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INSURANCE215 ILCS 5/Art. VIII Pt. 1
(215 ILCS 5/) Illinois Insurance Code.
(215 ILCS 5/Art. VIII Pt. 1 heading)
215 ILCS 5/126.1
(215 ILCS 5/126.1)
Purpose and scope.
The purpose of this Article is to protect the interests of insureds by
insurer solvency and financial strength. This will be accomplished through the
application of investment standards that facilitate a reasonable balance of the
(1) To preserve principal;
(2) To assure reasonable diversification as to type
of investment, issuer and credit quality; and
(3) To allow insurers to allocate investments in a
manner consistent with principles of prudent investment management to achieve an adequate return so that obligations to insureds are adequately met and financial strength is sufficient to cover reasonably foreseeable contingencies.
This Article shall apply only to investments and investment practices of
domestic insurers and United States branches of alien insurers entered through
this State. This Article shall not apply to separate accounts of an insurer
except to the extent that the provisions of Article XIV 1/2 so provide.
(Source: P.A. 90-418, eff. 8-15-97.)
215 ILCS 5/126.2
(215 ILCS 5/126.2)
For purposes of this Article:
A. "Acceptable collateral" means:
(1) As to securities lending transactions, and for
the purpose of calculating counterparty exposure amount, cash, cash equivalents, letters of credit, direct obligations of, or securities that are fully guaranteed as to principal and interest by, the government of the United States or any agency of the United States, or by the Federal National Mortgage Association or the Federal Home Loan Mortgage Corporation, and as to lending foreign securities, sovereign debt rated 1 by the SVO;
(2) As to repurchase transactions, cash, cash
equivalents and direct obligations of, or securities that are fully guaranteed as to principal and interest by, the government of the United States or an agency of the United States, or by the Federal National Mortgage Association or the Federal Home Loan Mortgage Corporation; and
(3) As to reverse repurchase transactions, cash and
B. "Acceptable private mortgage insurance" means insurance written by a
private insurer protecting a mortgage lender against loss occasioned by a
mortgage loan default and issued by a licensed mortgage insurance company, with
an SVO 1 designation or a rating issued by a nationally recognized statistical
rating organization equivalent to an SVO 1 designation, that covers losses to
an 80% loan-to-value ratio.
C. "Accident and health insurance" means protection which provides payment
of benefits for covered sickness or accidental injury, excluding credit
insurance, disability insurance, accidental death and dismemberment insurance
and long-term care insurance.
D. "Accident and health insurer" means a licensed life or health insurer or
health service corporation whose insurance premiums and required statutory
reserves for accident and health insurance constitute at least
95% of total premium considerations or total statutory required
E. "Admitted assets" means assets defined by Section 3.1 of this Code
permitted to be reported as admitted assets on the statutory financial
statement of the insurer most recently required to be filed with the Director,
but excluding assets of separate accounts, the investments of which are not
subject to the provisions of this Article except to the extent that the
provisions of Article XIV 1/2 so provide.
F. "Affiliate" means, as to any person, another person that, directly or
indirectly through one or more intermediaries, controls, is controlled by, or
is under common control with the person.
G. "Asset-backed security" means a security or other instrument, excluding
shares in a mutual fund, evidencing an interest in, or the right to receive
payments from, or payable from distributions on, an asset, a pool of assets or
specifically divisible cash flows which are legally transferred to a trust or
another special purpose bankruptcy-remote business entity, on the following
(1) The trust or other business entity is established
solely for the purpose of acquiring specific types of assets or rights to cash flows, issuing securities and other instruments representing an interest in or right to receive cash flows from those assets or rights, and engaging in activities required to service the assets or rights and any credit enhancement or support features held by the trust or other business entity; and
(2) The assets of the trust or other business entity
consist solely of interest bearing obligations or other contractual obligations representing the right to receive payment from the cash flows from the assets or rights. However, the existence of credit enhancements, such as letters of credit or guarantees, or support features such as swap agreements, shall not cause a security or other instrument to be ineligible as an asset-backed security.
H. "Business entity" includes a sole proprietorship, corporation, limited
liability company, association, partnership, joint stock company, joint
venture, mutual fund, trust, joint tenancy or other similar form of business
organization, whether organized for profit or not for profit.
I. "Cap" means an agreement obligating the seller to make payments to the
buyer, with each payment based on the amount by which a reference price or
level or the performance or value of one or more underlying interests exceeds a
predetermined number, sometimes called the strike rate or strike price.
J. "Capital and surplus" means the sum of the capital and surplus of the
insurer required to be shown on the statutory financial statement of the
insurer most recently required to be filed with the Director.
K. "Cash equivalents" means short-term, highly rated and highly liquid
or securities readily convertible to known amounts of cash without penalty and
so near maturity that they present insignificant risk of change in value. Cash
equivalents include government money market mutual funds and class one money
market mutual funds. For purposes of this definition:
(1) "Short-term" means investments with a remaining
term to maturity of 90 days or less; and
(2) "Highly rated" means an investment rated "P-1" by
Moody's Investors Service, Inc., or "A-1" by Standard and Poor's division of The McGraw Hill Companies, Inc. or its equivalent rating by a nationally recognized statistical rating organization recognized by the SVO.
L. "Class one bond mutual fund" means a mutual fund that at all times
qualifies for investment using the bond class one reserve factor under the
Purposes and Procedures of the Securities Valuation Office or any successor
M. "Class one money market mutual fund" means a money market mutual fund
that at all times qualifies for investment using the bond class one reserve
factor under the Purposes and Procedures of the Securities Valuation Office or
any successor publication.
N. "Code" means the Illinois Insurance Code.
O. "Collar" means an agreement to receive payments as the buyer of an
option, cap or floor and to make payments as the seller of a different option,
cap or floor.
P. "Commercial mortgage loan" means a mortgage loan, other than a
residential mortgage loan.
Q. "Construction loan" means a loan of less than 3 years in term,
made for financing the cost of construction of a building or other improvement
to real estate, that is secured by the real estate.
R. "Control" means the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of a person,
whether through the ownership of voting securities, by contract (other than a
commercial contract for goods or nonmanagement services), or otherwise, unless
the power is the result of an official position with or corporate office held
by the person. Control shall be presumed to exist if a person, directly or
indirectly, owns, controls, holds with the power to vote or holds proxies
representing 10% or more of the voting securities of another
person. This presumption may be rebutted by a showing that control does not
exist in fact. The Director may determine, after furnishing all interested
persons notice and an opportunity to be heard and making specific findings of
fact to support the determination, that control exists in fact, notwithstanding
the absence of a presumption to that effect.
S. "Counterparty exposure amount" means:
(1) The amount of credit risk attributable to a
derivative instrument entered into with a business entity other than through a qualified exchange, qualified foreign exchange, or cleared through a qualified clearinghouse ("over-the-counter derivative instrument"). The amount of credit risk equals:
(a) The market value of the over-the-counter
derivative instrument if the liquidation of the derivative instrument would result in a final cash payment to the insurer; or
(b) Zero if the liquidation of the derivative
instrument would not result in a final cash payment to the insurer.
(2) If over-the-counter derivative instruments are
entered into under a written master agreement which provides for netting of payments owed by the respective parties, and the domicile of the counterparty is either within the United States or if not within the United States, within a foreign jurisdiction listed in the Purposes and Procedures of the Securities Valuation Office as eligible for netting, the net amount of credit risk shall be the greater of zero or the net sum of:
(a) The market value of the over-the-counter
derivative instruments entered into under the agreement, the liquidation of which would result in a final cash payment to the insurer; and
(b) The market value of the over-the-counter
derivative instruments entered into under the agreement, the liquidation of which would result in a final cash payment by the insurer to the business entity.
(3) For open transactions, market value shall be
determined at the end of the most recent quarter of the insurer's fiscal year and shall be reduced by the market value of acceptable collateral held by the insurer or placed in escrow by one or both parties.
T. "Covered" means that an insurer owns or can immediately acquire, through
the exercise of options, warrants or conversion rights already owned, the
underlying interest in order to fulfill or secure its obligations under a call
option, cap or floor it has written, or has set aside, pursuant to a custodial
or escrow agreement, cash or cash equivalents with a market value equal to the
amount required to fulfill its obligations under a put option it has written,
in an income generation transaction.
U. "Credit tenant loan" means a mortgage loan which is made primarily in
reliance on the credit standing of a major tenant, structured with an
assignment of the rental payments to the lender with real estate pledged as
collateral in the form of a first lien.
V. (1) "Derivative instrument" means an agreement,
option, instrument or a series or combination thereof:
(a) To make or take delivery of, or assume or
relinquish, a specified amount of one or more underlying interests, or to make a cash settlement in lieu thereof; or
(b) That has a price, performance, value or cash
flow based primarily upon the actual or expected price, level, performance, value or cash flow of one or more underlying interests.
(2) Derivative instruments include options, warrants
used in a hedging transaction and not attached to another financial instrument, caps, floors, collars, swaps, forwards, futures and any other agreements, options or instruments substantially similar thereto or any series or combination thereof and any agreements, options or instruments permitted under rules adopted under Section 126.8. Derivative instruments shall not include an investment authorized by Sections 126.11 through 126.17, 126.19 and 126.24 through 126.30.
W. "Derivative transaction" means a transaction involving the use of one or
more derivative instruments.
X. "Direct" or "directly," when used in connection with an obligation, means
the designated obligor is primarily liable on the instrument representing the
Y. "Dollar roll transaction" means 2 simultaneous transactions with
settlement dates no more than 96 days apart, so that in one
transaction an insurer sells to a business entity, and in the other transaction
the insurer is obligated to purchase from the same business entity,
substantially similar securities of the following types:
(1) Asset-backed securities issued, assumed or
guaranteed by the Government National Mortgage Association, the Federal National Mortgage Association or the Federal Home Loan Mortgage Corporation or their respective successors; and
(2) Other asset-backed securities referred to in
Section 106 of Title I of the Secondary Mortgage Market Enhancement Act of 1984 (15 U.S.C. 77r1), as amended.
Z. "Domestic jurisdiction" means the United States, Canada, any state, any
province of Canada or any political subdivision of any of the foregoing.
AA. "Equity interest" means any of the following that are not rated credit
instruments: common stock; preferred stock; trust certificate; equity
investment in an investment company other than a money market mutual fund or a
class one bond
mutual fund; investment in a common trust fund of a bank regulated by a federal
or state agency; an ownership interest in minerals, oil or gas, the rights to
which have been separated from the underlying fee interest in the real estate
where the minerals, oil or gas are located; instruments which are mandatorily,
or at the option of the issuer, convertible to equity; limited partnership
interests and those general partnership interests authorized under Section
126.5(D); member interests in limited liability companies; warrants or other
acquire equity interests that are created by the person that owns or would
issue the equity to be acquired; or instruments that would be rated credit
instruments except for the provisions of subsection RRR(2) of this Section.
BB. "Equivalent securities" means:
(1) In a securities lending transaction, securities
that are identical to the loaned securities in all features including the amount of the loaned securities, except as to certificate number if held in physical form, but if any different security shall be exchanged for a loaned security by recapitalization, merger, consolidation or other corporate action, the different security shall be deemed to be the loaned security;
(2) In a repurchase transaction, securities that are
identical to the purchased securities in all features including the amount of the purchased securities, except as to the certificate number if held in physical form; or
(3) In a reverse repurchase transaction, securities
that are identical to the sold securities in all features including the amount of the sold securities, except as to the certificate number if held in physical form.
CC. "Floor" means an agreement obligating the seller to make payments to the
buyer in which each payment is based on the amount by which a predetermined
number, sometimes called the floor rate or price, exceeds a reference price, a
level, or the performance or value of one or more underlying interests.
DD. "Foreign currency" means a currency other than that of a domestic
(1) "Foreign investment" means an investment in a
foreign jurisdiction, or an investment in a person, real estate or asset domiciled in a foreign jurisdiction, that is substantially of the same type as those eligible for investment under this Article, other than under Sections 126.17 and 126.30. An investment shall not be deemed to be foreign if the issuing person, qualified primary credit source or qualified guarantor is a domestic jurisdiction or a person domiciled in a domestic jurisdiction, unless:
(a) The issuing person is a shell business
(b) The investment is not assumed, accepted,
guaranteed, or insured or otherwise backed by a domestic jurisdiction or a person, that is not a shell business entity, domiciled in a domestic jurisdiction.
(2) For purposes of this definition:
(a) "Shell business entity" means a business
entity having no economic substance, except as a vehicle for owning interests in assets issued, owned or previously owned by a person domiciled in a foreign jurisdiction;
(b) "Qualified guarantor" means a guarantor
against which an insurer has a direct claim for full and timely payment, evidenced by a contractual right for which an enforcement action can be brought in a domestic jurisdiction; and
(c) "Qualified primary credit source" means the
credit source to which an insurer looks for payment as to an investment and against which an insurer has a direct claim for full and timely payment, evidenced by a contractual right for which an enforcement action can be brought in a domestic jurisdiction.
FF. "Foreign jurisdiction" means a jurisdiction other than a domestic
GG. "Forward" means an agreement (other than a future) to make or take
delivery of, or effect a cash settlement based on the actual or expected price,
level, performance or value of, one or more underlying interests.
HH. "Future" means an agreement, traded on a qualified exchange or qualified
foreign exchange, to make or take delivery of, or effect a cash settlement
based on the actual or expected price, level, performance or value of, one or
interests and includes an insurance future.
II. "Government money market mutual fund" means a money market mutual fund
that at all times:
(1) Invests only in obligations issued, guaranteed,
or insured by the federal government of the United States or collateralized repurchase agreements composed of these obligations; and
(2) Qualifies for investment without a reserve under
the Purposes and Procedures of the Securities Valuation Office or any successor publication.
JJ. "Government sponsored enterprise" means a:
(1) Governmental agency; or
(2) Corporation, limited liability company,
association, partnership, joint stock company, joint venture, trust or other entity or instrumentality organized under the laws of any domestic jurisdiction to accomplish a public policy or other governmental purpose.
KK. "Guaranteed or insured," when used in connection with an obligation
acquired under this Article, means the guarantor or insurer has agreed to:
(1) Perform or insure the obligation of the obligor
or purchase the obligation; or
(2) Be unconditionally obligated until the obligation
is repaid to maintain in the obligor a minimum net worth, fixed charge coverage, stockholders' equity or sufficient liquidity to enable the obligor to pay the obligation in full.
LL. "Hedging transaction" means:
(1) A derivative transaction that is entered into and
(a) the risk of a change in the value, yield,
price, cash flow, or quantity of assets or liabilities that the insurer has acquired or incurred or anticipates acquiring or incurring; or
(b) the currency exchange rate risk or the degree
of exposure as to assets or liabilities that the insurer has acquired or incurred or anticipates acquiring or incurring; or
(2) Such other derivative transactions as may be
specified to constitute hedging transactions in rules adopted pursuant to Section 126.8.
MM. "High grade investment" means a rated credit instrument; rated 1, 2, P1,
P2, PSF1 or PSF2 by the SVO.
NN. "Income" means, as to a security, interest, accrual of discount,
dividends or other distributions, such as rights, tax or assessment credits,
warrants and distributions in kind.
OO. "Income generation transaction" means (1) a derivative transaction
involving the writing of covered call options, covered put options, covered
caps or covered floors that is intended to generate income or enhance return,
or (2) such other derivative transactions as may be specified to constitute
income generation transactions in rules adopted pursuant to Section
PP. "Initial margin" means the amount of cash, securities or other
consideration initially required to be deposited to establish a futures
QQ. "Insurance future" means a future relating to an index or pool that is
based on insurance-related items.
RR. "Insurance futures option" means an option on an insurance future.
SS. "Investment company" means an investment company as defined in Section
3(a) of the Investment Company Act of 1940 (15 U.S.C. 80a-1 et seq.), as
amended, and a person described in Section 3(c) of that Act.
TT. "Investment company series" means an investment portfolio of an
investment company that is organized as a series company and to which assets of
the investment company have been specifically allocated.
UU. "Investment practices" means transactions of the types described in
Section 126.16, 126.18, 126.29 or 126.31.
VV. "Investment subsidiary" means a subsidiary of an insurer engaged or
organized to engage exclusively in the ownership and management of assets
authorized as investments for the insurer if such subsidiary agrees to limit
its investment in any asset so that its investments will not cause the amount
of the total investment of the insurer to exceed any of the investment
limitations or avoid any other provisions of this Article applicable to the
insurer. As used in this subsection, the total investment of the insurer shall
(1) Direct investment by the insurer in an asset; and
(2) The insurer's proportionate share of an
investment in an asset by an investment subsidiary of the insurer, which shall be calculated by multiplying the amount of the subsidiary's investment by the percentage of the insurer's ownership interest in the subsidiary.
WW. "Investment strategy" means the techniques and methods used by an
insurer to meet its investment objectives, such as active bond portfolio
management, passive bond portfolio management, interest rate anticipation,
growth investing and value investing.
XX. "Letter of credit" means a clean, irrevocable and unconditional letter
of credit issued or confirmed by, and payable and presentable at, a financial
institution on the list of financial institutions meeting the standards for
issuing letters of credit under the Purposes and Procedures of the Securities
Valuation Office or any successor publication. To constitute acceptable
collateral for the purposes of Sections 126.16 and 126.29, a letter of credit
an expiration date beyond the term of the subject transaction.
YY. "Limited liability company" means a business organization, excluding
partnerships and ordinary business corporations, organized or operating under
the laws of the United States or any state thereof that limits the personal
liability of investors to the equity investment of the investor in the business
ZZ. "Lower grade investment" means a rated credit instrument rated 4, 5, 6,
P4, P5, P6, PSF4, PSF5, or PSF6 by the SVO.
AAA. "Market value" means:
(1) As to cash and letters of credit, the amounts
(2) As to a security as of any date, the price for
the security on that date obtained from a generally recognized source or the most recent quotation from such a source or, to the extent no generally recognized source exists, the price for the security as determined in good faith by the insurer, plus accrued but unpaid income thereon to the extent not included in the price as of that date.
BBB. "Medium grade investment" means a rated credit instrument rated 3, P3,
or PSF 3 by the SVO.
CCC. "Money market mutual fund" means a mutual fund that meets the
conditions of 17 Code of Federal Regulations Par. 270.2a-7, under the
Investment Company Act of 1940 (15 U.S.C. 80a-1 et seq.), as amended or
DDD. "Mortgage loan" means an obligation secured by a mortgage, deed of
trust, trust deed or other consensual lien on real estate.
EEE. "Multilateral development bank" means an international development
organization of which the United States is a member.
FFF. "Mutual fund" means an investment company or, in the case of an
investment company that is organized as a series company, an investment company
series, that, in either case, is registered with the United States Securities
and Exchange Commission under the Investment Company Act of 1940 (15 U.S.C.
seq.), as amended.
GGG. "NAIC" means the National Association of Insurance Commissioners.
HHH. "Obligation" means a bond, note, debenture, trust certificate including
an equipment trust certificate, production payment, negotiable bank certificate
of deposit, bankers' acceptance, credit tenant loan, loan secured by financing
net leases and other evidence of indebtedness for the payment of money (or
participations, certificates or other evidences of an interest in any of the
foregoing), whether constituting a general obligation of the issuer or payable
only out of certain revenues or certain funds pledged or otherwise dedicated
III. "Option" means an agreement giving the buyer the right to buy or
receive (a "call option"), sell or deliver (a "put option"), enter into, extend
or terminate or effect a cash settlement based on the actual or expected price,
level, performance or value of one or more underlying interests and includes an
insurance futures option.
JJJ. "Person" means an individual, a business entity, a multilateral
development bank or a government or quasi governmental body, such as a
political subdivision or a government sponsored enterprise.
KKK. "Potential exposure" means the amount determined in accordance with the
NAIC Annual Statement Instructions.
LLL. "Preferred stock" means preferred, preference or guaranteed stock of a
business entity authorized to issue the stock, that has a preference in
liquidation over the common stock of the business entity.
MMM. "Qualified bank" means:
(1) A national bank, state bank or trust company that
at all times is no less than adequately capitalized as determined by standards adopted by United States banking regulators and that either is regulated by state banking laws or is a member of the Federal Reserve System; or
(2) A bank or trust company incorporated or organized
under the laws of a country other than the United States that is regulated as a bank or trust company by that country's government or an agency thereof and that at all times is no less than adequately capitalized as determined by the standards adopted by international banking authorities.
NNN. "Qualified business entity" means a business entity that is:
(1) An issuer of obligations or preferred stock that
are rated 1 or 2 by the SVO or an issuer of obligations, preferred stock or derivative instruments that are rated the equivalent of 1 or 2 by the SVO or by a nationally recognized statistical rating organization recognized by the SVO;
(2) A primary dealer in United States government
securities, recognized by the Federal Reserve Bank of New York; or
(3) With respect to securities lending arrangements
under Sections 126.16 and 126.29, an affiliate of an entity that is a qualified business entity pursuant to paragraph (1) or (2) of this subsection NNN, whose arrangement with the insurer is guaranteed by the affiliated entity that is a qualified business entity under paragraph (1) or (2).
OOO. "Qualified clearinghouse" means a clearinghouse for, and subject to the
rules of, a
qualified exchange or a qualified foreign exchange, which provides clearing
services, including acting as a counterparty to each of the parties to a
such that the parties no longer have credit risk as to each other.
PPP. "Qualified exchange" means:
(1) A securities exchange registered as a national
securities exchange, or a securities market regulated under the Securities Exchange Act of 1934 (15 U.S.C. 78 et seq.), as amended;
(2) A board of trade or commodities exchange
designated as a contract market by the Commodity Futures Trading Commission or any successor thereof;
(3) Private Offerings, Resales and Trading through
Automated Linkages (PORTAL);
(4) A designated offshore securities market as
defined in Securities Exchange Commission Regulation S, 17 C.F.R. Part 230, as amended; or
(5) A qualified foreign exchange.
QQQ. "Qualified foreign exchange" means a foreign exchange, board of trade
or contract market located outside the United States, its territories or
(1) That has received regulatory comparability relief
under Commodity Futures Trading Commission (CFTC) Rule 30.10 (as set forth in Appendix C to Part 30 of the CFTC's Regulations, 17 C.F.R. Part 30);
(2) That is, or its members are, subject to the
jurisdiction of a foreign futures authority that has received regulatory comparability relief under CFTC Rule 30.10 (as set forth in Appendix C to Part 30 of the CFTC's Regulations, 17 C.F.R. Part 30) as to futures transactions in the jurisdiction where the exchange, board of trade or contract market is located; or
(3) Upon which foreign stock index futures contracts
are listed that are the subject of no-action relief issued by the CFTC's Office of General Counsel, provided that an exchange, board of trade or contract market that qualifies as a "qualified foreign exchange" only under this subsection shall only be a "qualified foreign exchange" as to foreign stock index futures contracts that are the subject of no-action relief.
(1) "Rated credit instrument" means an obligation
or other instrument which gives its holder a contractual right to receive cash or another rated credit instrument from another entity, if the instrument:
(a) Is rated or required to be rated by the SVO;
(b) In the case of an instrument with a maturity
of 397 days or less, is issued, guaranteed, or insured by an entity that is rated by, or another instrument of such entity is rated by, the SVO or by a nationally recognized statistical rating organization recognized by the SVO;
(c) In the case of an instrument with a maturity
of 90 days or less, the instrument has been issued, assumed, accepted, guaranteed, or insured by a qualified bank;
(d) Is a share of a class one bond mutual fund; or
(e) Is a share of a money market mutual fund.
(2) However, "rated credit instrument" does not mean:
(a) An instrument that is mandatorily, or at the
option of the issuer, convertible to an equity interest; or
(b) A security that has a par value and whose
terms provide that the issuer's net obligation to repay all or part of the security's par value is determined by reference to the performance of an equity, a commodity, a foreign currency or an index of equities, commodities, foreign currencies or combinations thereof.
SSS. "Real estate" means:
(a) Real property;
(b) Interests in real property, such as
leaseholds, minerals and oil and gas that have not been separated from the underlying fee interest;
(c) Improvements and fixtures located on or in
(d) The seller's equity in a contract providing
for a deed of real estate.
(2) As to a mortgage on a leasehold estate, real
estate shall include the leasehold estate only if it has an unexpired term (including renewal options exercisable at the option of the lessee) extending beyond the scheduled maturity date of the obligation that is secured by a mortgage on the leasehold estate by a period equal to at least 20% of the original term of the obligation or 10 years, whichever is greater.
TTT. "Replication transaction" means a derivative transaction that is
intended to replicate the performance of one or more assets that an insurer is
authorized to acquire under this Article. A derivative transaction that is
entered into as a hedging transaction shall not be considered a replication
UUU. "Repurchase transaction" means a transaction in which an insurer
purchases securities from a business entity that is obligated to repurchase the
purchased securities or equivalent securities from the insurer at a specified
within a specified period of time or upon demand.
VVV. "Required liabilities" means total liabilities required to be reported
statutory financial statement of the insurer most recently required to be filed
with the Director.
WWW. "Residential mortgage loan" means a loan primarily secured by a
mortgage on real estate improved with a one to four family residence.
XXX. "Reverse repurchase transaction" means a transaction in which an
insurer sells securities to a business entity and is obligated to repurchase
the sold securities or equivalent securities from the business entity at a
specified price, either within a specified period of time or upon demand.
YYY. "Secured location" means the contiguous real estate owned by one
ZZZ. "Securities lending transaction" means a transaction in which
securities are loaned by an insurer to a business entity that is obligated to
return the loaned securities or equivalent securities to the insurer, either
within a specified period of time or upon demand.
AAAA. "Series company" means an investment company that is organized as a
series company, as defined in Rule 18f-2(a) adopted under the Investment
Company Act of 1940 (15 U.S.C. 80a-1 et seq.), as amended.
BBBB. "Sinking fund stock" means preferred stock that:
(1) Is subject to a mandatory sinking fund or similar
arrangement that will provide for the redemption (or open market purchase) of the entire issue over a period not longer than 40 years from the date of acquisition; and
(2) Provides for mandatory sinking fund installments
(or open market purchases) commencing not more than 10.5 years from the date of issue, with the sinking fund installments providing for the purchase or redemption, on a cumulative basis commencing 10 years from the date of issue, of at least 2.5% per year of the original number of shares of that issue of preferred stock.
CCCC. "Special rated credit instrument" means a rated credit instrument that
(1) An instrument that is structured so that, if it
is held until retired by or on behalf of the issuer, its rate of return, based on its purchase cost and any cash flow stream possible under the structure of the transaction, may become negative due to reasons other than the credit risk associated with the issuer of the instrument; however, a rated credit instrument shall not be a special rated credit instrument under this subsection if it is:
(a) A share in a class one bond mutual fund;
(b) An instrument, other than an asset-backed
security, with payments of par value fixed as to amount and timing, or callable but in any event payable only at par or greater, and interest or dividend cash flows that are based on either a fixed or variable rate determined by reference to a specified rate or index;
(c) An instrument, other than an asset-backed
security, that has a par value and is purchased at a price no greater than 110% of par;
(d) An instrument, including an asset-backed
security, whose rate of return would become negative only as a result of a prepayment due to casualty, condemnation or economic obsolescence of collateral or change of law;
(e) An asset-backed security that relies on
collateral that meets the requirements of subparagraph (b) of this paragraph, the par value of which collateral:
(i) Is not permitted to be paid sooner than
one half of the remaining term to maturity from the date of acquisition;
(ii) Is permitted to be paid prior to
maturity only at a premium sufficient to provide a yield to maturity for the investment, considering the amount prepaid and reinvestment rates at the time of early repayment, at least equal to the yield to maturity of the initial investment; or
(iii) Is permitted to be paid prior to
maturity at a premium at least equal to the yield of a treasury issue of comparable remaining life; or
(f) An asset-backed security that relies on cash
flows from assets that are not prepayable at any time at par, but is not otherwise governed by subparagraph (e) of this paragraph, if the asset-backed security has a par value reflecting principal payments to be received if held until retired by or on behalf of the issuer and is purchased at a price no greater than 105% of such par amount.
(2) An asset-backed security that:
(a) Relies on cash flows from assets that are
prepayable at par at any time;
(b) Does not make payments of par that are fixed
as to amount and timing; and
(c) Has a negative rate of return at the time of
acquisition if a prepayment threshold assumption is used with such prepayment threshold assumption defined as either:
(i) Two (2) times the prepayment expectation
reported by a recognized, publicly available source as being the median of expectations contributed by broker dealers or other entities, except insurers, engaged in the business of selling or evaluating such securities or assets. The prepayment expectation used in this calculation shall be, at the insurer's election, the prepayment expectation for pass-through securities of the Federal National Mortgage Association, the Federal Home Loan Mortgage Corporation, the Government National Mortgage Association, or for other assets of the same type as the assets that underlie the asset- backed security, in either case with a gross weighted average coupon comparable to the gross weighted average coupon of the assets that underlie the asset-backed security; or
(ii) Another prepayment threshold assumption
specified by the Director by rule promulgated under Section 126.8.
(3) For purposes of subparagraph 2 of this
subsection, if the asset-backed security is purchased in combination with one or more other asset-backed securities that are supported by identical underlying collateral, the insurer may calculate the rate of return for these specific combined asset-backed securities in combination. The insurer must maintain documentation demonstrating that such securities were acquired and are continuing to be held in combination.
DDDD. "State" means a state, territory or possession of the United States of
America, the District of Columbia or the Commonwealth of Puerto Rico.
EEEE. "Substantially similar securities" means securities that meet all
criteria for substantially similar
specified in the NAIC Accounting Practices
Manual, as amended, and in an amount that constitutes good delivery form as
determined from time to time by the PSA The Bond Market Trade Association.
FFFF. "Subsidiary" means, as to any person, an affiliate controlled by such
person, directly or indirectly through one or more intermediaries.
GGGG. "SVO" means the Securities Valuation Office of the NAIC or any
successor office established by the NAIC.
HHHH. "Swap" means an agreement to exchange or to net payments at one or
more times based on the actual or expected price, level, performance or value
of one or more underlying interests.
IIII. "Underlying interest" means the assets, liabilities, other interests
or a combination thereof underlying a derivative instrument, such as any one or
more securities, currencies, rates, indices, commodities or derivative
JJJJ. "Unrestricted surplus" means the amount by which total admitted assets
exceed 125% of the insurer's required liabilities.
KKKK. "Warrant" means an instrument that gives the holder the right to
purchase an underlying financial instrument at a given price and time or at a
series of prices and times outlined in the warrant agreement. Warrants may be
issued alone or in connection with the sale of other securities, for example,
as part of a merger or recapitalization agreement, or to facilitate divestiture
of the securities of another business entity.
(Source: P.A. 90-418, eff. 8-15-97; 90-794, eff. 8-14-98.)
215 ILCS 5/126.3
(215 ILCS 5/126.3)
General investment qualifications.
A. Insurers may acquire, hold or invest in investments or engage in
investment practices as set forth in this Article. Insurers may also acquire,
hold or invest in investments not conforming to the requirements of this
Article that are not otherwise prohibited by this Code. Investments not
conforming to this Article shall not be admitted assets unless they are
acquired under other authority of this Code.
B. Subject to subsection C of this Section, an insurer shall not acquire or
investment as an admitted asset unless at the time of acquisition it is:
(1) Eligible for the payment or accrual of interest
or discount (whether in cash or other forms of income or securities), eligible to receive dividends or other distributions or is otherwise income producing; or
(2) Acquired under Section 126.15B, 126.15C, 126.16,
126.18, 126.20, 126.28C, 126.29, 126.31, or 126.32 or under the authority of Sections of the Code other than this Article.
C. An insurer may acquire or hold as admitted assets investments that do not
otherwise qualify as provided in this Article if the insurer has not acquired
them for the purpose of circumventing any limitations contained in this
Article, if the insurer acquires the investments in the following circumstances
and the insurer complies with the provisions of Sections 126.5 and 126.7 as to
(1) As payment on account of existing indebtedness or
in connection with the refinancing, restructuring or workout of existing indebtedness, if taken to protect the insurer's interest in that investment;
(2) As realization on collateral for indebtedness;
(3) In connection with an otherwise qualified
investment or investment practice, as interest on or a dividend or other distribution related to the investment or investment practice or in connection with the refinancing of the investment, in each case for no additional or only nominal consideration;
(4) Under a lawful and bona fide agreement of
recapitalization or voluntary or involuntary reorganization in connection with an investment held by the insurer; or
(5) Under a bulk reinsurance, merger or consolidation
transaction approved by the Director if the assets constitute admissible investments for the ceding, merged or consolidated companies.
D. An investment or portion of an investment acquired by an insurer under
subsection C of this Section shall become a nonadmitted asset 3 years
(or 5 years in the case of mortgage loans and real estate) from the date of
its acquisition, unless within that period the investment has become a
qualified investment under a Section of this Article other than subsection C of
this Section, but an investment acquired under an agreement of bulk
reinsurance, merger or consolidation may be qualified for a longer period if so
provided in the plan for reinsurance, merger or consolidation as approved by
the Director. Upon application by the insurer and a showing that the
nonadmission of an asset held under subsection C of this Section would injure
the interests of the insurer, the Director may extend the period for
admissibility for an additional reasonable period of time.
E. Except as provided in subsections F and H of this Section, an investment
shall qualify under this Article if, on the date the insurer committed to
acquire the investment or on the date of its acquisition, it would have
qualified under this Article. For the purposes of determining limitations
contained in this Article, an insurer shall give appropriate recognition to any
commitments to acquire investments.
(1) An investment held as an admitted asset by an
insurer on the effective date of this amendatory Act of 1997 which qualified immediately prior to the effective date of this amendatory Act of 1997 shall remain qualified as an admitted asset under this Article.
(2) Each specific transaction constituting an
investment practice of the type described in this Article immediately prior to the effective date of this amendatory Act of 1997 that was lawfully entered into by an insurer and was in effect on the effective date of this amendatory Act of 1997 shall continue to be permitted under this Article until its expiration or termination under its terms.
G. Unless otherwise specified, an investment limitation computed on the
basis of an
insurer's admitted assets or capital and surplus shall relate to the amount
required to be shown on the statutory balance sheet of the insurer most
recently required to be filed (annual or last quarter) with the Director.
Solely for purposes of
computing any limitation under this Article based upon admitted assets, the
insurer shall deduct from the amount of its admitted assets the amount of the
liability recorded on such statutory balance sheet for:
(1) The return of acceptable collateral received in a
reverse repurchase transaction or a securities lending transaction;
(2) Cash received in a dollar roll transaction; and
(3) The amount reported as borrowed money in such
statutory balance sheet to the extent not included in paragraphs (1) and (2) of this subsection.
H. An investment qualified, in whole or in part, for acquisition or holding
as an admitted asset may be qualified or requalified at the time of acquisition
or a later date, in whole or in part, under any other Section, if the relevant
conditions contained in the other Section are satisfied at the time of
qualification or requalification.
I. An insurer shall maintain documentation demonstrating that investments
were acquired in accordance with this Article, and specifying the Section of
this Article under which they were acquired.
J. An insurer shall not enter into an agreement to purchase securities in
advance of their issuance for resale to the public as part of a distribution of
the securities by
the issuer or otherwise guarantee the distribution, except that an insurer may
acquire privately placed securities with registration rights.
K. Notwithstanding the provisions of this Article, the Director, for good
order an insurer to nonadmit, limit, dispose of, withdraw from or discontinue
an investment or investment practice in accordance with Article XXIV. The
authority of the Director under this subsection is in addition to any other
authority of the Director.
(Source: P.A. 90-418, eff. 8-15-97.)
215 ILCS 5/126.4
(215 ILCS 5/126.4)
Authorization of investments by the board of directors.
A. Within 3 months after the effective date of this amendatory Act of 1997,
an insurer's board of directors shall adopt a written plan for acquiring
and holding investments and for engaging in investment practices that specifies
guidelines as to the quality, maturity and diversification of investments and
other specifications including investment strategies intended to assure that
the investments and investment practices are appropriate for the business
conducted by the insurer, its liquidity needs and its capital and surplus. The
board shall review and assess the insurer's technical investment and
administrative capabilities and expertise before
adopting a written plan concerning an investment strategy or investment
B. Investments acquired and held under this Article shall be acquired and
held under the supervision and direction of the board of directors of the
insurer. The board of directors shall evidence by formal resolution, at least
annually, that it has determined whether all investments have been made in
accordance with delegations, standards, limitations and investment objectives
prescribed by the board or a committee of the board charged with the
responsibility to direct its investments.
C. On no less than a quarterly basis, and more often if deemed appropriate,
an insurer's board of directors or committee of the board of directors shall:
(1) Receive and review a summary report on the
insurer's investment portfolio, its investment activities and investment practices engaged in under delegated authority, in order to determine whether the investment activity of the insurer is consistent with its written plan; and
(2) Review and revise, as appropriate, the written
D. In discharging its duties under this Section, the board of directors
shall require that records of any authorizations or approvals, other
documentation as the board may require and reports of any action taken under
authority delegated under the plan referred to in subsection A of this Section
shall be made available on a regular basis to the board of directors.
E. In discharging their duties under this Section, the directors of an
insurer shall perform their duties in good faith and with that degree of care
that ordinarily prudent individuals in like positions would use under similar
F. If an insurer does not have a board of directors, all references to the
board of directors in this Article shall be deemed to be references to the
governing body of the insurer having authority equivalent to that of a board of
(Source: P.A. 90-418, eff. 8-15-97.)
215 ILCS 5/126.5
(215 ILCS 5/126.5)
An insurer shall not, directly or indirectly:
A. Invest in an obligation or security or make a guarantee for the benefit
of or in favor of an officer or director of the insurer, except as provided in
B. Invest in an obligation or security, make a guarantee for the benefit of
or in favor of, or make other investments in a business entity of which 10% or
more of the voting securities or equity interests are owned
directly or indirectly by
or for the benefit of one or more officers or directors of the insurer, except
pursuant to a transaction entered into in compliance with Section 131.20a of
this Code or provided in Section 126.6;
C. Engage on its own behalf or through one or more affiliates in a
series of transactions designed to evade the prohibitions of this Article;
(1) Invest in a partnership as a general partner,
except that an insurer may make an investment as a general partner:
(a) If all other partners in the partnership are
subsidiaries of the insurer or other insurance company affiliates of the insurer;
(b) For the purpose of:
(i) Meeting cash calls committed to prior to
the effective date of this amendatory Act of 1997;
(ii) Completing those specific projects or
activities of the partnership in which the insurer was a general partner as of the effective date of this amendatory Act of 1997 that had been undertaken as of that date; or
(iii) Making capital improvements to property
owned by the partnership on the effective date of this amendatory Act of 1997 if the insurer was a general partner as of that date; or
(c) In accordance with Section 126.3C;
(2) This subsection shall not prohibit a subsidiary
or other affiliate of the insurer from becoming a general partner; or
E. Invest in or lend its funds upon the security of shares of its own stock,
except as authorized by other provisions of this Code. However, no such shares
shall be admitted assets of the insurer.
(Source: P.A. 90-418, eff. 8-15-97.)
215 ILCS 5/126.6
(215 ILCS 5/126.6)
Loans to officers and directors.
(1) Except as provided in Section 126.6B, an insurer shall not directly
or indirectly, unless it has notified the Director in writing of its intention
to enter into the transaction at least 30 days prior thereto, or any shorter
period as the Director may permit, and the Director has not disapproved it
within that period:
(a) Make a loan to or other investment in an officer
or director of the insurer or a person in which the officer or director has any direct or indirect financial interest;
(b) Make a guarantee for the benefit of or in favor
of an officer or director of the insurer or a person in which the officer or director has any direct or indirect financial interest; or
(c) Enter into an agreement for the purchase or sale
of property from or to an officer or director of the insurer or a person in which the officer or director has any direct or indirect financial interest.
(2) For purposes of this Section, an officer or director shall not be
deemed to have a financial interest by reason of an interest that is held
directly or indirectly through the ownership of equity interests representing
less than 2% of all outstanding equity interests issued by a person that is a
party to the transaction, or solely by reason of that individual's position as
a director or officer of a person that is a party to the transaction.
(3) This subsection does not permit an investment that is prohibited by
(4) This subsection does not apply to a transaction between an insurer and
any of its subsidiaries or affiliates that is entered into in compliance with
Section 131.20a of this Code, other than a transaction between an insurer
and its officer or director.
B. An insurer may make, without the prior written approval of the Director:
(1) Policy loans in accordance with the terms of the
policy or contract and Section 126.19;
(2) Advances to officers or directors for expenses
reasonably expected to be incurred in the ordinary course of the insurer's business or guarantees associated with credit or charge cards issued or credit extended for the purpose of financing these expenses;
(3) Loans secured by the principal residence of an
existing or new officer of the insurer made in connection with the officer's relocation at the insurer's request, if the loans comply with the requirements of Section 126.15 or 126.28 and the terms and conditions otherwise are the same as those generally available from unaffiliated third parties;
(4) Secured loans to an existing or new officer of
the insurer made in connection with the officer's relocation at the insurer's request, if the loans:
(a) Do not have a term exceeding 2 years;
(b) Are required to finance mortgage loans
outstanding at the same time on the prior and new residences of the officer;
(c) Do not exceed an amount equal to the equity
of the officer in the prior residence; and
(d) Are required to be fully repaid upon the
earlier of the end of the 2 year period or the sale of the prior residence; and
(5) Loans and advances to officers or directors made
in compliance with state or federal law specifically related to the loans and advances by a regulated non-insurance subsidiary or affiliate of the insurer in the ordinary course of business and on terms no more favorable than available to other customers of the entity.
(Source: P.A. 90-418, eff. 8-15-97.)
215 ILCS 5/126.7
(215 ILCS 5/126.7)
Valuation of investments.
For the purposes of this Article, the value or amount of an investment acquired
or held, or an investment practice engaged in, under this Article, unless
otherwise specified in this Code, shall be the value at which assets of an
insurer are required to be reported for statutory accounting purposes as
determined in accordance with procedures prescribed in published accounting and
valuation standards of the NAIC, including the Purposes and Procedures of the
Valuation Office, the Valuation of Securities manual, the Accounting Practices
manual, the Annual Statement Instructions or any successor valuation procedures
officially adopted by the
NAIC. The Director shall promulgate rules for determining and calculating
values to be used in financial statements submitted to the Department for
investments not subject to published National Association of Insurance
Commissioners valuation standards.
(Source: P.A. 90-418, eff. 8-15-97.)
215 ILCS 5/126.8
(215 ILCS 5/126.8)
The Director may, in accordance with Section 401 of this Code, promulgate
rules implementing the provisions of this Article.
(Source: P.A. 90-418, eff. 8-15-97.)