise reasonable and customary skill and diligence to ascertain that:

(1) any purchasing group or purchasing group member, to or for whom an offer or solicitation is made, receives a written disclosure that the liability insurance coverage being offered may not be subject to all of the insurance laws and regulations of this State and that, if such company is not otherwise authorized to transact business in this State, insolvency guaranty fund protection is not available for the purchasing group or purchasing group members; and that

(2) any risk retention group or insurance company which provides a liability insurance policy or certificate to any purchasing group member to or for whom an offer or solicitation is made is:

(a) solvent, and has standards of solvency and management which are adequate for the protection of policyholders and certificate holders; and

(b) operating in a lawful manner under this Article.

E. Any insurance producer who breaches a fiduciary duty or who violates any provision of this Section will be subject to fine and revocation or suspension of its license in accordance with the procedures established under Article XXXI and may be held liable for civil damages to any person or group resulting from such violation or breach of a fiduciary duty.

F. Any person retained or employed to solicit, offer, sell or purchase memberships in a purchasing group may be ordered to cease any such enrollment activity in this State whenever the Director has reason to believe that any such purchasing group has liability insurance coverage from a risk retention group or insurance company which is insolvent or in a hazardous financial condition. Orders entered under this paragraph shall be issued in accordance with the procedures set forth at Section 401.1.

G. The Director may permit, on a reciprocal basis, a person licensed in another state to engage in the activities described in subsection A of this Section, whenever he is satisfied that the laws of such other state impose standards and duties on such licensee no less stringent than the standards and duties required by this Section.

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

(215 ILCS 5/123B-12) (from Ch. 73, par. 735B-12)

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

Sec. 123B-12. Binding effect of orders issued in U.S. District Court. An order issued by any United States District Court enjoining a risk retention group from soliciting or selling insurance, or operating, in any state (or in all states or in any territory or possession of the United States) upon a finding that such a group is in a hazardous financial condition or financially impaired condition shall be enforceable in the courts of this State.

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

(215 ILCS 5/123B-13) (from Ch. 73, par. 735B-13)

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

Sec. 123B-13. Rules and regulations. The Director may establish and from time to time amend such rules relating to risk retention groups as may be necessary or desirable to carry out the provisions of this Article.

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

(215 ILCS 5/123B-14) (from Ch. 73, par. 735B-14)

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

Sec. 123B-14. 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/Art. VIIC heading) ARTICLE VIIC. DOMESTIC CAPTIVE INSURANCE COMPANIES (Article scheduled to be repealed on January 1, 2027)

(215 ILCS 5/123C-1) (from Ch. 73, par. 735C-1)

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

Sec. 123C-1. Definitions. As used in this Article:

A. "Affiliate" or "Affiliated company" includes a parent entity that controls a captive insurance company and:

(1) is an affiliate of another entity if the entity directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with the other entity.

(2) is an affiliate of another entity if the entity is an affiliate of and is controlled by the other entity directly or indirectly through one or more intermediaries.

A subsidiary or holding company of an entity is an affiliate of that entity.

B. "Association" means any entity meeting the requirements set forth in either of the following paragraphs (1), (2) or (3):

(1) any organized association of individuals, legal representatives, corporations (whether for profit or not for profit), partnerships, trusts, associations, units of government or other organizations, or any combination of the foregoing, that has been in continuous existence for at least one year, the member organizations of which collectively:

(a) own, control, or hold with power to vote (directly or indirectly) all of the outstanding voting securities of an association captive insurance company incorporated as a stock insurer; or

(b) have complete voting control (directly or indirectly) over an association captive insurance company organized as a mutual insurer;

(2) any organized association of individuals, legal representatives, corporations (whether for profit or not for profit), partnerships, trusts, associations, units of government or other organizations, or any combination of the foregoing:

(a) whose member organizations are engaged in businesses or activities similar or related with respect to the liability of which such members are exposed by virtue of any related, similar, or common business, trade, product, services, premises, or operations; and

(b) whose member organizations:

(i) directly or indirectly own or control, and hold with power to vote, at least 80% of all of the outstanding voting securities of an association captive insurance company incorporated as a stock insurer; or

(ii) directly or indirectly have at least 80% of the voting control over an association captive insurance company organized as a mutual insurer; or

(3) any risk retention group, as defined in subsection (11) of Section 123B-2, domiciled in this State and organized under this Article; however, beginning 6 months after the effective date of this amendatory Act of 1995, a risk retention group shall no longer qualify as an association under this Article.

Provided, however, that with respect to each of the associations described in paragraphs (1), (2) and (3) above, no member organization may (i) own, control, or hold with power to vote in excess of 25% of the voting securities of an association captive insurance company incorporated as a stock insurer, or (ii) have more than 25% of the voting control of an association captive insurance company organized as a mutual insurer.

C. "Association captive insurance company" means any company that insures risks of (i) the member organizations of an association, and (ii) their affiliated companies.

D. "Captive insurance company" means any pure captive insurance company, association captive insurance company or industrial insured captive insurance company organized under the provisions of this Article.

E. "Director" means the Director of the Department of Insurance.

F. "Industrial insured" means an insured which (together with its affiliates) at the time of its initial procurement of insurance from an industrial insured captive insurance company:

(1) has available to it advice with respect to the purchase of insurance through the use of the services of a full-time employee acting as an insurance manager or buyer or the services of a regularly and continuously retained qualified insurance consultant; and

(2) pays aggregate annual premiums in excess of $100,000 for insurance on all risks except for life, accident and health; and

(3) either (i) has at least 25 full-time employees, or (ii) has gross assets in excess of $3,000,000, or (iii) has annual gross revenues in excess of $5,000,000.

G. "Industrial insured captive insurance company" means any company that insures risks of industrial insureds that are members of the industrial insured group, and their affiliated companies.

H. "Industrial insured group" means any group of industrial insureds that collectively:

(1) directly or indirectly (including ownership or control through a company which is wholly owned by such group of industrial insureds) own or control, and hold with power to vote, all of the outstanding voting securities of an industrial insured captive insurance company incorporated as a stock insurer; or

(2) directly or indirectly (including control through a company which is wholly owned by such group of industrial insureds) have complete voting control over an industrial insured captive insurance company organized as a mutual insurer; provided, however, that no member organization may (i) own, control, or hold with power to vote in excess of 25% of the voting securities of an industrial insured captive insurance company incorporated as a stock insurer, or (ii) have more than 25% of the voting control of an industrial insured captive insurance company organized as a mutual insurer.

I. "Member organization" means any individual, legal representative, corporation (whether for profit or not for profit), partnership, association, unit of government, trust or other organization that belongs to an association or an industrial insured group.

J. "Parent" means a corporation, partnership, individual or other legal entity that directly or indirectly owns, controls, or holds with power to vote more than 50% of the outstanding voting securities of a company.

K. "Personal risk liability" means liability to other persons for (i) damage because of injury to any person, (ii) damage to property, or (iii) other loss or damage, in each case resulting from any personal, familial, or household responsibilities or activities, but does not include legal liability for damages (including costs of defense, legal costs and fees, and other claims expenses) because of injuries to other persons, damage to their property, or other damage or loss to such other persons resulting from or arising out of:

(i) any business (whether for profit or not for profit), trade, product, services (including professional services), premises, or operations; or

(ii) any activity of any state or local government, or any agency or political subdivision thereof.

L. "Pure captive insurance company" means any company that insures only risks of its parent or affiliated companies or both.

M. "Unit of government" includes any state, regional or local government, or any agency or political subdivision thereof, or any district, authority, public educational institution or school district, public corporation or other unit of government in this State or any similar unit of government in any other state.

N. "Control" means the power to direct, or cause the direction of, the management and policies of an entity, other than the power that results from an official position with or corporate office held in the entity. The power may be possessed directly or indirectly by any means, including through the ownership of voting securities or by contract, other than a commercial contract for goods or non-management services.

O. "Qualified independent actuary" means a person that is either:

(1) a member in good standing with the Casualty Actuarial Society; or

(2) a member in good standing with the American Academy of Actuaries who has been approved as qualified for signing casualty loss reserve opinions by the Casualty Practice Council of the American Academy of Actuaries.

P. "Controlled unaffiliated business" means an entity:

(1) that is not an affiliate;

(2) that has an existing contractual relationship with an affiliate under which the affiliate bears a potential financial loss; and

(3) whose risks are managed by a captive insurance company under Section 123C-24 of this Code.

Q. "Operational risk" means any potential financial loss of an affiliate, except for a loss arising from an insurance policy issued by a captive or insurance affiliate.

R. "Captive management company" means an entity providing administrative services to a captive insurance company.

S. "Safety-Net Hospital" means an Illinois hospital that qualifies as a Safety-Net Hospital under Section 5-5e.1 of the Illinois Public Aid Code.

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

(215 ILCS 5/123C-2) (from Ch. 73, par. 735C-2)

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

Sec. 123C-2. Authority of captives; restrictions.

A. (Blank).

A-5. A captive insurance company may not issue:

(1) life insurance;

(2) annuities;

(3) accident and health insurance for the company's parent and affiliates, except to insure employee benefits that are subject to the federal Employee Retirement Income Security Act of 1974 or, to the extent the parent company is a college or university, an accident or health plan offered to enrolled students of the college or university;

(4) title insurance;

(5) mortgage guaranty insurance;

(6) financial guaranty insurance;

(7) homeowner's insurance coverage;

(8) personal automobile insurance; or

(9) workers' compensation insurance, except to the extent allowed in subsection A-10.

A-10. A captive insurance company is authorized to issue a contractual reimbursement policy to:

(1) the parent company or an affiliated certified self-insurer authorized under the Workers' Compensation Act or a similar affiliated entity expressly authorized by analogous laws of another state; or

(2) the parent company or an affiliate that is insured by a workers' compensation insurance policy with a negotiated deductible endorsement.

B. No captive insurance company shall do any insurance business in this State unless:

(1) it first obtains from the Director a certificate of authority authorizing it to do such insurance business in this State; and

(2) it appoints a resident registered agent to accept service of process and to otherwise act on its behalf in this State.

C. No captive insurance company shall adopt a name that is the same as, deceptively similar to, or likely to be confused with or mistaken for, any other existing business name registered in this State.

D. Each captive insurance company, or the organizations providing the principal administrative or management services to such captive insurance company, shall maintain a place of business in this State.

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

(215 ILCS 5/123C-3) (from Ch. 73, par. 735C-3)

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

Sec. 123C-3. Minimum capital and surplus.

A. The Department may not issue a certificate of authority to a captive insurance company unless the company possesses and maintains unencumbered capital and surplus in an amount determined by the Director after considering:

(1) the amount of premium written by the captive insurance company;

(2) the characteristics of the assets held by the captive insurance company;

(3) the terms of reinsurance arrangements entered into by the captive insurance company;

(4) the type of business covered in policies issued by the captive insurance company;

(5) the underwriting practices and procedures of the captive insurance company; and

(6) any other criteria that has an impact on the operations of the captive insurance company determined to be significant by the Director.

B. The amount of capital and surplus determined by the Director under subsection A of this Section may not be less than $250,000 for a pure captive insurance company, $500,000 for an industrial insured captive insurance company, and $750,000 for an association captive insurance company.

C. The capital and surplus required by subsection A of this Section must be in the form of:

(1) United States currency;

(2) an irrevocable letter of credit, in a form approved by the Director and not secured by a guarantee from an affiliate, naming the Director as beneficiary for the security of the captive insurance company's policyholders and issued by a bank approved by the Director;

(3) bonds of this State; or

(4) bonds or other evidences of indebtedness of the United States, the principal and interest of which are guaranteed by the United States.

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

(215 ILCS 5/123C-4)

Sec. 123C-4. (Repealed).

(Source: 86-632. Repealed by P.A. 100-1118, eff. 11-27-18.)

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

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

Sec. 123C-5. Formation of captive insurance companies in this State; certificate of authority.

A. A pure captive insurance company shall be incorporated as a stock insurer with its capital divided into shares and held by the stockholders.

B. An association captive insurance company or an industrial insured captive insurance company may be incorporated:

(1) as a stock insurer with its capital divided into shares and held by the stockholders; or

(2) as a mutual insurer without capital stock, the governing body of which is elected by the member organizations of its association.

C. No stock captive insurance company shall issue any shares of stock having a par value of less than $1 per share. The capital stock of a captive insurance company incorporated as a stock insurer shall be issued at not less than par value.

D. The provisions of subsection (1) of Section 10, subsection (1) of Section 12, Sections 14, 14.1, 15 (excluding subsections (d) and (e) thereof), 18, 19, 20 and 21, subsections (3) and (4) of Section 23, and Section 25 shall apply to the organization of a stock captive insurance company.

E. The provisions of subsection (1) of Section 40, subsections (1) and (2) of Section 42, Section 44, subsection (a) and (b) of Section 45, and Sections 48, 49, 50 and 52 shall apply to the organization of a mutual captive insurance company.

F. (1) In order to receive a certificate of authority, at the same time as the documents referred to in subsections (a), (b) and (c) of Section 15 (in the case of a stock captive insurance company) or subsections (a) and (b) of Section 45 (in the case of a mutual captive insurance company) are delivered to the Director, the incorporators shall file with the Director any statements or documents required by the Director, including evidence of the following:

(a) the amount and liquidity of its assets relative to the risks to be assumed;

(b) the expertise, experience, character, financial responsibility, reputation and business qualifications of the officers, directors and persons who will manage it;

(c) the overall soundness of its plan of operation (which shall include (i) the lines of business to be written by the captive insurance company, (ii) the geographic areas in which the captive insurance company is to operate, (iii) the type of policy (occurrence or claims-made) to be offered by the captive insurance company, (iv) the net retention limits and reinsurance program, including whether the captive insurance company intends to assume reinsurance, and (v) in the case of an industrial insured captive insurance company, an investment policy specifying the type of investments to be made by such company and the diversity of such investments);

(d) whether major operations functions, such as underwriting, rating, claims administration, loss prevention programs, accounting and investment of funds, will be handled by the captive insurance company's employees or through contractual arrangements with other parties;

(e) the scope of the loss prevention programs of its parent, member organizations, or industrial insureds, as applicable; and

(f) such other factors deemed relevant by the Director in ascertaining whether the proposed captive insurance company will be able to meet its policy obligations.

The Director may deny the incorporators' application for a certificate of authority if he determines, in the exercise of his discretion, either that the foregoing standards have not been satisfied or that the proposed captive insurance company is being organized for purposes inimical to the interests of policyholders.

(2) If the Director is satisfied, on the basis of the documents and statements referred to in paragraph (1) of subsection F, that the captive insurance company meets the criteria set forth in paragraph (1) of subsection F, and that the captive insurance company meets all other requirements imposed by this Article (other than those set forth in Sections 123C-3 and 123C-4), he shall, at the same time as he effects the filing referred to in Section 18 (or, in the case of a mutual insurance company, Section 48) and issues the permit referred to in Section 20 (or, in the case of a mutual insurance company, Section 50), notify the captive insurance company in writing of his determination, which notification shall state that the Director will issue a certificate of authority upon receipt of evidence satisfactory to the Director that the company has fully collected the capital and surplus required by Sections 123C-3 and 123C-4. Upon receipt of evidence satisfactory to the Director that the required capital and surplus have been fully collected by the company, the Director shall grant a certificate of authority authorizing the captive insurance company to transact the kind or kinds of business specified therein.

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

(215 ILCS 5/123C-6) (from Ch. 73, par. 735C-6)

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

Sec. 123C-6. Change in plan of operation; violations. Any material change in items (i) through (v) of the captive insurance company's plan of operations described in subparagraph (c) of paragraph (1) of subsection F of Section 123C-5 requires prior approval of the Director. Any material change which is not disapproved by the Director within 30 days after its submission shall be deemed approved. The provisions of Sections 401.1 and 403A shall apply to a captive insurance company's material failure to adhere to items (i) through (v) of its plan of operations described in subparagraph (c) of paragraph (1) of subsection F of Section 123C-5 (to the same extent and in the same manner as if such failure were a violation of this Code).

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

(215 ILCS 5/123C-7) (from Ch. 73, par. 735C-7)

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

Sec. 123C-7. Directors - conflicts of interest.

A. The provisions of Section 10 shall apply to stock captive insurance companies and all those having dealings therewith and the provisions of Section 40 shall apply to mutual captive insurance companies and all those having dealings therewith; provided that no residents or citizens of this State need be directors. No director may serve who has been convicted of fraud involving any financial institution or of a felony. The Director may waive the prohibition regarding a felony if he determines that the particular felony does not jeopardize the person's ability to act as a director.

B. Every captive insurance company shall report to the Director within 30 days after any change in its executive officers or directors, including in its report a statement of the business and professional affiliations of any new executive officer or director. For purposes of this subsection B, the term "executive officer" includes only the following: chairman of the board of directors; president; executive or senior vice-president; secretary; and treasurer.

C. No director, officer, or employee having any authority in the investment or disposition of the funds of a captive insurance company shall accept, except on behalf of the company, or be the beneficiary of, any fee, brokerage, gift, or other emolument because of any investment, loan, deposit, purchase, sale, payment, or exchange made by or for the company; but a director who is not otherwise an officer or employee of the company may receive reasonable compensation for services performed for sales or purchases made to or for the company in the ordinary course of its business and in the usual private professional or business capacity of such director.

D. Any profit or gain received by or on behalf of any person in violation of subsection C of this Section shall inure to and be recoverable by the company. A suit to recover such profit may be instituted in any court of competent jurisdiction by the company, or by any stockholder of the company in its name and on its behalf if the company fails or refuses to bring such suit within 60 days after request in writing or if the company fails diligently to prosecute the same thereafter. No such suit shall be brought more than 2 years after the date such profit or gain was discovered.

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

(215 ILCS 5/123C-8) (from Ch. 73, par. 735C-8)

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

Sec. 123C-8. Merger, consolidation, plans of exchange and reorganization.

A. The provisions of Article X shall apply to captive insurance companies; provided, however, that:

(1) if the surviving or new company is to be a domestic captive insurance company,

(a) the Director shall, in determining whether such company meets the requirements set forth in paragraph (b) of subsection (2) of Section 162, refer only to the provisions of this Article VIIC and the other provisions of Article X;

(b) the Director shall, in determining whether such company meets the requirements of Sections 123C-3 and 123C-4, take into account the capital and surplus of the company to be merged into the domestic captive insurance company or the companies to be consolidated into the domestic captive insurance company (but any approval by the Director of such merger or consolidation shall be contingent upon the receipt of such capital and surplus by the domestic captive insurance company and satisfactory evidence thereof being presented to the Director);

(c) notwithstanding the provisions of paragraph (c) of subsection (1) of Section 166, such surviving or new company shall have all of the rights, privileges, immunities and powers and shall be subject to all of the duties and liabilities granted or imposed by this Article VIIC (and not by the entire Code); and

(2) in the event that such merger or consolidation is to be effected in conjunction with the formation and licensing of a new domestic captive insurance company in this State, the Director shall follow procedures for the contemporaneous and expeditious review of the materials presented to the Director for his approval of such formation, licensing and merger or consolidation.

B. (1) Any domestic, foreign or alien stock company, mutual company, or reciprocal company, authorized or which may be authorized to do business in this State, may reorganize as a domestic captive insurance company under the laws of this State, by complying with the provisions of Article XII. Domestic companies are hereby authorized to reorganize as domestic captive insurance companies.

(2) In the event that such reorganization is to be effected in conjunction with the formation and licensing of a new captive insurance company in this State, the Director shall follow procedures for the contemporaneous and expeditious review of the materials presented to the Director for his approval of such formation, licensing and reorganization.

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

(215 ILCS 5/123C-9) (from Ch. 73, par. 735C-9)

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

Sec. 123C-9. Reports, statements and mandatory reserves.

A. Captive insurance companies shall not be required to make any annual report except as provided in this Article.

B. (1) On or before March 1 of each year, each captive insurance company shall submit to the Director a report of its financial condition, verified by oath of 2 of its executive officers and including (i) a balance sheet reporting assets, liabilities, capital and surplus, (ii) a statement of gain or loss from operations, (iii) a statement of changes in financial position, (iv) a statement of changes in capital and surplus, (v) in the case of industrial insured captive insurance companies, an analysis of loss reserve development, information on risks ceded and assumed under reinsurance agreements, on forms prescribed by the Director, and a schedule of its invested assets on forms prescribed by the Director, and (vi) a statement of actuarial opinion by a qualified independent actuary concerning the reasonableness of the captive insurance company's loss and loss adjustment expense reserves in such form and of such content as specified in the National Association of Insurance Commissioners Annual Statement Instructions: Property and Casualty.

(2) In addition, prior to March 1 of each year, each association captive insurance company shall submit to the Director such additional data or information, which the Director may from time to time require, on a form specified by the Director.

(3) On or before June 1 of each year, each captive insurance company shall submit to the Director a report of its financial condition at last year's end with an independent certified public accountant's opinion of the company's financial condition.

(4) Unless the Director permits otherwise, the reports of financial condition referred to in paragraphs (1) and (3) of this subsection B are to be prepared in accordance with the Accounting Practices and Procedures Manual adopted by the National Association of Insurance Commissioners. The Director shall have authority to extend the time for filing any report or statement by any company for reasons which he considers good and sufficient.

C. In addition, any captive insurance company may be required by the Director, when he considers such action to be necessary and appropriate for the protection of policyholders, creditors, shareholders or claimants, to file, within 60 days after mailing to the company of a notice that such is required, a supplemental summary statement as of the last day of any calendar month occurring during the 100 days next preceding the mailing of such notice designated by him on forms prescribed and furnished by the Director. No company shall be required to file more than 4 supplemental summary statements during any consecutive 12 month period.

D. Every captive insurance company shall, at all times, maintain reserves in an amount estimated in the aggregate to provide for the payment of all losses and claims incurred, whether reported or unreported, which are unpaid and for which such company may be liable, and to provide for the expenses of adjustment or settlement of such losses and claims. The aggregate reserves shall be reduced by reinsurance ceded which meets the requirements of Section 123C-13. For the purpose of such reserves, the company shall keep a complete and itemized record showing all losses and claims on which it has received notice, including all notices received by it of the occurrence of any event which may result in a loss. Such record shall be opened in chronological receipt order, with each notice of loss or claim identified by appropriate number or coding.

E. Every captive insurance company shall maintain an unearned premium reserve on all policies in force which reserve shall be charged as a liability. The portions of the gross premiums in force, after deducting reinsurance qualifying under Section 123C-13, which shall be held as a premium reserve, shall never be less in the aggregate than the company's actual liability to all its insureds for the return of gross unearned premiums. In the calculation of the company's actual liability to all its insureds, the reserve shall be computed pursuant to the method commonly referred to as the monthly pro rata method; provided, however, that the Director may require that such reserve shall be equal to the unearned portions of the gross premiums in force, after deducting reinsurance qualifying under Section 123C-13, in which case the reserve shall be computed on each respective risk from the date of the issuance of the policy.

E-5. A captive insurance company may make a written application to the Director for filing its annual report required under this Section on a fiscal year's end. If an alternative filing date is granted, the company shall file:

(1) the annual report, including a statement of actuarial opinion by a qualified independent actuary concerning the reasonableness of the captive insurance company's loss and loss adjustment expense reserves in such form and of such content as specified in the National Association of Insurance Commissioners Annual Statement Instructions: Property and Casualty, no later than the 60th day after the date of the company's fiscal year's end;

(2) the report of its financial condition at last year's end with an independent certified public accountant's opinion of the company's financial condition; and

(3) its balance sheet, income statement, and statement of cash flows, verified by 2 of its executive officers, before March 1 of each year to provide sufficient detail to support a premium tax return.

F. The reports required by this Section shall be prepared and filed on a calendar year basis.

G. Notwithstanding the requirements of this Section, a captive insurance company may prepare and issue financial statements prepared in accordance with generally accepted accounting principles.

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

(215 ILCS 5/123C-10) (from Ch. 73, par. 735C-10)

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

Sec. 123C-10. Examinations and investigations; fees.

A. The provisions of Sections 132 through 132.7 shall apply to captive insurance companies. The expenses and charges of any examination conducted pursuant to those Sections shall be paid by the company examined.

B. When necessary to supplement its evaluation or examination procedures, the Department may retain independent actuaries deemed competent by the Director, qualified loss reserve consultants, independent risk managers, independent certified public accountants, or qualified examiners of insurance companies deemed competent by the Director, or any combination of the foregoing. The Director may also accept as a part of the Department's examination of any company or person (a) a report by an independent actuary deemed competent by the Director or (b) a report of an audit made by an independent certified public accountant. Neither those persons so designated nor any members of their immediate families shall be officers of, connected with, or financially interested in any company other than as policyholders, nor shall they be financially interested in any other corporation or person affected by the examination, investigation or hearing. The reasonable expenses and charges of persons so retained or designated shall be paid directly by the company.

(Source: P.A. 89-97, eff. 7-7-95.)

(215 ILCS 5/123C-11) (from Ch. 73, par. 735C-11)

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

Sec. 123C-11. Grounds and procedures for suspension or revocation of certificate of authority.

A. The certificate of authority of a captive insurance company to do an insurance business in this State may be suspended or revoked by the Director for any of the following reasons:

(1) insolvency or impairment of required capital or surplus to policy holders;

(2) failure to meet the requirements of Sections 123C-3 or 123C-4;

(3) refusal or failure to submit an annual report, as required by Section 123C-9, or any other report or statement required by law or by lawful order of the Director;

(4) failure to comply with the provisions of its own charter or bylaws (or, in the case of an industrial insured captive, with the provisions of the investment policy set forth in its plan of operation as approved from time to time by the Director);

(5) failure to submit to examination or any legal obligation relative thereto, as required by Section 123C-10;

(6) refusal or failure to pay expenses, charges, and taxes as required by Sections 408, 409, 123C-10, and 123C-17;

(7) use of methods that, although not otherwise specifically prohibited by law, nevertheless render its operation detrimental or its condition unsound with respect to the public or to its policyholders; or

(8) failure otherwise to comply with the laws of this State.

B. If the Director finds, upon examination, hearing, or other evidence, that any captive insurance company has committed any of the acts specified in subsection A, he may suspend or revoke such certificate of authority if he deems it in the best interest of the public and the policyholders of such captive insurance company, notwithstanding any other provision of this Article.

C. The provisions of Articles XIII and XIII 1/2 shall apply to and govern the conservation, rehabilitation, liquidation and dissolution of captive insurance companies.

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