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90_SB0801eng
215 ILCS 5/Art. VIII rep.
Amends the Illinois Insurance Code. Repeals Article VIII
of the Code, which regulates the investments of domestic
insurance companies.
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1 AN ACT concerning investment practices of insurance
2 companies.
3 Be it enacted by the People of the State of Illinois,
4 represented in the General Assembly:
5 Section 5. The Illinois Insurance Code is amended by
6 adding Sections 126.1, 126.2, 126.3, 126.4, 126.5, 126.6,
7 126.7, 126.8, 126.9, 126.10, 126.11, 126.12, 126.13, 126.14,
8 126.15, 126.16, 126.17, 126.18, 126.19, 126.20, 126.21,
9 126.22, 126.23, 126.24, 126.25, 126.26, 126.27, 126.28,
10 126.29, 126.30, 126.31, and 126.32 and headings for Parts 1,
11 2, and 3 of Article VIII as follows:
12 (215 ILCS 5/Art. VIII, Part 1, heading new)
13 1. GENERAL PROVISIONS
14 (215 ILCS 5/126.1 new)
15 Sec. 126.1. Purpose and scope.
16 A. Purpose. The purpose of this Article is to protect
17 the interests of insureds by promoting insurer solvency and
18 financial strength. This will be accomplished through the
19 application of investment standards that facilitate a
20 reasonable balance of the following objectives:
21 (1) To preserve principal;
22 (2) To assure reasonable diversification as to type of
23 investment, issuer and credit quality; and
24 (3) To allow insurers to allocate investments in a
25 manner consistent with principles of prudent investment
26 management to achieve an adequate return so that obligations
27 to insureds are adequately met and financial strength is
28 sufficient to cover reasonably foreseeable contingencies.
29 B. Scope. This Article shall apply only to investments
30 and investment practices of domestic insurers and United
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1 States branches of alien insurers entered through this State.
2 This Article shall not apply to separate accounts of an
3 insurer except to the extent that the provisions of Article
4 XIV 1/2 so provide.
5 (215 ILCS 5/126.2 new)
6 Sec. 126.2. Definitions. For purposes of this Article:
7 A. "Acceptable collateral" means:
8 (1) As to securities lending transactions, and for the
9 purpose of calculating counterparty exposure amount, cash,
10 cash equivalents, letters of credit, direct obligations of,
11 or securities that are fully guaranteed as to principal and
12 interest by, the government of the United States or any
13 agency of the United States, or by the Federal National
14 Mortgage Association or the Federal Home Loan Mortgage
15 Corporation, and as to lending foreign securities, sovereign
16 debt rated 1 by the SVO;
17 (2) As to repurchase transactions, cash, cash
18 equivalents and direct obligations of, or securities that are
19 fully guaranteed as to principal and interest by, the
20 government of the United States or an agency of the United
21 States, or by the Federal National Mortgage Association or
22 the Federal Home Loan Mortgage Corporation; and
23 (3) As to reverse repurchase transactions, cash and cash
24 equivalents.
25 B. "Acceptable private mortgage insurance" means
26 insurance written by a private insurer protecting a mortgage
27 lender against loss occasioned by a mortgage loan default and
28 issued by a licensed mortgage insurance company, with an SVO
29 1 designation or a rating issued by a nationally recognized
30 statistical rating organization equivalent to an SVO 1
31 designation, that covers losses to an 80% loan-to-value
32 ratio.
33 C. "Accident and health insurance" means protection
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1 which provides payment of benefits for covered sickness or
2 accidental injury, excluding credit insurance, disability
3 insurance, accidental death and dismemberment insurance and
4 long-term care insurance.
5 D. "Accident and health insurer" means a licensed life
6 or health insurer or health service corporation whose
7 insurance premiums and required statutory reserves for
8 accident and health insurance constitute at least 95% of
9 total premium considerations or total statutory required
10 reserves, respectively.
11 E. "Admitted assets" means assets defined by Section 3.1
12 of this Code permitted to be reported as admitted assets on
13 the statutory financial statement of the insurer most
14 recently required to be filed with the Director, but
15 excluding assets of separate accounts, the investments of
16 which are not subject to the provisions of this Article
17 except to the extent that the provisions of Article XIV 1/2
18 so provide.
19 F. "Affiliate" means, as to any person, another person
20 that, directly or indirectly through one or more
21 intermediaries, controls, is controlled by, or is under
22 common control with the person.
23 G. "Asset-backed security" means a security or other
24 instrument, excluding shares in a mutual fund, evidencing an
25 interest in, or the right to receive payments from, or
26 payable from distributions on, an asset, a pool of assets or
27 specifically divisible cash flows which are legally
28 transferred to a trust or another special purpose
29 bankruptcy-remote business entity, on the following
30 conditions:
31 (1) The trust or other business entity is established
32 solely for the purpose of acquiring specific types of assets
33 or rights to cash flows, issuing securities and other
34 instruments representing an interest in or right to receive
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1 cash flows from those assets or rights, and engaging in
2 activities required to service the assets or rights and any
3 credit enhancement or support features held by the trust or
4 other business entity; and
5 (2) The assets of the trust or other business entity
6 consist solely of interest bearing obligations or other
7 contractual obligations representing the right to receive
8 payment from the cash flows from the assets or rights.
9 However, the existence of credit enhancements, such as
10 letters of credit or guarantees, or support features such as
11 swap agreements, shall not cause a security or other
12 instrument to be ineligible as an asset-backed security.
13 H. "Business entity" includes a sole proprietorship,
14 corporation, limited liability company, association,
15 partnership, joint stock company, joint venture, mutual fund,
16 trust, joint tenancy or other similar form of business
17 organization, whether organized for profit or not for profit.
18 I. "Cap" means an agreement obligating the seller to
19 make payments to the buyer, with each payment based on the
20 amount by which a reference price or level or the performance
21 or value of one or more underlying interests exceeds a
22 predetermined number, sometimes called the strike rate or
23 strike price.
24 J. "Capital and surplus" means the sum of the capital
25 and surplus of the insurer required to be shown on the
26 statutory financial statement of the insurer most recently
27 required to be filed with the Director.
28 K. "Cash equivalents" means short-term, highly rated and
29 highly liquid investments or securities readily convertible
30 to known amounts of cash without penalty and so near maturity
31 that they present insignificant risk of change in value. Cash
32 equivalents include government money market mutual funds and
33 class one money market mutual funds. For purposes of this
34 definition:
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1 (1) "Short-term" means investments with a remaining term
2 to maturity of 90 days or less; and
3 (2) "Highly rated" means an investment rated "P-1" by
4 Moody's Investors Service, Inc., or "A-1" by Standard and
5 Poor's division of The McGraw Hill Companies, Inc. or its
6 equivalent rating by a nationally recognized statistical
7 rating organization recognized by the SVO.
8 L. "Class one bond mutual fund" means a mutual fund that
9 at all times qualifies for investment using the bond class
10 one reserve factor under the Purposes and Procedures of the
11 Securities Valuation Office or any successor publication.
12 M. "Class one money market mutual fund" means a money
13 market mutual fund that at all times qualifies for investment
14 using the bond class one reserve factor under the Purposes
15 and Procedures of the Securities Valuation Office or any
16 successor publication.
17 N. "Code" means the Illinois Insurance Code.
18 O. "Collar" means an agreement to receive payments as
19 the buyer of an option, cap or floor and to make payments as
20 the seller of a different option, cap or floor.
21 P. "Commercial mortgage loan" means a mortgage loan,
22 other than a residential mortgage loan.
23 Q. "Construction loan" means a loan of less than 3 years
24 in term, made for financing the cost of construction of a
25 building or other improvement to real estate, that is secured
26 by the real estate.
27 R. "Control" means the possession, directly or
28 indirectly, of the power to direct or cause the direction of
29 the management and policies of a person, whether through the
30 ownership of voting securities, by contract (other than a
31 commercial contract for goods or nonmanagement services), or
32 otherwise, unless the power is the result of an official
33 position with or corporate office held by the person. Control
34 shall be presumed to exist if a person, directly or
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1 indirectly, owns, controls, holds with the power to vote or
2 holds proxies representing 10% or more of the voting
3 securities of another person. This presumption may be
4 rebutted by a showing that control does not exist in fact.
5 The Director may determine, after furnishing all interested
6 persons notice and an opportunity to be heard and making
7 specific findings of fact to support the determination, that
8 control exists in fact, notwithstanding the absence of a
9 presumption to that effect.
10 S. "Counterparty exposure amount" means:
11 (1) The amount of credit risk attributable to a
12 derivative instrument entered into with a business entity
13 other than through a qualified exchange, qualified foreign
14 exchange, or cleared through a qualified clearinghouse
15 ("over-the-counter derivative instrument"). The amount of
16 credit risk equals:
17 (a) The market value of the over-the-counter derivative
18 instrument if the liquidation of the derivative instrument
19 would result in a final cash payment to the insurer; or
20 (b) Zero if the liquidation of the derivative instrument
21 would not result in a final cash payment to the insurer.
22 (2) If over-the-counter derivative instruments are
23 entered into under a written master agreement which provides
24 for netting of payments owed by the respective parties, and
25 the domicile of the counterparty is either within the United
26 States or if not within the United States, within a foreign
27 jurisdiction listed in the Purposes and Procedures of the
28 Securities Valuation Office as eligible for netting, the net
29 amount of credit risk shall be the greater of zero or the net
30 sum of:
31 (a) The market value of the over-the-counter derivative
32 instruments entered into under the agreement, the liquidation
33 of which would result in a final cash payment to the insurer;
34 and
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1 (b) The market value of the over-the-counter derivative
2 instruments entered into under the agreement, the liquidation
3 of which would result in a final cash payment by the insurer
4 to the business entity.
5 (3) For open transactions, market value shall be
6 determined at the end of the most recent quarter of the
7 insurer's fiscal year and shall be reduced by the market
8 value of acceptable collateral held by the insurer or placed
9 in escrow by one or both parties.
10 T. "Covered" means that an insurer owns or can
11 immediately acquire, through the exercise of options,
12 warrants or conversion rights already owned, the underlying
13 interest in order to fulfill or secure its obligations under
14 a call option, cap or floor it has written, or has set aside,
15 pursuant to a custodial or escrow agreement, cash or cash
16 equivalents with a market value equal to the amount required
17 to fulfill its obligations under a put option it has written,
18 in an income generation transaction.
19 U. "Credit tenant loan" means a mortgage loan which is
20 made primarily in reliance on the credit standing of a major
21 tenant, structured with an assignment of the rental payments
22 to the lender with real estate pledged as collateral in the
23 form of a first lien.
24 V. (1) "Derivative instrument" means an agreement,
25 option, instrument or a series or combination thereof:
26 (a) To make or take delivery of, or assume or
27 relinquish, a specified amount of one or more underlying
28 interests, or to make a cash settlement in lieu thereof; or
29 (b) That has a price, performance, value or cash flow
30 based primarily upon the actual or expected price, level,
31 performance, value or cash flow of one or more underlying
32 interests.
33 (2) Derivative instruments include options, warrants
34 used in a hedging transaction and not attached to another
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1 financial instrument, caps, floors, collars, swaps, forwards,
2 futures and any other agreements, options or instruments
3 substantially similar thereto or any series or combination
4 thereof and any agreements, options or instruments permitted
5 under rules adopted under Section 126.8. Derivative
6 instruments shall not include an investment authorized by
7 Sections 126.11 through 126.17, 126.19 and 126.24 through
8 126.30.
9 W. "Derivative transaction" means a transaction
10 involving the use of one or more derivative instruments.
11 X. "Direct" or "directly," when used in connection with
12 an obligation, means the designated obligor is primarily
13 liable on the instrument representing the obligation.
14 Y. "Dollar roll transaction" means 2 simultaneous
15 transactions with settlement dates no more than 96 days
16 apart, so that in one transaction an insurer sells to a
17 business entity, and in the other transaction the insurer is
18 obligated to purchase from the same business entity,
19 substantially similar securities of the following types:
20 (1) Asset-backed securities issued, assumed or
21 guaranteed by the Government National Mortgage Association,
22 the Federal National Mortgage Association or the Federal Home
23 Loan Mortgage Corporation or their respective successors; and
24 (2) Other asset-backed securities referred to in Section
25 106 of Title I of the Secondary Mortgage Market Enhancement
26 Act of 1984 (15 U.S.C. 77r1), as amended.
27 Z. "Domestic jurisdiction" means the United States,
28 Canada, any state, any province of Canada or any political
29 subdivision of any of the foregoing.
30 AA. "Equity interest" means any of the following that
31 are not rated credit instruments: common stock; preferred
32 stock; trust certificate; equity investment in an investment
33 company other than a money market mutual fund or a class one
34 bond mutual fund; investment in a common trust fund of a bank
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1 regulated by a federal or state agency; an ownership interest
2 in minerals, oil or gas, the rights to which have been
3 separated from the underlying fee interest in the real estate
4 where the minerals, oil or gas are located; instruments which
5 are mandatorily, or at the option of the issuer, convertible
6 to equity; limited partnership interests and those general
7 partnership interests authorized under Section 126.5(D);
8 member interests in limited liability companies; warrants or
9 other rights to acquire equity interests that are created by
10 the person that owns or would issue the equity to be
11 acquired; or instruments that would be rated credit
12 instruments except for the provisions of subsection RRR(2) of
13 this Section.
14 BB. "Equivalent securities" means:
15 (1) In a securities lending transaction, securities that
16 are identical to the loaned securities in all features
17 including the amount of the loaned securities, except as to
18 certificate number if held in physical form, but if any
19 different security shall be exchanged for a loaned security
20 by recapitalization, merger, consolidation or other corporate
21 action, the different security shall be deemed to be the
22 loaned security;
23 (2) In a repurchase transaction, securities that are
24 identical to the purchased securities in all features
25 including the amount of the purchased securities, except as
26 to the certificate number if held in physical form; or
27 (3) In a reverse repurchase transaction, securities that
28 are identical to the sold securities in all features
29 including the amount of the sold securities, except as to the
30 certificate number if held in physical form.
31 CC. "Floor" means an agreement obligating the seller to
32 make payments to the buyer in which each payment is based on
33 the amount by which a predetermined number, sometimes called
34 the floor rate or price, exceeds a reference price, a level,
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1 or the performance or value of one or more underlying
2 interests.
3 DD. "Foreign currency" means a currency other than that
4 of a domestic jurisdiction.
5 EE. (1) "Foreign investment" means an investment in a
6 foreign jurisdiction, or an investment in a person, real
7 estate or asset domiciled in a foreign jurisdiction, that is
8 substantially of the same type as those eligible for
9 investment under this Article, other than under Sections
10 126.17 and 126.30. An investment shall not be deemed to be
11 foreign if the issuing person, qualified primary credit
12 source or qualified guarantor is a domestic jurisdiction or a
13 person domiciled in a domestic jurisdiction, unless:
14 (a) The issuing person is a shell business entity; and
15 (b) The investment is not assumed, accepted, guaranteed,
16 or insured or otherwise backed by a domestic jurisdiction or
17 a person, that is not a shell business entity, domiciled in a
18 domestic jurisdiction.
19 (2) For purposes of this definition:
20 (a) "Shell business entity" means a business entity
21 having no economic substance, except as a vehicle for owning
22 interests in assets issued, owned or previously owned by a
23 person domiciled in a foreign jurisdiction;
24 (b) "Qualified guarantor" means a guarantor against
25 which an insurer has a direct claim for full and timely
26 payment, evidenced by a contractual right for which an
27 enforcement action can be brought in a domestic jurisdiction;
28 and
29 (c) "Qualified primary credit source" means the credit
30 source to which an insurer looks for payment as to an
31 investment and against which an insurer has a direct claim
32 for full and timely payment, evidenced by a contractual right
33 for which an enforcement action can be brought in a domestic
34 jurisdiction.
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1 FF. "Foreign jurisdiction" means a jurisdiction other
2 than a domestic jurisdiction.
3 GG. "Forward" means an agreement (other than a future)
4 to make or take delivery of, or effect a cash settlement
5 based on the actual or expected price, level, performance or
6 value of, one or more underlying interests.
7 HH. "Future" means an agreement, traded on a qualified
8 exchange or qualified foreign exchange, to make or take
9 delivery of, or effect a cash settlement based on the actual
10 or expected price, level, performance or value of, one or
11 more underlying interests and includes an insurance future.
12 II. "Government money market mutual fund" means a money
13 market mutual fund that at all times:
14 (1) Invests only in obligations issued, guaranteed, or
15 insured by the federal government of the United States or
16 collateralized repurchase agreements composed of these
17 obligations; and
18 (2) Qualifies for investment without a reserve under the
19 Purposes and Procedures of the Securities Valuation Office or
20 any successor publication.
21 JJ. "Government sponsored enterprise" means a:
22 (1) Governmental agency; or
23 (2) Corporation, limited liability company, association,
24 partnership, joint stock company, joint venture, trust or
25 other entity or instrumentality organized under the laws of
26 any domestic jurisdiction to accomplish a public policy or
27 other governmental purpose.
28 KK. "Guaranteed or insured," when used in connection
29 with an obligation acquired under this Article, means the
30 guarantor or insurer has agreed to:
31 (1) Perform or insure the obligation of the obligor or
32 purchase the obligation; or
33 (2) Be unconditionally obligated until the obligation is
34 repaid to maintain in the obligor a minimum net worth, fixed
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1 charge coverage, stockholders' equity or sufficient liquidity
2 to enable the obligor to pay the obligation in full.
3 LL. "Hedging transaction" means:
4 (1) A derivative transaction that is entered into and
5 maintained to reduce:
6 (a) the risk of a change in the value, yield,
7 price, cash flow, or quantity of assets or liabilities
8 that the insurer has acquired or incurred or anticipates
9 acquiring or incurring; or
10 (b) the currency exchange rate risk or the degree
11 of exposure as to assets or liabilities that the insurer
12 has acquired or incurred or anticipates acquiring or
13 incurring; or
14 (2) Such other derivative transactions as may be
15 specified to constitute hedging transactions in rules adopted
16 pursuant to Section 126.8.
17 MM. "High grade investment" means a rated credit
18 instrument; rated 1, 2, P1, P2, PSF1 or PSF2 by the SVO.
19 NN. "Income" means, as to a security, interest, accrual
20 of discount, dividends or other distributions, such as
21 rights, tax or assessment credits, warrants and distributions
22 in kind.
23 OO. "Income generation transaction" means (1) a
24 derivative transaction involving the writing of covered call
25 options, covered put options, covered caps or covered floors
26 that is intended to generate income or enhance return, or (2)
27 such other derivative transactions as may be specified to
28 constitute income generation transactions in rules adopted
29 pursuant to Section 126.8.
30 PP. "Initial margin" means the amount of cash,
31 securities or other consideration initially required to be
32 deposited to establish a futures position.
33 QQ. "Insurance future" means a future relating to an
34 index or pool that is based on insurance-related items.
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1 RR. "Insurance futures option" means an option on an
2 insurance future.
3 SS. "Investment company" means an investment company as
4 defined in Section 3(a) of the Investment Company Act of 1940
5 (15 U.S.C. 80a-1 et seq.), as amended, and a person
6 described in Section 3(c) of that Act.
7 TT. "Investment company series" means an investment
8 portfolio of an investment company that is organized as a
9 series company and to which assets of the investment company
10 have been specifically allocated.
11 UU. "Investment practices" means transactions of the
12 types described in Section 126.16, 126.18, 126.29 or 126.31.
13 VV. "Investment subsidiary" means a subsidiary of an
14 insurer engaged or organized to engage exclusively in the
15 ownership and management of assets authorized as investments
16 for the insurer if such subsidiary agrees to limit its
17 investment in any asset so that its investments will not
18 cause the amount of the total investment of the insurer to
19 exceed any of the investment limitations or avoid any other
20 provisions of this Article applicable to the insurer. As used
21 in this subsection, the total investment of the insurer shall
22 include:
23 (1) Direct investment by the insurer in an asset; and
24 (2) The insurer's proportionate share of an investment
25 in an asset by an investment subsidiary of the insurer, which
26 shall be calculated by multiplying the amount of the
27 subsidiary's investment by the percentage of the insurer's
28 ownership interest in the subsidiary.
29 WW. "Investment strategy" means the techniques and
30 methods used by an insurer to meet its investment objectives,
31 such as active bond portfolio management, passive bond
32 portfolio management, interest rate anticipation, growth
33 investing and value investing.
34 XX. "Letter of credit" means a clean, irrevocable and
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1 unconditional letter of credit issued or confirmed by, and
2 payable and presentable at, a financial institution on the
3 list of financial institutions meeting the standards for
4 issuing letters of credit under the Purposes and Procedures
5 of the Securities Valuation Office or any successor
6 publication. To constitute acceptable collateral for the
7 purposes of Sections 126.16 and 126.29, a letter of credit
8 must have an expiration date beyond the term of the subject
9 transaction.
10 YY. "Limited liability company" means a business
11 organization, excluding partnerships and ordinary business
12 corporations, organized or operating under the laws of the
13 United States or any state thereof that limits the personal
14 liability of investors to the equity investment of the
15 investor in the business entity.
16 ZZ. "Lower grade investment" means a rated credit
17 instrument rated 4, 5, 6, P4, P5, P6, PSF4, PSF5, or PSF6 by
18 the SVO.
19 AAA. "Market value" means:
20 (1) As to cash and letters of credit, the amounts
21 thereof; and
22 (2) As to a security as of any date, the price for the
23 security on that date obtained from a generally recognized
24 source or the most recent quotation from such a source or, to
25 the extent no generally recognized source exists, the price
26 for the security as determined in good faith by the insurer,
27 plus accrued but unpaid income thereon to the extent not
28 included in the price as of that date.
29 BBB. "Medium grade investment" means a rated credit
30 instrument rated 3, P3, or PSF 3 by the SVO.
31 CCC. "Money market mutual fund" means a mutual fund that
32 meets the conditions of 17 Code of Federal Regulations Par.
33 270.2a-7, under the Investment Company Act of 1940 (15 U.S.C.
34 80a-1 et seq.), as amended or renumbered.
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1 DDD. "Mortgage loan" means an obligation secured by a
2 mortgage, deed of trust, trust deed or other consensual lien
3 on real estate.
4 EEE. "Multilateral development bank" means an
5 international development organization of which the United
6 States is a member.
7 FFF. "Mutual fund" means an investment company or, in
8 the case of an investment company that is organized as a
9 series company, an investment company series, that, in either
10 case, is registered with the United States Securities and
11 Exchange Commission under the Investment Company Act of 1940
12 (15 U.S.C. 80a-1 et seq.), as amended.
13 GGG. "NAIC" means the National Association of Insurance
14 Commissioners.
15 HHH. "Obligation" means a bond, note, debenture, trust
16 certificate including an equipment trust certificate,
17 production payment, negotiable bank certificate of deposit,
18 bankers' acceptance, credit tenant loan, loan secured by
19 financing net leases and other evidence of indebtedness for
20 the payment of money (or participations, certificates or
21 other evidences of an interest in any of the foregoing),
22 whether constituting a general obligation of the issuer or
23 payable only out of certain revenues or certain funds pledged
24 or otherwise dedicated for payment.
25 III. "Option" means an agreement giving the buyer the
26 right to buy or receive (a "call option"), sell or deliver (a
27 "put option"), enter into, extend or terminate or effect a
28 cash settlement based on the actual or expected price, level,
29 performance or value of one or more underlying interests and
30 includes an insurance futures option.
31 JJJ. "Person" means an individual, a business entity, a
32 multilateral development bank or a government or quasi
33 governmental body, such as a political subdivision or a
34 government sponsored enterprise.
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1 KKK. "Potential exposure" means the amount determined in
2 accordance with the NAIC Annual Statement Instructions.
3 LLL. "Preferred stock" means preferred, preference or
4 guaranteed stock of a business entity authorized to issue the
5 stock, that has a preference in liquidation over the common
6 stock of the business entity.
7 MMM. "Qualified bank" means:
8 (1) A national bank, state bank or trust company that at
9 all times is no less than adequately capitalized as
10 determined by standards adopted by United States banking
11 regulators and that either is regulated by state banking laws
12 or is a member of the Federal Reserve System; or
13 (2) A bank or trust company incorporated or organized
14 under the laws of a country other than the United States that
15 is regulated as a bank or trust company by that country's
16 government or an agency thereof and that at all times is no
17 less than adequately capitalized as determined by the
18 standards adopted by international banking authorities.
19 NNN. "Qualified business entity" means a business entity
20 that is:
21 (1) An issuer of obligations or preferred stock that are
22 rated 1 or 2 by the SVO or an issuer of obligations,
23 preferred stock or derivative instruments that are rated the
24 equivalent of 1 or 2 by the SVO or by a nationally recognized
25 statistical rating organization recognized by the SVO; or
26 (2) A primary dealer in United States government
27 securities, recognized by the Federal Reserve Bank of New
28 York.
29 OOO. "Qualified clearinghouse" means a clearinghouse
30 for, and subject to the rules of, a qualified exchange or a
31 qualified foreign exchange, which provides clearing services,
32 including acting as a counterparty to each of the parties to
33 a transaction such that the parties no longer have credit
34 risk as to each other.
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1 PPP. "Qualified exchange" means:
2 (1) A securities exchange registered as a national
3 securities exchange, or a securities market regulated under
4 the Securities Exchange Act of 1934 (15 U.S.C. 78 et seq.),
5 as amended;
6 (2) A board of trade or commodities exchange designated
7 as a contract market by the Commodity Futures Trading
8 Commission or any successor thereof;
9 (3) Private Offerings, Resales and Trading through
10 Automated Linkages (PORTAL);
11 (4) A designated offshore securities market as defined
12 in Securities Exchange Commission Regulation S, 17 C.F.R.
13 Part 230, as amended; or
14 (5) A qualified foreign exchange.
15 QQQ. "Qualified foreign exchange" means a foreign
16 exchange, board of trade or contract market located outside
17 the United States, its territories or possessions:
18 (1) That has received regulatory comparability relief
19 under Commodity Futures Trading Commission (CFTC) Rule 30.10
20 (as set forth in Appendix C to Part 30 of the CFTC's
21 Regulations, 17 C.F.R. Part 30);
22 (2) That is, or its members are, subject to the
23 jurisdiction of a foreign futures authority that has received
24 regulatory comparability relief under CFTC Rule 30.10 (as set
25 forth in Appendix C to Part 30 of the CFTC's Regulations, 17
26 C.F.R. Part 30) as to futures transactions in the
27 jurisdiction where the exchange, board of trade or contract
28 market is located; or
29 (3) Upon which foreign stock index futures contracts are
30 listed that are the subject of no-action relief issued by the
31 CFTC's Office of General Counsel, provided that an exchange,
32 board of trade or contract market that qualifies as a
33 "qualified foreign exchange" only under this subsection shall
34 only be a "qualified foreign exchange" as to foreign stock
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1 index futures contracts that are the subject of no-action
2 relief.
3 RRR. (1) "Rated credit instrument" means an obligation
4 or other instrument which gives its holder a contractual
5 right to receive cash or another rated credit instrument from
6 another entity, if the instrument:
7 (a) Is rated or required to be rated by the SVO;
8 (b) In the case of an instrument with a maturity of 397
9 days or less, is issued, guaranteed, or insured by an entity
10 that is rated by, or another instrument of such entity is
11 rated by, the SVO or by a nationally recognized statistical
12 rating organization recognized by the SVO;
13 (c) In the case of an instrument with a maturity of 90
14 days or less, the instrument has been issued, assumed,
15 accepted, guaranteed, or insured by a qualified bank;
16 (d) Is a share of a class one bond mutual fund; or
17 (e) Is a share of a money market mutual fund.
18 (2) However, "rated credit instrument" does not mean:
19 (a) An instrument that is mandatorily, or at the option
20 of the issuer, convertible to an equity interest; or
21 (b) A security that has a par value and whose terms
22 provide that the issuer's net obligation to repay all or part
23 of the security's par value is determined by reference to the
24 performance of an equity, a commodity, a foreign currency or
25 an index of equities, commodities, foreign currencies or
26 combinations thereof.
27 SSS. "Real estate" means:
28 (1) (a) Real property;
29 (b) Interests in real property, such as leaseholds,
30 minerals and oil and gas that have not been separated from
31 the underlying fee interest;
32 (c) Improvements and fixtures located on or in real
33 property; and
34 (d) The seller's equity in a contract providing for a
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1 deed of real estate.
2 (2) As to a mortgage on a leasehold estate, real estate
3 shall include the leasehold estate only if it has an
4 unexpired term (including renewal options exercisable at the
5 option of the lessee) extending beyond the scheduled maturity
6 date of the obligation that is secured by a mortgage on the
7 leasehold estate by a period equal to at least 20% of the
8 original term of the obligation or 10 years, whichever is
9 greater.
10 TTT. "Replication transaction" means a derivative
11 transaction that is intended to replicate the performance of
12 one or more assets that an insurer is authorized to acquire
13 under this Article. A derivative transaction that is entered
14 into as a hedging transaction shall not be considered a
15 replication transaction.
16 UUU. "Repurchase transaction" means a transaction in
17 which an insurer purchases securities from a business entity
18 that is obligated to repurchase the purchased securities or
19 equivalent securities from the insurer at a specified price,
20 either within a specified period of time or upon demand.
21 VVV. "Required liabilities" means total liabilities
22 required to be reported on the statutory financial statement
23 of the insurer most recently required to be filed with the
24 Director.
25 WWW. "Residential mortgage loan" means a loan primarily
26 secured by a mortgage on real estate improved with a one to
27 four family residence.
28 XXX. "Reverse repurchase transaction" means a
29 transaction in which an insurer sells securities to a
30 business entity and is obligated to repurchase the sold
31 securities or equivalent securities from the business entity
32 at a specified price, either within a specified period of
33 time or upon demand.
34 YYY. "Secured location" means the contiguous real estate
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1 owned by one person.
2 ZZZ. "Securities lending transaction" means a
3 transaction in which securities are loaned by an insurer to a
4 business entity that is obligated to return the loaned
5 securities or equivalent securities to the insurer, either
6 within a specified period of time or upon demand.
7 AAAA. "Series company" means an investment company that
8 is organized as a series company, as defined in Rule 18f-2(a)
9 adopted under the Investment Company Act of 1940 (15 U.S.C.
10 80a-1 et seq.), as amended.
11 BBBB. "Sinking fund stock" means preferred stock that:
12 (1) Is subject to a mandatory sinking fund or similar
13 arrangement that will provide for the redemption (or open
14 market purchase) of the entire issue over a period not longer
15 than 40 years from the date of acquisition; and
16 (2) Provides for mandatory sinking fund installments (or
17 open market purchases) commencing not more than 10.5 years
18 from the date of issue, with the sinking fund installments
19 providing for the purchase or redemption, on a cumulative
20 basis commencing 10 years from the date of issue, of at least
21 2.5% per year of the original number of shares of that issue
22 of preferred stock.
23 CCCC. "Special rated credit instrument" means a rated
24 credit instrument that is:
25 (1) An instrument that is structured so that, if it is
26 held until retired by or on behalf of the issuer, its rate of
27 return, based on its purchase cost and any cash flow stream
28 possible under the structure of the transaction, may become
29 negative due to reasons other than the credit risk associated
30 with the issuer of the instrument; however, a rated credit
31 instrument shall not be a special rated credit instrument
32 under this subsection if it is:
33 (a) A share in a class one bond mutual fund;
34 (b) An instrument, other than an asset-backed security,
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1 with payments of par value fixed as to amount and timing, or
2 callable but in any event payable only at par or greater, and
3 interest or dividend cash flows that are based on either a
4 fixed or variable rate determined by reference to a specified
5 rate or index;
6 (c) An instrument, other than an asset-backed security,
7 that has a par value and is purchased at a price no greater
8 than 110% of par;
9 (d) An instrument, including an asset-backed security,
10 whose rate of return would become negative only as a result
11 of a prepayment due to casualty, condemnation or economic
12 obsolescence of collateral or change of law;
13 (e) An asset-backed security that relies on collateral
14 that meets the requirements of subparagraph (b) of this
15 paragraph, the par value of which collateral:
16 (i) Is not permitted to be paid sooner than one half of
17 the remaining term to maturity from the date of acquisition;
18 (ii) Is permitted to be paid prior to maturity only at a
19 premium sufficient to provide a yield to maturity for the
20 investment, considering the amount prepaid and reinvestment
21 rates at the time of early repayment, at least equal to the
22 yield to maturity of the initial investment; or
23 (iii) Is permitted to be paid prior to maturity at a
24 premium at least equal to the yield of a treasury issue of
25 comparable remaining life; or
26 (f) An asset-backed security that relies on cash flows
27 from assets that are not prepayable at any time at par, but
28 is not otherwise governed by subparagraph (e) of this
29 paragraph, if the asset-backed security has a par value
30 reflecting principal payments to be received if held until
31 retired by or on behalf of the issuer and is purchased at a
32 price no greater than 105% of such par amount.
33 (2) An asset-backed security that:
34 (a) Relies on cash flows from assets that are prepayable
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1 at par at any time;
2 (b) Does not make payments of par that are fixed as to
3 amount and timing; and
4 (c) Has a negative rate of return at the time of
5 acquisition if a prepayment threshold assumption is used with
6 such prepayment threshold assumption defined as either:
7 (i) Two (2) times the prepayment expectation reported by
8 a recognized, publicly available source as being the median
9 of expectations contributed by broker dealers or other
10 entities, except insurers, engaged in the business of selling
11 or evaluating such securities or assets. The prepayment
12 expectation used in this calculation shall be, at the
13 insurer's election, the prepayment expectation for
14 pass-through securities of the Federal National Mortgage
15 Association, the Federal Home Loan Mortgage Corporation, the
16 Government National Mortgage Association, or for other assets
17 of the same type as the assets that underlie the asset-
18 backed security, in either case with a gross weighted average
19 coupon comparable to the gross weighted average coupon of the
20 assets that underlie the asset-backed security; or
21 (ii) Another prepayment threshold assumption specified
22 by the Director by rule promulgated under Section 126.8.
23 (3) For purposes of subparagraph 2 of this subsection,
24 if the asset-backed security is purchased in combination with
25 one or more other asset-backed securities that are supported
26 by identical underlying collateral, the insurer may calculate
27 the rate of return for these specific combined asset-backed
28 securities in combination. The insurer must maintain
29 documentation demonstrating that such securities were
30 acquired and are continuing to be held in combination.
31 DDDD. "State" means a state, territory or possession of
32 the United States of America, the District of Columbia or the
33 Commonwealth of Puerto Rico.
34 EEEE. "Substantially similar securities" means
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1 securities that meet all criteria for substantially similar
2 specified in the NAIC Accounting Practices and Procedures
3 Manual, as amended, and in an amount that constitutes good
4 delivery form as determined from time to time by the PSA The
5 Bond Market Trade Association.
6 FFFF. "Subsidiary" means, as to any person, an affiliate
7 controlled by such person, directly or indirectly through one
8 or more intermediaries.
9 GGGG. "SVO" means the Securities Valuation Office of the
10 NAIC or any successor office established by the NAIC.
11 HHHH. "Swap" means an agreement to exchange or to net
12 payments at one or more times based on the actual or expected
13 price, level, performance or value of one or more underlying
14 interests.
15 IIII. "Underlying interest" means the assets,
16 liabilities, other interests or a combination thereof
17 underlying a derivative instrument, such as any one or more
18 securities, currencies, rates, indices, commodities or
19 derivative instruments.
20 JJJJ. "Unrestricted surplus" means the amount by which
21 total admitted assets exceed 125% of the insurer's required
22 liabilities.
23 KKKK. "Warrant" means an instrument that gives the
24 holder the right to purchase an underlying financial
25 instrument at a given price and time or at a series of prices
26 and times outlined in the warrant agreement. Warrants may be
27 issued alone or in connection with the sale of other
28 securities, for example, as part of a merger or
29 recapitalization agreement, or to facilitate divestiture of
30 the securities of another business entity.
31 (215 ILCS 5/126.3 new)
32 Sec. 126.3. General investment qualifications.
33 A. Insurers may acquire, hold or invest in investments
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1 or engage in investment practices as set forth in this
2 Article. Insurers may also acquire, hold or invest in
3 investments not conforming to the requirements of this
4 Article that are not otherwise prohibited by this Code.
5 Investments not conforming to this Article shall not be
6 admitted assets unless they are acquired under other
7 authority of this Code.
8 B. Subject to subsection C of this Section, an insurer
9 shall not acquire or hold an investment as an admitted asset
10 unless at the time of acquisition it is:
11 (1) Eligible for the payment or accrual of interest or
12 discount (whether in cash or other forms of income or
13 securities), eligible to receive dividends or other
14 distributions or is otherwise income producing; or
15 (2) Acquired under Section 126.15B, 126.15C, 126.16,
16 126.18, 126.20, 126.28C, 126.29, 126.31, or 126.32 or under
17 the authority of Sections of the Code other than this
18 Article.
19 C. An insurer may acquire or hold as admitted assets
20 investments that do not otherwise qualify as provided in this
21 Article if the insurer has not acquired them for the purpose
22 of circumventing any limitations contained in this Article,
23 if the insurer acquires the investments in the following
24 circumstances and the insurer complies with the provisions of
25 Sections 126.5 and 126.7 as to the investments:
26 (1) As payment on account of existing indebtedness or in
27 connection with the refinancing, restructuring or workout of
28 existing indebtedness, if taken to protect the insurer's
29 interest in that investment;
30 (2) As realization on collateral for indebtedness;
31 (3) In connection with an otherwise qualified investment
32 or investment practice, as interest on or a dividend or other
33 distribution related to the investment or investment practice
34 or in connection with the refinancing of the investment, in
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1 each case for no additional or only nominal consideration;
2 (4) Under a lawful and bona fide agreement of
3 recapitalization or voluntary or involuntary reorganization
4 in connection with an investment held by the insurer; or
5 (5) Under a bulk reinsurance, merger or consolidation
6 transaction approved by the Director if the assets constitute
7 admissible investments for the ceding, merged or consolidated
8 companies.
9 D. An investment or portion of an investment acquired by
10 an insurer under subsection C of this Section shall become a
11 nonadmitted asset 3 years (or 5 years in the case of mortgage
12 loans and real estate) from the date of its acquisition,
13 unless within that period the investment has become a
14 qualified investment under a Section of this Article other
15 than subsection C of this Section, but an investment acquired
16 under an agreement of bulk reinsurance, merger or
17 consolidation may be qualified for a longer period if so
18 provided in the plan for reinsurance, merger or consolidation
19 as approved by the Director. Upon application by the insurer
20 and a showing that the nonadmission of an asset held under
21 subsection C of this Section would injure the interests of
22 the insurer, the Director may extend the period for
23 admissibility for an additional reasonable period of time.
24 E. Except as provided in subsections F and H of this
25 Section, an investment shall qualify under this Article if,
26 on the date the insurer committed to acquire the investment
27 or on the date of its acquisition, it would have qualified
28 under this Article. For the purposes of determining
29 limitations contained in this Article, an insurer shall give
30 appropriate recognition to any commitments to acquire
31 investments.
32 F. (1) An investment held as an admitted asset by an
33 insurer on the effective date of this amendatory Act of 1997
34 which qualified immediately prior to the effective date
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1 of this amendatory Act of 1997 shall remain qualified as an
2 admitted asset under this Article.
3 (2) Each specific transaction constituting an investment
4 practice of the type described in this Article immediately
5 prior to the effective date of this amendatory Act of 1997
6 that was lawfully entered into by an insurer and was in
7 effect on the effective date of this amendatory Act of 1997
8 shall continue to be permitted under this Article until its
9 expiration or termination under its terms.
10 G. Unless otherwise specified, an investment limitation
11 computed on the basis of an insurer's admitted assets or
12 capital and surplus shall relate to the amount required to be
13 shown on the statutory balance sheet of the insurer most
14 recently required to be filed (annual or last quarter) with
15 the Director. Solely for purposes of computing any limitation
16 under this Article based upon admitted assets, the insurer
17 shall deduct from the amount of its admitted assets the
18 amount of the liability recorded on such statutory balance
19 sheet for:
20 (1) The return of acceptable collateral received in a
21 reverse repurchase transaction or a securities lending
22 transaction;
23 (2) Cash received in a dollar roll transaction; and
24 (3) The amount reported as borrowed money in such
25 statutory balance sheet to the extent not included in
26 paragraphs (1) and (2) of this subsection.
27 H. An investment qualified, in whole or in part, for
28 acquisition or holding as an admitted asset may be qualified
29 or requalified at the time of acquisition or a later date, in
30 whole or in part, under any other Section, if the relevant
31 conditions contained in the other Section are satisfied at
32 the time of qualification or requalification.
33 I. An insurer shall maintain documentation demonstrating
34 that investments were acquired in accordance with this
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1 Article, and specifying the Section of this Article under
2 which they were acquired.
3 J. An insurer shall not enter into an agreement to
4 purchase securities in advance of their issuance for resale
5 to the public as part of a distribution of the securities by
6 the issuer or otherwise guarantee the distribution, except
7 that an insurer may acquire privately placed securities with
8 registration rights.
9 K. Notwithstanding the provisions of this Article, the
10 Director, for good cause, may order an insurer to nonadmit,
11 limit, dispose of, withdraw from or discontinue an investment
12 or investment practice in accordance with Article XXIV. The
13 authority of the Director under this subsection is in
14 addition to any other authority of the Director.
15 (215 ILCS 5/126.4 new)
16 Sec. 126.4. Authorization of investments by the board of
17 directors.
18 A. Within 3 months after the effective date of this
19 amendatory Act of 1997, an insurer's board of directors shall
20 adopt a written plan for acquiring and holding investments
21 and for engaging in investment practices that specifies
22 guidelines as to the quality, maturity and diversification of
23 investments and other specifications including investment
24 strategies intended to assure that the investments and
25 investment practices are appropriate for the business
26 conducted by the insurer, its liquidity needs and its capital
27 and surplus. The board shall review and assess the insurer's
28 technical investment and administrative capabilities and
29 expertise before adopting a written plan concerning an
30 investment strategy or investment practice.
31 B. Investments acquired and held under this Article
32 shall be acquired and held under the supervision and
33 direction of the board of directors of the insurer. The board
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1 of directors shall evidence by formal resolution, at least
2 annually, that it has determined whether all investments have
3 been made in accordance with delegations, standards,
4 limitations and investment objectives prescribed by the board
5 or a committee of the board charged with the responsibility
6 to direct its investments.
7 C. On no less than a quarterly basis, and more often if
8 deemed appropriate, an insurer's board of directors or
9 committee of the board of directors shall:
10 (1) Receive and review a summary report on the insurer's
11 investment portfolio, its investment activities and
12 investment practices engaged in under delegated authority, in
13 order to determine whether the investment activity of the
14 insurer is consistent with its written plan; and
15 (2) Review and revise, as appropriate, the written plan.
16 D. In discharging its duties under this Section, the
17 board of directors shall require that records of any
18 authorizations or approvals, other documentation as the board
19 may require and reports of any action taken under authority
20 delegated under the plan referred to in subsection A of this
21 Section shall be made available on a regular basis to the
22 board of directors.
23 E. In discharging their duties under this Section, the
24 directors of an insurer shall perform their duties in good
25 faith and with that degree of care that ordinarily prudent
26 individuals in like positions would use under similar
27 circumstances.
28 F. If an insurer does not have a board of directors, all
29 references to the board of directors in this Article shall be
30 deemed to be references to the governing body of the insurer
31 having authority equivalent to that of a board of directors.
32 (215 ILCS 5/126.5 new)
33 Sec. 126.5. Prohibited investments. An insurer shall
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1 not, directly or indirectly:
2 A. Invest in an obligation or security or make a
3 guarantee for the benefit of or in favor of an officer or
4 director of the insurer, except as provided in Section 126.6;
5 B. Invest in an obligation or security, make a guarantee
6 for the benefit of or in favor of, or make other investments
7 in a business entity of which 10% or more of the voting
8 securities or equity interests are owned directly or
9 indirectly by or for the benefit of one or more officers or
10 directors of the insurer, except pursuant to a transaction
11 entered into in compliance with Section 131.20a of this Code
12 or provided in Section 126.6;
13 C. Engage on its own behalf or through one or more
14 affiliates in a transaction or series of transactions
15 designed to evade the prohibitions of this Article;
16 D. (1) Invest in a partnership as a general partner,
17 except that an insurer may make an investment as a general
18 partner:
19 (a) If all other partners in the partnership are
20 subsidiaries of the insurer or other insurance company
21 affiliates of the insurer;
22 (b) For the purpose of:
23 (i) Meeting cash calls committed to prior to the
24 effective date of this amendatory Act of 1997;
25 (ii) Completing those specific projects or activities of
26 the partnership in which the insurer was a general partner as
27 of the effective date of this amendatory Act of 1997 that had
28 been undertaken as of that date; or
29 (iii) Making capital improvements to property owned by
30 the partnership on the effective date of this amendatory Act
31 of 1997 if the insurer was a general partner as of that date;
32 or
33 (c) In accordance with Section 126.3C;
34 (2) This subsection shall not prohibit a subsidiary or
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1 other affiliate of the insurer from becoming a general
2 partner; or
3 E. Invest in or lend its funds upon the security of
4 shares of its own stock, except as authorized by other
5 provisions of this Code. However, no such shares shall be
6 admitted assets of the insurer.
7 (215 ILCS 5/126.6 new)
8 Sec. 126.6. Loans to officers and directors.
9 A. (1) Except as provided in Section 126.6B, an insurer
10 shall not directly or indirectly, unless it has notified the
11 Director in writing of its intention to enter into the
12 transaction at least 30 days prior thereto, or any shorter
13 period as the Director may permit, and the Director has not
14 disapproved it within that period:
15 (a) Make a loan to or other investment in an officer or
16 director of the insurer or a person in which the officer or
17 director has any direct or indirect financial interest;
18 (b) Make a guarantee for the benefit of or in favor of
19 an officer or director of the insurer or a person in which
20 the officer or director has any direct or indirect financial
21 interest; or
22 (c) Enter into an agreement for the purchase or sale of
23 property from or to an officer or director of the insurer or
24 a person in which the officer or director has any direct or
25 indirect financial interest.
26 (2) For purposes of this Section, an officer or director
27 shall not be deemed to have a financial interest by reason of
28 an interest that is held directly or indirectly through the
29 ownership of equity interests representing less than 2% of
30 all outstanding equity interests issued by a person that is a
31 party to the transaction, or solely by reason of that
32 individual's position as a director or officer of a person
33 that is a party to the transaction.
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1 (3) This subsection does not permit an investment that
2 is prohibited by Section 126.5.
3 (4) This subsection does not apply to a transaction
4 between an insurer and any of its subsidiaries or affiliates
5 that is entered into in compliance with Section 131.20a of
6 this Code, other than a transaction between an insurer and
7 its officer or director.
8 B. An insurer may make, without the prior written
9 approval of the Director:
10 (1) Policy loans in accordance with the terms of the
11 policy or contract and Section 126.19;
12 (2) Advances to officers or directors for expenses
13 reasonably expected to be incurred in the ordinary course of
14 the insurer's business or guarantees associated with credit
15 or charge cards issued or credit extended for the purpose of
16 financing these expenses;
17 (3) Loans secured by the principal residence of an
18 existing or new officer of the insurer made in connection
19 with the officer's relocation at the insurer's request, if
20 the loans comply with the requirements of Section 126.15 or
21 126.28 and the terms and conditions otherwise are the same as
22 those generally available from unaffiliated third parties;
23 (4) Secured loans to an existing or new officer of the
24 insurer made in connection with the officer's relocation at
25 the insurer's request, if the loans:
26 (a) Do not have a term exceeding 2 years;
27 (b) Are required to finance mortgage loans outstanding
28 at the same time on the prior and new residences of the
29 officer;
30 (c) Do not exceed an amount equal to the equity of the
31 officer in the prior residence; and
32 (d) Are required to be fully repaid upon the earlier of
33 the end of the 2 year period or the sale of the prior
34 residence; and
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1 (5) Loans and advances to officers or directors made in
2 compliance with state or federal law specifically related to
3 the loans and advances by a regulated non-insurance
4 subsidiary or affiliate of the insurer in the ordinary course
5 of business and on terms no more favorable than available to
6 other customers of the entity.
7 (215 ILCS 5/126.7 new)
8 Sec. 126.7. Valuation of investments. For the purposes
9 of this Article, the value or amount of an investment
10 acquired or held, or an investment practice engaged in, under
11 this Article, unless otherwise specified in this Code, shall
12 be the value at which assets of an insurer are required to be
13 reported for statutory accounting purposes as determined in
14 accordance with procedures prescribed in published accounting
15 and valuation standards of the NAIC, including the Purposes
16 and Procedures of the Securities Valuation Office, the
17 Valuation of Securities manual, the Accounting Practices and
18 Procedures manual, the Annual Statement Instructions or any
19 successor valuation procedures officially adopted by the
20 NAIC. The Director shall promulgate rules for determining
21 and calculating values to be used in financial statements
22 submitted to the Department for investments not subject to
23 published National Association of Insurance Commissioners
24 valuation standards.
25 (215 ILCS 5/126.8 new)
26 Sec. 126.8. Rules. The Director may, in accordance with
27 Section 401 of this Code, promulgate rules implementing the
28 provisions of this Article.
29 (215 ILCS 5/Art. VIII, Part 2 heading new)
30 2. LIFE AND HEALTH INSURERS
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1 (215 ILCS 5/126.9 new)
2 Sec. 126.9. Applicability. This Part shall apply to the
3 investments and investment practices of companies authorized
4 to transact business under Class 1 of Section 4 of this Code
5 and other companies whose investments and investment
6 practices are regulated as life insurers under this Code,
7 subject to the provisions of Section 126.1B.
8 (215 ILCS 5/126.10 new)
9 Sec. 126.10. General 3% diversification, medium and
10 lower grade investments, and Canadian investments.
11 A. General 3% diversification.
12 (1) Except as otherwise specified in this Article, an
13 insurer shall not acquire, directly or indirectly through an
14 investment subsidiary, an investment under this Article if,
15 as a result of and after giving effect to the investment, the
16 insurer would hold more than 3% of its admitted assets in
17 investments of all kinds issued, assumed, accepted,
18 guaranteed, or insured by a single person.
19 (2) This 3% limitation shall not apply to the aggregate
20 amounts insured by a single financial guaranty insurer with
21 the highest generic rating issued by a nationally recognized
22 statistical rating organization.
23 (3) Asset-backed securities shall not be subject to the
24 limitations of paragraph (1) of this subsection, however,
25 except as permitted by subsection A(4) of this Section, an
26 insurer shall not acquire an asset-backed security if, as a
27 result of and after giving effect to the investment, the
28 aggregate amount of asset-backed securities secured by or
29 evidencing an interest in a single asset or single pool of
30 assets held by a trust or other business entity, then held by
31 the insurer would exceed 3% of its admitted assets.
32 (4) A company's investments in mortgage related
33 securities, as defined by the Secondary Mortgage Market
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1 Enhancement Act of 1984 (United States Public Law 98-440) [12
2 U.S.C. 24, 1451, 1454 et seq.], that are backed by any single
3 pool of mortgages and made pursuant to the authority of that
4 Act, shall not exceed 5% of its admitted assets.
5 B. Medium and lower grade investments.
6 (1) An insurer shall not acquire, directly or indirectly
7 through an investment subsidiary, an investment under
8 Sections 126.11, 126.14, and 126.17 or counterparty exposure
9 under Section 126.18D if, as a result of and after giving
10 effect to the investment:
11 (a) The aggregate amount of medium and lower grade
12 investments then held by the insurer would exceed 20% of its
13 admitted assets;
14 (b) The aggregate amount of lower grade investments then
15 held by the insurer would exceed 10% of its admitted assets;
16 (c) The aggregate amount of investments rated 5 or 6 by
17 the SVO then held by the insurer would exceed 3% of its
18 admitted assets;
19 (d) The aggregate amount of investments rated 6 by the
20 SVO then held by the insurer would exceed 1% of its admitted
21 assets; or
22 (e) The aggregate amount of lower grade investments then
23 held by the insurer that receive as cash income less than the
24 equivalent yield for Treasury issues with a comparative
25 average life, would exceed 1% of its admitted assets.
26 (2) An insurer shall not acquire, directly or indirectly
27 through an investment subsidiary, an investment under
28 Sections 126.11, 126.14, and 126.17 or counterparty exposure
29 under Section 126.18D if, as a result of and after giving
30 effect to the investment:
31 (a) The aggregate amount of medium and lower grade
32 investments issued, assumed, accepted, guaranteed, or insured
33 by any one person or, as to asset-backed securities secured
34 by or evidencing an interest in a single asset or pool of
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1 assets, then held by the insurer would exceed 1% of its
2 admitted assets; or
3 (b) The aggregate amount of lower grade investments
4 issued, assumed, accepted, guaranteed, or insured by any one
5 person or, as to asset-backed securities secured by or
6 evidencing an interest in a single asset or pool of assets,
7 then held by the insurer would exceed 0.5% of its admitted
8 assets.
9 (3) If an insurer attains or exceeds the limit of any
10 one rating category referred to in this subsection, the
11 insurer shall not thereby be precluded from acquiring
12 investments in other rating categories subject to the
13 specific and multi-category limits applicable to those
14 investments.
15 C. Canadian investments.
16 (1) An insurer shall not acquire, directly or indirectly
17 through an investment subsidiary, a Canadian investment
18 authorized by this Article, if as a result of and after
19 giving effect to the investment, the aggregate amount of
20 these investments then held by the insurer would exceed 40%
21 of its admitted assets, or if the aggregate amount of
22 Canadian investments not acquired under Section 126.11B then
23 held by the insurer would exceed 25% of its admitted assets.
24 (2) However, as to an insurer that is authorized to do
25 business in Canada or that has outstanding insurance, annuity
26 or reinsurance contracts on lives or risks resident or
27 located in Canada and denominated in Canadian currency, the
28 limitations of paragraph (1) of this subsection shall be
29 increased by the greater of:
30 (a) The amount the insurer is required by Canadian law
31 to invest in Canada or to be denominated in Canadian
32 currency; or
33 (b) 115% of the amount of its reserves and other
34 obligations under contracts on lives or risks resident or
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1 located in Canada.
2 (215 ILCS 5/126.11 new)
3 Sec. 126.11. Rated credit instruments. Subject to the
4 limitations of subsection F of this Section, an insurer may
5 acquire rated credit instruments:
6 A. Subject to the limitations of Section 126.10B, but
7 not to the limitations of Section 126.10A, except for that of
8 subsection (4) of Section 126.10A, an insurer may acquire
9 rated credit instruments issued, assumed, guaranteed, or
10 insured by:
11 (1) The United States; or
12 (2) A government sponsored enterprise of the United
13 States, if the instruments of the government sponsored
14 enterprise are assumed, guaranteed, or insured by the United
15 States or are otherwise backed or supported by the full faith
16 and credit of the United States.
17 B. (1) Subject to the limitations of Section 126.10B,
18 but not to the limitations of Section 126.10A, an insurer may
19 acquire rated credit instruments issued, assumed, guaranteed,
20 or insured by:
21 (a) Canada; or
22 (b) A government sponsored enterprise of Canada, if the
23 instruments of the government sponsored enterprise are
24 assumed, guaranteed, or insured by Canada or are otherwise
25 backed or supported by the full faith and credit of Canada;
26 (2) However, an insurer shall not acquire an instrument
27 under this subsection if, as a result of and after giving
28 effect to the investment, the aggregate amount of investments
29 then held by the insurer under this subsection would exceed
30 40% of its admitted assets.
31 C. (1) Subject to the limitations of Section 126.10B,
32 but not to the limitations of Section 126.10A, an insurer may
33 acquire rated credit instruments, excluding asset-backed
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1 securities:
2 (a) Issued by a government money market mutual fund, a
3 class one money market mutual fund or a class one bond mutual
4 fund;
5 (b) Issued, assumed, guaranteed, or insured by a
6 government sponsored enterprise of the United States other
7 than those eligible under subsection A of this Section;
8 (c) Issued, assumed, guaranteed, or insured by a state,
9 if the instruments are general obligations of the state; or
10 (d) Issued by a multilateral development bank;
11 (2) However, an insurer shall not acquire an instrument
12 of any one fund, any one enterprise or entity or any one
13 state under this subsection if, as a result of and after
14 giving effect to the investment, the aggregate amount of
15 investments then held by the insurer in any one fund,
16 enterprise, entity, or state under this subsection would
17 exceed 10% of its admitted assets.
18 D. Subject to the limitations of Section 126.10, an
19 insurer may acquire preferred stocks that are not foreign
20 investments and that meet the requirements of rated credit
21 instruments if, as a result of and after giving effect to the
22 investment:
23 (1) The aggregate amount of preferred stocks then held
24 by the insurer under this subsection does not exceed 33 1/3%
25 of its admitted assets; and
26 (2) The aggregate amount of preferred stocks then held
27 by the insurer under this subsection which are not sinking
28 fund stocks or rated P1 or P2 by the SVO does not exceed 15%
29 of its admitted assets.
30 E. Subject to the limitations of Section 126.10, in
31 addition to those investments eligible under subsections A,
32 B, C and D of this Section, an insurer may acquire rated
33 credit instruments that are not foreign investments.
34 F. An insurer shall not acquire special rated credit
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1 instruments under this Section if, as a result of and after
2 giving effect to the investment, the aggregate amount of
3 special rated credit instruments then held by the insurer
4 would exceed 5% of its admitted assets. The Director may, by
5 rule, identify certain special rated credit instruments that
6 will be exempt from the limitation imposed by this
7 subsection.
8 (215 ILCS 5/126.12 new)
9 Sec. 126.12. Insurer investment pools.
10 A. An insurer may acquire investments in investment
11 pools that:
12 (1) Invest only in:
13 (a) Obligations that are rated 1 or 2 by the SVO or have
14 an equivalent of an SVO 1 or 2 rating (or, in the absence of
15 a 1 or 2 rating or equivalent rating, the issuer has
16 outstanding obligations with an SVO 1 or 2 or equivalent
17 rating) by a nationally recognized statistical rating
18 organization recognized by the SVO and have:
19 (i) A remaining maturity of 397 days or less or a put
20 that entitles the holder to receive the principal amount of
21 the obligation which put may be exercised through maturity at
22 specified intervals not exceeding 397 days; or
23 (ii) A remaining maturity of 3 years or less and a
24 floating interest rate that resets no less frequently than
25 quarterly on the basis of a current short-term index (federal
26 funds, prime rate, treasury bills, London InterBank Offered
27 Rate (LIBOR) or commercial paper) and is subject to no
28 maximum limit, if the obligations do not have an interest
29 rate that varies inversely to market interest rate changes;
30 (b) Government money market mutual funds or class one
31 money market mutual funds; or
32 (c) Securities lending, repurchase, and reverse
33 repurchase transactions that meet all the requirements of
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1 Section 126.16, except the quantitative limitations of
2 Section 126.16D; or
3 (2) Invest only in investments which an insurer may
4 acquire under this Article, if the insurer's proportionate
5 interest in the amount invested in these investments when
6 combined with amount of such investments made directly or
7 indirectly through an investment subsidiary or other insurer
8 investment pool permitted under this subsection A(2) does not
9 exceed the applicable limits of this Article for such
10 investments.
11 B. For an investment in an investment pool to be
12 qualified under this Article, the investment pool shall not:
13 (1) Acquire securities issued, assumed, guaranteed or
14 insured by the insurer or an affiliate of the insurer;
15 (2) Borrow or incur any indebtedness for borrowed money,
16 except for securities lending and reverse repurchase
17 transactions that meet the requirements of Section 126.16
18 except the quantitative limitations of Section 126.16D; or
19 (3) Acquire an investment if, as a result of such
20 transaction, the aggregate value of securities then loaned or
21 sold to, purchased from or invested in any one business
22 entity under this Section would exceed 10% of the total
23 assets of the investment pool.
24 C. The limitations of Section 126.10A shall not apply to
25 an insurer's investment in an investment pool, however an
26 insurer shall not acquire an investment in an investment pool
27 under this Section if, as a result of and after giving effect
28 to the investment, the aggregate amount of investments then
29 held by the insurer under this Section:
30 (1) In all investment pools investing in investments
31 permitted under subsection A(2) of this Section would exceed
32 25% of its admitted assets; or
33 (2) In all investment pools would exceed 35% of its
34 admitted assets.
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1 D. For an investment in an investment pool to be
2 qualified under this Article, the manager of the investment
3 pool shall:
4 (1) Be organized under the laws of the United States or
5 a state and designated as the pool manager in a pooling
6 agreement;
7 (2) Be the insurer, an affiliated insurer or a business
8 entity affiliated with the insurer, a qualified bank, a
9 business entity registered under the Investment Advisors Act
10 of 1940 (15 U.S.C. 80a-1 et seq.), as amended or, in the
11 case of a reciprocal insurer or interinsurance exchange, its
12 attorney-in-fact, or in the case of a United States branch of
13 an alien insurer, its United States manager or an affiliate
14 or subsidiary of its United States manager;
15 (3) Be responsible for the compilation and maintenance
16 of detailed accounting records setting forth:
17 (a) The cash receipts and disbursements reflecting each
18 participant's proportionate investment in the investment
19 pool;
20 (b) A complete description of all underlying assets of
21 the investment pool (including amount, interest rate,
22 maturity date (if any) and other appropriate designations);
23 and
24 (c) Other records which, on a daily basis, allow third
25 parties to verify each participant's investment in the
26 investment pool; and
27 (4) Maintain the assets of the investment pool in one or
28 more accounts, in the name of or on behalf of the investment
29 pool, under a custody agreement with a qualified bank. The
30 custody agreement shall:
31 (a) State and recognize the claims and rights of each
32 participant;
33 (b) Acknowledge that the underlying assets of the
34 investment pool are held solely for the benefit of each
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1 participant in proportion to the aggregate amount of its
2 investments in the investment pool; and
3 (c) Contain an agreement that the underlying assets of
4 the investment pool shall not be commingled with the general
5 assets of the custodian qualified bank or any other person.
6 E. The pooling agreement for each investment pool shall
7 be in writing and shall provide that:
8 (1) An insurer and its affiliated insurers or, in the
9 case of an investment pool investing solely in investments
10 permitted under subsection A(1) of this Section, the insurer
11 and its subsidiaries, affiliates or any pension or profit
12 sharing plan of the insurer, its subsidiaries and affiliates
13 or, in the case of a United States branch of an alien
14 insurer, affiliates or subsidiaries of its United States
15 manager, shall, at all times, hold 100% of the interests in
16 the investment pool;
17 (2) The underlying assets of the investment pool shall
18 not be commingled with the general assets of the pool manager
19 or any other person;
20 (3) In proportion to the aggregate amount of each pool
21 participant's interest in the investment pool:
22 (a) Each participant owns an undivided interest in the
23 underlying assets of the investment pool; and
24 (b) The underlying assets of the investment pool are
25 held solely for the benefit of each participant;
26 (4) A participant, or in the event of the participant's
27 insolvency, bankruptcy or receivership, its trustee, receiver
28 or other successor-in-interest, may withdraw all or any
29 portion of its investment from the investment pool under the
30 terms of the pooling agreement;
31 (5) Withdrawals may be made on demand without penalty or
32 other assessment on any business day, but settlement of funds
33 shall occur within a reasonable and customary period
34 thereafter not to exceed 10 business days. Distributions
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1 under this paragraph shall be calculated in each case net of
2 all then applicable fees and expenses of the investment pool.
3 The pooling agreement shall provide that the pool manager
4 shall distribute to a participant, at the discretion of the
5 pool manager:
6 (a) In cash, the then fair market value of the
7 participant's pro rata share of each underlying asset of the
8 investment pool;
9 (b) In kind, a pro rata share of each underlying asset;
10 or
11 (c) In a combination of cash and in kind distributions,
12 a pro rata share in each underlying asset; and
13 (6) The pool manager shall make the records of the
14 investment pool available for inspection by the Director.
15 F. Except for the formation of the investment pool,
16 transactions and between a domestic insurer and an affiliated
17 insurer investment pool shall not be subject to the
18 requirements of Section 131.20a of this Code.
19 (215 ILCS 5/126.13 new)
20 Sec. 126.13. Equity interests.
21 A. Subject to the limitations of Section 126.10, an
22 insurer may acquire directly or indirectly through an
23 investment subsidiary, equity interests in business entities
24 organized under the laws of any domestic jurisdiction.
25 B. An insurer shall not acquire directly or indirectly
26 through an investment subsidiary an investment under this
27 Section if, as a result of and after giving effect to the
28 investment, the aggregate amount of investments then held by
29 the insurer under this Section would exceed 20% of its
30 admitted assets or, except for mutual funds, the amount of
31 equity interests then held by the insurer that are not listed
32 on a qualified exchange would exceed 5% of its admitted
33 assets. An accident and health insurer shall not be subject
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1 to this Section but shall be subject to the same aggregate
2 limitation on equity interests as a property and casualty
3 insurer under Section 126.26 and also to the provisions of
4 Section 126.22 of this Article.
5 C. An insurer shall not acquire under this Section any
6 investments that the insurer may acquire under Section
7 126.15.
8 D. An insurer shall not short sell equity interests
9 unless the insurer covers the short sale by owning the equity
10 interest or an unrestricted right to the equity interest
11 exercisable within 6 months of the short sale.
12 (215 ILCS 5/126.14 new)
13 Sec. 126.14. Tangible personal property under lease.
14 A. (1) Subject to the limitations of Section 126.10, an
15 insurer may acquire tangible personal property or equity
16 interests therein located or used wholly or in part within a
17 domestic jurisdiction either directly or indirectly through
18 limited partnership interests and general partnership
19 interests not otherwise prohibited by Section 126.5D, joint
20 ventures, stock of an investment subsidiary or membership
21 interests in a limited liability company, trust certificates,
22 or other similar instruments.
23 (2) Investments acquired under paragraph (1) of this
24 subsection shall be eligible only if:
25 (a) The property is subject to a lease or other
26 agreement with a person whose rated credit instruments in the
27 amount of the purchase price of the personal property the
28 insurer could then acquire under Section 126.11; and
29 (b) The lease or other agreement provides the insurer
30 the right to receive rental, purchase or other fixed payments
31 for the use or purchase of the property, and the aggregate
32 value of the payments, together with the estimated residual
33 value of the property at the end of its useful life and the
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1 estimated tax benefits to the insurer resulting from
2 ownership of the property, shall be adequate to return the
3 cost of the insurer's investment in the property, plus a
4 return deemed adequate by the insurer.
5 B. The insurer shall compute the amount of each
6 investment under this Section on the basis of the out of
7 pocket purchase price and applicable related expenses paid by
8 the insurer for the investment, net of each borrowing made to
9 finance the purchase price and expenses, to the extent the
10 borrowing is without recourse to the insurer.
11 C. An insurer shall not acquire directly or indirectly
12 through an investment subsidiary an investment under this
13 Section if, as a result of and after giving effect to the
14 investment, the aggregate amount of all investments then held
15 by the insurer under this Section would exceed:
16 (1) 2% of its admitted assets; or
17 (2) 0.5% of its admitted assets as to any single item of
18 tangible personal property.
19 D. For purposes of determining compliance with the
20 limitations of Section 126.10, investments acquired by an
21 insurer under this Section shall be aggregated with those
22 acquired under Section 126.11, and each lessee of the
23 property under a lease referred to in this Section shall be
24 deemed the issuer of an obligation in the amount of the
25 investment of the insurer in the property determined as
26 provided in subsection B of this Section.
27 E. Nothing in this Section is applicable to tangible
28 personal property lease arrangements between an insurer and
29 its subsidiaries and affiliates under a cost sharing
30 arrangement or agreement permitted under Section
31 131.20a(1)(a)(iv).
32 (215 ILCS 5/126.15 new)
33 Sec. 126.15. Mortgage loans and real estate.
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1 A. Mortgage loans.
2 (l) Subject to the limitations of Section 126.10, an
3 insurer may acquire, either directly or indirectly through
4 limited partnership interests and general partnership
5 interests not otherwise prohibited by Section 126.5D, joint
6 ventures, stock of an investment subsidiary or membership
7 interests in a limited liability company, trust certificates,
8 or other similar instruments, obligations secured by
9 mortgages on real estate situated within a domestic
10 jurisdiction, but a mortgage loan which is secured by other
11 than a first lien shall not be acquired under this subsection
12 (1) unless the insurer is the holder of the first lien. The
13 obligations held by the insurer and any obligations with an
14 equal lien priority, shall not, at the time of acquisition of
15 the obligation, exceed:
16 (a) 90% of the fair market value of the real estate, if
17 the mortgage loan is secured by a purchase money mortgage or
18 like security received by the insurer upon disposition of the
19 real estate;
20 (b) 80% of the fair market value of the real estate, if
21 the mortgage loan requires immediate scheduled payment in
22 periodic installments of principal and interest, has an
23 amortization period of 30 years or less and periodic payments
24 made no less frequently than annually. Each periodic payment
25 shall be sufficient to assure that at all times the
26 outstanding principal balance of the mortgage loan shall be
27 not greater than the outstanding principal balance that would
28 be outstanding under a mortgage loan with the same original
29 principal balance, with the same interest rate and requiring
30 equal payments of principal and interest with the same
31 frequency over the same amortization period. Mortgage loans
32 permitted under this subsection are permitted notwithstanding
33 the fact that they provide for a payment of the principal
34 balance prior to the end of the period of amortization of the
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1 loan. For residential mortgage loans, the 80% limitation may
2 be increased to 97% if acceptable private mortgage insurance
3 has been obtained; or
4 (c) 75% of the fair market value of the real estate for
5 mortgage loans that do not meet the requirements of
6 subparagraph (a) or (b) of this paragraph.
7 (2) For purposes of paragraph (1) of this subsection,
8 the amount of an obligation required to be included in the
9 calculation of the loan-to-value ratio may be reduced to the
10 extent the obligation is insured by the Federal Housing
11 Administration or guaranteed by the Administrator of Veterans
12 Affairs, or their successors.
13 (3) Subject to the limitations of Section 126.10, an
14 insurer may acquire, either directly or indirectly through
15 limited partnership interests and general partnership
16 interests not otherwise prohibited by Section 126.5D, joint
17 ventures, stock of an investment subsidiary or membership
18 interests in a limited liability company, trust certificates,
19 or other similar instruments, obligations secured by a second
20 mortgage on real estate situated within a domestic
21 jurisdiction, other than as authorized in subsection (1) of
22 this Section 126.15. The obligation held by the insurer
23 shall be the sole second lien priority obligation and shall
24 not, at the time of acquisition of the obligation, exceed 70%
25 of the amount by which the fair market value of the real
26 estate exceeds the amount outstanding under the first
27 mortgage.
28 (4) A mortgage loan that is held by an insurer under
29 Section 126.3F or acquired under this Section and is
30 restructured in a manner that meets the requirements of a
31 restructured mortgage loan in accordance with the NAIC
32 Accounting Practices and Procedures Manual or successor
33 publication shall continue to qualify as a mortgage loan
34 under this Article.
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1 (5) Subject to the limitations of Section 126.10, credit
2 lease transactions that do not qualify for investment under
3 Section 126.11 with the following characteristics shall be
4 exempt from the provisions of paragraph (1) of this
5 subsection:
6 (a) The loan amortizes over the initial fixed lease term
7 at least in an amount sufficient so that the loan balance at
8 the end of the lease term does not exceed the original
9 appraised value of the real estate;
10 (b) The lease payments cover or exceed the total debt
11 service over the life of the loan;
12 (c) A tenant or its affiliated entity, whose rated
13 credit instruments have a SVO 1 or 2 designation or a
14 comparable rating from a nationally recognized statistical
15 rating organization recognized by the SVO, has a full faith
16 and credit obligation to make the lease payments;
17 (d) The insurer holds or is the beneficial holder of a
18 first lien mortgage on the real estate;
19 (e) The expenses of the real estate are passed through
20 to the tenant, excluding exterior, structural, parking and
21 heating, ventilation and air conditioning replacement
22 expenses, unless annual escrow contributions, from cash flows
23 derived from the lease payments, cover the expense shortfall;
24 and
25 (f) There is a perfected assignment of the rents due
26 pursuant to the lease to, or for the benefit of, the insurer.
27 B. Income producing real estate.
28 (1) An insurer may acquire, manage and dispose of real
29 estate situated in a domestic jurisdiction either directly or
30 indirectly through limited partnership interests and general
31 partnership interests not otherwise prohibited by Section
32 126.5D, joint ventures, stock of an investment subsidiary or
33 membership interests in a limited liability company, trust
34 certificates, or other similar instruments. The real estate
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1 shall be income producing or intended for improvement or
2 development for investment purposes under an existing program
3 (in which case the real estate shall be deemed to be income
4 producing).
5 (2) The real estate may be subject to mortgages, liens
6 or other encumbrances, the amount of which shall, to the
7 extent that the obligations secured by the mortgages, liens
8 or encumbrances are without recourse to the insurer, be
9 deducted from the amount of the investment of the insurer in
10 the real estate for purposes of determining compliance with
11 subsections D(2) and D(3) of this Section.
12 C. Real estate for the accommodation of business.
13 An insurer may acquire, manage, and dispose of real
14 estate for the convenient accommodation of the insurer's
15 (which may include its affiliates) business operations,
16 including home office, branch office and field office
17 operations.
18 (1) Real estate acquired under this subsection may
19 include excess space for rent to others, if the excess space,
20 valued at its fair market value, would otherwise be a
21 permitted investment under subsection B of this Section and
22 is so qualified by the insurer;
23 (2) The real estate acquired under this subsection may
24 be subject to one or more mortgages, liens or other
25 encumbrances, the amount of which shall, to the extent that
26 the obligations secured by the mortgages, liens or
27 encumbrances are without recourse to the insurer, be deducted
28 from the amount of the investment of the insurer in the real
29 estate for purposes of determining compliance with subsection
30 D(4) of this Section; and
31 (3) For purposes of this subsection, business operations
32 shall not include that portion of real estate used for the
33 direct provision of health care services by an accident and
34 health insurer for its insureds. An insurer may acquire real
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1 estate used for these purposes under subsection B of this
2 Section.
3 D. Quantitative limitations.
4 (1) An insurer shall not acquire an investment under
5 subsection A of this Section if, as a result of and after
6 giving effect to the investment, the aggregate amount of all
7 investments then held by the insurer under subsection A of
8 this Section would exceed:
9 (a) 1% of its admitted assets in mortgage loans covering
10 any one secured location;
11 (b) 0.25% of its admitted assets in construction loans
12 covering any one secured location; or
13 (c) 2% of its admitted assets in construction loans in
14 the aggregate.
15 (2) An insurer shall not acquire an investment under
16 subsection B of this Section if, as a result of and after
17 giving effect to the investment and any outstanding
18 guarantees made by the insurer in connection with the
19 investment, the aggregate amount of investments then held by
20 the insurer under subsection B of this Section plus the
21 guarantees then outstanding would exceed:
22 (a) 1% of its admitted assets in one parcel or group of
23 contiguous parcels of real estate, except that this
24 limitation shall not apply to that portion of real estate
25 used for the direct provision of health care services by an
26 accident and health insurer for its insureds, such as
27 hospitals, medical clinics, medical professional buildings or
28 other health facilities used for the purpose of providing
29 health services; or
30 (b) 15% of its admitted assets in the aggregate, but not
31 more than 5% of its admitted assets in real estate to be
32 improved or developed.
33 (3) An insurer shall not acquire an investment under
34 subsections A or B of this Section if, as a result of and
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1 after giving effect to the investment and any guarantees made
2 by the insurer in connection with the investment, the
3 aggregate amount of all investments then held by the insurer
4 under subsections A and B of this Section plus the guarantees
5 then outstanding would exceed 45% of its admitted assets.
6 However, an insurer may exceed this limitation by no more
7 than 30% of its admitted assets if:
8 (a) This increased amount is invested only in
9 residential mortgage loans;
10 (b) The insurer has no more than 10% of its admitted
11 assets invested in mortgage loans other than residential
12 mortgage loans;
13 (c) The loan-to-value ratio of each residential mortgage
14 loan does not exceed 60% at the time the mortgage loan is
15 qualified under this increased authority, and the fair market
16 value is supported by an appraisal no more than 2 years old,
17 prepared by an independent appraiser;
18 (d) A single mortgage loan qualified under this
19 increased authority shall not exceed 0.5% of its admitted
20 assets;
21 (e) The insurer files with the Director, and receives
22 approval from the Director for, a plan that is designed to
23 result in a portfolio of residential mortgage loans that is
24 sufficiently geographically diversified; and
25 (f) The insurer agrees to file annually with the
26 Director records that demonstrate that its portfolio of
27 residential mortgage loans is geographically diversified in
28 accordance with the plan.
29 (4) The limitations of Section 126.10 shall not apply to
30 an insurer's acquisition of real estate under subsection C of
31 this Section. An insurer shall not acquire real estate under
32 subsection C of this Section if, as a result of and after
33 giving effect to the acquisition, the aggregate amount of
34 real estate then held by the insurer under subsection C of
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1 this Section would exceed 10% of its admitted assets. With
2 the permission of the Director, additional amounts of real
3 estate may be acquired under subsection C of this Section.
4 (215 ILCS 5/126.16 new)
5 Sec. 126.16. Securities lending and repurchase, reverse
6 repurchase, and dollar roll transactions. An insurer may
7 enter into securities lending, repurchase, reverse
8 repurchase, and dollar roll transactions with business
9 entities, subject to the following requirements:
10 A. The insurer's board of directors shall adopt a
11 written plan that is consistent with the requirements of the
12 written plan in Section 126.4A that specifies guidelines and
13 objectives to be followed, such as:
14 (1) A description of how cash received will be invested
15 or used for general corporate purposes of the insurer;
16 (2) Operational procedures to manage interest rate risk,
17 counterparty default risk, the conditions under which
18 proceeds from reverse repurchase transactions may be used in
19 the ordinary course of business and the use of acceptable
20 collateral in a manner that reflects the liquidity needs of
21 the transaction; and
22 (3) The extent to which the insurer may engage in these
23 transactions.
24 B. The insurer shall enter into a written agreement for
25 all transactions authorized in this Section other than dollar
26 roll transactions. The written agreement shall require that
27 each transaction terminate no more than one year from its
28 inception or upon the earlier demand of the insurer. The
29 agreement shall be with the business entity counterparty, but
30 for securities lending transactions, the agreement may be
31 with an agent acting on behalf of the insurer, if the agent
32 is a qualified business entity, and if the agreement:
33 (1) Requires the agent to enter into separate agreements
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1 with each counterparty that are consistent with the
2 requirements of this Section; and
3 (2) Prohibits securities lending transactions pursuant
4 to the agreement with the agent or its affiliates.
5 C. Cash received in a transaction under this Section
6 shall be invested in accordance with this Article and in a
7 manner that recognizes the liquidity needs of the transaction
8 or used by the insurer for its general corporate purposes.
9 For so long as the transaction remains outstanding, the
10 insurer, its agent or custodian shall maintain, as to
11 acceptable collateral received in a transaction under this
12 Section, either physically or through the book entry systems
13 of the Federal Reserve, Depository Trust Company,
14 Participants Trust Company or other securities depositories
15 approved by the Director:
16 (1) Possession of the acceptable collateral;
17 (2) A perfected security interest in the acceptable
18 collateral; or
19 (3) In the case of a jurisdiction outside of the United
20 States, title to, or rights of a secured creditor to, the
21 acceptable collateral.
22 D. The limitations of Sections 126.10 and 126.17 shall
23 not apply to the business entity counterparty exposure
24 created by transactions under this Section. For purposes of
25 calculations made to determine compliance with this
26 subsection, no effect will be given to the insurer's future
27 obligation to resell securities, in the case of a repurchase
28 transaction, or to repurchase securities, in the case of a
29 reverse repurchase transaction. An insurer shall not enter
30 into a transaction under this Section if, as a result of and
31 after giving effect to the transaction:
32 (1) The aggregate amount of securities then loaned or
33 sold to, or purchased from, any one business entity
34 counterparty under this Section would exceed 5% of its
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1 admitted assets. In calculating the amount sold to or
2 purchased from a business entity counterparty under
3 repurchase or reverse repurchase transactions, effect may be
4 given to netting provisions under a master written agreement;
5 or
6 (2) The aggregate amount of all securities then loaned,
7 sold to or purchased from all business entities under this
8 Section would exceed 40% of its admitted assets.
9 E. In a dollar roll transaction, the insurer shall
10 receive cash in an amount at least equal to the market value
11 of the securities transferred by the insurer in the
12 transaction as of the transaction date.
13 F. The Director may promulgate reasonable rules for
14 investments and transactions under this Section including,
15 but not limited to, rules which impose financial solvency
16 standards, valuation standards, and reporting requirements.
17 (215 ILCS 5/126.17 new)
18 Sec. 126.17. Foreign investments and foreign currency
19 exposure.
20 A. Subject to the limitations of Section 126.10, an
21 insurer may acquire directly or indirectly through an
22 investment subsidiary, foreign investments, or engage in
23 investment practices with persons of or in foreign
24 jurisdictions, of substantially the same types as those that
25 an insurer is permitted to acquire under this Article, other
26 than of the type permitted under Section 126.12, if, as a
27 result and after giving effect to the investment:
28 (1) The aggregate amount of foreign investments then
29 held by the insurer under this subsection does not exceed 20%
30 of its admitted assets; and
31 (2) The aggregate amount of foreign investments then
32 held by the insurer under this subsection in a single foreign
33 jurisdiction does not exceed 10% of its admitted assets as to
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1 a foreign jurisdiction that has a sovereign debt rating of
2 SVO 1 or 3% of its admitted assets as to any other foreign
3 jurisdiction.
4 B. Subject to the limitations of Section 126.10, an
5 insurer may acquire investments, or engage in investment
6 practices denominated in foreign currencies, whether or not
7 they are foreign investments acquired under subsection A of
8 this Section, or additional foreign currency exposure as a
9 result of the termination or expiration of a hedging
10 transaction with respect to investments denominated in a
11 foreign currency, if, as a result of and after giving effect
12 to the transaction:
13 (1) The aggregate amount of investments then held by the
14 insurer under this subsection denominated in foreign
15 currencies does not exceed 10% of its admitted assets; and
16 (2) The aggregate amount of investments then held by the
17 insurer under this subsection denominated in the foreign
18 currency of a single foreign jurisdiction does not exceed 10%
19 of its admitted assets as to a foreign jurisdiction that has
20 a sovereign debt rating of SVO 1 or 3% of its admitted assets
21 as to any other foreign jurisdiction.
22 (3) However, an investment shall not be considered
23 denominated in a foreign currency if the acquiring insurer
24 enters into one or more contracts in transactions permitted
25 under Section 126.18 in which the business entity
26 counterparty agrees to exchange, or grants to the insurer the
27 option to exchange, all payments made on the foreign currency
28 denominated investment (or amounts equivalent to the payments
29 that are or will be due to the insurer in accordance with the
30 terms of such investment) for United States currency during
31 the period the contract or contracts are in effect to
32 insulate the insurer against loss caused by diminution of the
33 value of payments owed to the insurer due to future changes
34 in currency exchange rates.
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1 C. In addition to investments permitted under
2 subsections A and B of this Section, an insurer that is
3 authorized to do business in a foreign jurisdiction, and that
4 has outstanding insurance, annuity or reinsurance contracts
5 on lives or risks resident or located in that foreign
6 jurisdiction and denominated in foreign curren