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Public Act 91-0278
SB1115 Enrolled LRB9102645JSpcA
AN ACT to amend the Illinois Insurance Code by changing
Section 107.06a and adding Article XI 1/2.
Be it enacted by the People of the State of Illinois,
represented in the General Assembly:
Section 5. The Illinois Insurance Code is amended by
changing Section 107.06a and adding Article XI 1/2 as
follows:
(215 ILCS 5/107.06a) (from Ch. 73, par. 719.06a)
Sec. 107.06a. Organization under Illinois Insurance
Code.
(a) After December 31, 1997, a syndicate or limited
syndicate, except for a limited syndicate formed as a
partnership, may only be organized pursuant to Sections 7, 8,
10, 11, 12, 14, 14.1 (other than subsection (d) thereof), 15
(other than subsection (d) thereof), 18, 19, 20, 21, 22, 23,
25, 27.1, 28, 28.1, 28.2, 29, 30, 31, 32, 32.1, 33, and 35.1
and Article X of this Code, to carry on the business of a
syndicate, or limited syndicate under Article V-1/2 of this
Code; provided that such syndicate or limited syndicate is
admitted to the Exchange.
(b) After December 31, 1997, syndicates and limited
syndicates are subject to the following:
(1) Articles I, IIA, VIII, VIII 1/2, X, XI, XI 1/2,
XII, XII 1/2, XIII, XIII 1/2, XXIV, XXV (Sections 408 and
412 only), and XXVIII (except for Sections 445, 445.1,
445.2, 445.3, 445.4, and 445.5) of this Code;
(2) Subsections (2) and (3) of Section 155.04 and
Sections 13, 132.1 through 140, 141a, 144, 155.01,
155.03, 378, 379.1, 393.1, 395, and 396 of this Code;
(3) the Reinsurance Intermediary Act; and
(4) the Producer Controlled Insurer Act.
(c) No other provision of this Insurance Code shall be
applicable to any such syndicate or limited syndicate except
as provided in this Article V-1/2.
(Source: P.A. 89-97, eff. 7-7-95; 90-499, eff. 8-19-97;
90-794, eff. 8-14-98.)
(215 ILCS 5/Art. XI 1/2 heading new)
Article XI 1/2.
Protected Cell Companies
(215 ILCS 5/179A-1 new)
Sec. 179A-1. Short title. This Article may be cited as
the Protected Cell Company Law.
(215 ILCS 5/179A-5 new)
Sec. 179A-5. Purpose. Insurance securitization has been
developed as a means of accessing alternative sources of
capital and diversifying credit risk in order to enhance an
insurance company's ability to both assume risk and stabilize
underwriting results. Under the terms of the typical debt
instrument underlying an insurance securitization
transaction, prepaid principal is repaid to the investor on a
specified maturity date with interest, unless a trigger event
occurs. The proceeds of the debt instrument both
collateralize the insurance company's obligations under
specified contracts of insurance if a trigger event occurs,
as well as the insurance company's obligation to repay the
debt instrument if a trigger event does not occur.
Traditionally, insurance securitization transactions have
been performed through alien companies in order to utilize
efficiencies available to alien companies that are not
currently available to domestic companies. This Article is
adopted in order to create more efficiency in conducting
insurance securitization, to allow domestic companies easier
access to alternative sources of capital, and to promote
the benefits of insurance securitization generally.
(215 ILCS 5/179A-10 new)
Sec. 179A-10. Definitions.
"Domestic company" means an insurance company domiciled
in the State of Illinois.
"General account" means the assets and liabilities of a
protected cell company other than protected cell assets and
protected cell liabilities.
"Indemnity trigger" means a transaction term in which
relief of the issuer's obligation to repay investors is
triggered by its suffering a specified level of losses under
its policies of insurance or reinsurance.
"Insurance securitization" means the entering into of
debt instruments supported in full by cash or readily
marketable securities with investors by a domestic company
where repayment of principal or interest, or both, to
investors pursuant to the transaction terms is contingent
upon the occurrence or nonoccurrence of an event with respect
to which the domestic company is exposed to loss under
policies or contracts of insurance or reinsurance it has
issued.
"Market value" has the meaning given that term in Article
VIII of this Code (Investments of Domestic Companies).
"Protected cell" means an identified pool of assets and
liabilities of a domestic company segregated and insulated by
means of this Article from the remainder of the company's
assets and liabilities.
"Protected cell account" means a specifically identified
bank or custodial account established by a protected cell
company for the purpose of legally segregating the protected
cell assets of one protected cell from the protected cell
assets of other protected cells and from the assets of the
protected cell company's general account.
"Protected cell assets" means all assets identified with
and attributable to a specific protected cell of a protected
cell company, including assets physically segregated in a
protected cell account.
"Protected cell liabilities" means all liabilities
identified with and attributable to a specific protected cell
of a protected cell company. Protected cell liabilities
include liabilities representing the insurance obligations of
the protected cell as well as obligations of the protected
cell arising out of any insurance securitization transactions
of the protected cell.
"Protected cell company" means a domestic company which
has one or more protected cells.
(215 ILCS 5/179A-15 new)
Sec. 179A-15. Establishment of protected cells.
(a) A domestic company may, with the prior written
approval by the Director of a plan of operation submitted by
the domestic company with respect to each protected cell,
establish one or more protected cells. Upon the written
approval by the Director of the plan of operation, which
shall include, but not be limited to, the specific business
and investment objectives of the protected cell, the company
may, in accordance with the approved plan of operation,
attribute to the protected cell amounts both reflective of
insurance obligations with respect to its insurance business
and assets to fund those obligations. A protected cell shall
have its own distinct name or designation, which shall
include the words "protected cell". The company shall
transfer all assets attributable to a protected cell to one
or more separately established and identified protected cell
accounts bearing the name or designation of that protected
cell. Protected cell assets shall be held in the protected
cell accounts for the purpose of satisfying the obligations
of that protected cell.
(b) All sales, exchanges, transfers, or other
attributions of assets and liabilities between a protected
cell and the general account shall be in accordance with the
plan of operation approved by the Director or shall be
otherwise approved by the Director. Unless otherwise
approved by the Director, no sale, exchange, transfer, or
other attribution of assets or liabilities may be made by a
company between the company's general account and one or more
of its protected cells unless, in the case of an attribution
to a protected cell, the attribution is made solely to
establish the protected cell or, in the case of an
attribution from a protected cell to the company's general
account, the attribution is made solely to support the
company's insurance obligations that are the subject of the
business of the protected cell. Any sale, exchange,
transfer, or other attribution of assets and liabilities
between the general account and a protected cell or from
investors in the form of principal on a debt instrument
issued by a protected cell shall be in cash or in readily
marketable securities with established market values unless
otherwise approved in advance in writing by the Director.
(c) The creation of a protected cell does not create, in
respect of that protected cell, a legal person separate from
the company. Amounts attributed to a protected cell under
this Article, including assets transferred to a protected
cell account, are owned by the company and the company may
not be, nor hold itself out to be, a trustee with respect to
those protected cell assets of that protected cell account.
Notwithstanding the foregoing, the company may allow for a
security interest to attach to protected cell assets or a
protected cell account when in favor of a creditor of the
protected cell and otherwise allowed under applicable law.
(d) This Article shall not be construed to prohibit the
company from contracting with or arranging for an investment
advisor, commodity trading advisor, or other third party to
manage the protected cell assets of a protected cell,
provided that all remuneration, expenses, and other
compensation of the third party advisor or manager are
payable from the protected cell assets of that protected cell
and not from the protected cell assets of other protected
cells or the assets of the company's general account.
(e) A domestic company that is a protected cell company
shall establish such administrative and accounting procedures
as are necessary to properly identify the one or more
protected cells of the company and the protected cell assets
and protected cell liabilities attributable thereto. It
shall be the duty of the directors of a protected cell
company to (i) keep protected cell assets and protected cell
liabilities separate and separately identifiable from the
assets and liabilities of the company's general account and
(ii) keep protected cell assets and protected cell
liabilities attributable to one protected cell separate and
separately identifiable from protected cell assets and
protected cell liabilities attributable to other protected
cells. Notwithstanding the foregoing, the remedy of tracing
shall be applicable to protected cell assets when commingled
with protected cell assets of other protected cells or the
assets of the company's general account.
(f) Unless otherwise approved by the Director, the
company shall, when establishing a protected cell, attribute
to the protected cell assets with a value at least equal to
the reserves and other insurance liabilities attributed to
that protected cell.
(215 ILCS 5/179A-20 new)
Sec. 179A-20. Use and operation of protected cells.
(a) The protected cell assets of any protected cell may
not be charged with liabilities arising out of any other
business the company may conduct. All contracts or other
documentation reflecting the obligations of a protected cell
to the general account shall clearly indicate that only the
assets of the protected cell are available for the
obligations of the protected cell.
(b) The income, gains, and losses, realized or
unrealized, from protected cell assets and protected cell
liabilities must be credited to or charged against the
protected cell without regard to other income, gains, or
losses of the company, including income, gains, or losses of
other protected cells. Amounts attributed to a protected
cell and accumulations thereon may be invested and reinvested
without regard to any requirements or limitations of Article
VIII of this Code (Investments of Domestic Companies), and
the investments in a protected cell or cells may not be taken
into account in applying the investment limitations otherwise
applicable to the investments of the company.
(c) Unless otherwise approved by the Director, assets
attributed to a protected cell must be valued at their
market value on the date of valuation, or if there is no
readily available market, then as provided in the contract or
the rules or other written documentation applicable to the
protected cell.
(d) A protected cell company shall, in respect of any of
its protected cells, engage in fully funded
indemnity-triggered insurance securitization to support in
full the protected cell liabilities attributable to that
protected cell. An insurance securitization that is not
indemnity-triggered and does not support in full the
protected cell obligations of a protected cell shall be
prohibited absent specific permission by the Director in
accordance with the authority granted under Section 179A-40
and the guidance of the National Association of Insurance
Commissioners, as such guidance is developed. An insurance
securitization transaction that is not fully funded, whether
indemnity-triggered or not indemnity-triggered, is
prohibited. A protected cell may pay interest or other
consideration on any outstanding debt or other obligation
attributable to that protected cell, and nothing in this
subsection shall be construed or interpreted to prevent a
protected cell from entering into a swap agreement or other
transaction that has the effect of guaranteeing such interest
or other consideration.
(e) In all cases in which a protected cell engages in an
insurance securitization, the financial instrument effecting
such transaction shall contain provisions identifying the
protected cell to which the transaction will be attributed.
In addition, the financial instrument shall clearly disclose
that the assets of that protected cell, and only those
assets, are available to pay the obligations of that
protected cell. Notwithstanding the foregoing, and subject to
the provisions of this Article and any other applicable law
or rule, the failure to include such language in the
financial instrument shall not be used as the sole basis by
creditors, reinsurers, or other claimants to circumvent the
provisions of this Article.
(f) At the cessation of business of a protected cell,
the protected cell company shall voluntarily wind up the
protected cell in accordance with a plan approved by the
Director.
(215 ILCS 5/179A-25 new)
Sec. 179A-25. Reach of creditors and other claimants.
(a) Protected cell assets shall only be available to the
creditors of the company who are creditors in respect of that
protected cell and shall thereby be entitled, in conformity
with the provisions of this Article, to have recourse to the
protected cell assets attributable to that protected cell,
and shall be absolutely protected from the creditors of the
company who are not creditors in respect of that protected
cell and who, accordingly, shall not be entitled to have
recourse to the protected cell assets attributable to that
protected cell. Creditors of a protected cell shall not be
entitled to have recourse against the protected cell assets
of other protected cells or the assets of the company's
general account.
(b) When an obligation of a protected cell company to a
person arises from a transaction, or is otherwise imposed, in
respect of a protected cell:
(1) that obligation of the company shall extend
only to the protected cell assets attributable to that
protected cell, and the person shall, in respect of that
obligation, be entitled to have recourse only to the
protected cell assets attributable to that protected
cell; and
(2) that obligation of the company shall not extend
to the protected cell assets of any other protected cell
or the assets of the company's general account, and that
person shall not, in respect of that obligation, be
entitled to have recourse to the protected cell assets of
any other protected cell or the assets of the company's
general account.
(c) When an obligation of a protected cell company
relates solely to the general account, the obligation of the
company shall extend only to, and that creditor shall, in
respect of that obligation, be entitled to have recourse only
to, the company's general account.
(d) A protected cell shall only be authorized to assume
an insurance obligation directly from the company's general
account, and under no circumstances shall a protected cell be
authorized to issue insurance or reinsurance policies or
contracts directly to policyholders or reinsureds or have any
obligation to the policyholders of the company's general
account. The activities and obligations of a protected cell
are not subject to the provisions of Article XXXIII1/2
(Illinois Life and Health Guaranty Association Law) or
Article XXXIV (Illinois Insurance Guaranty Fund), and
protected cells shall not be assessed by or otherwise be
required to contribute to any guaranty fund or guaranty
association in this State. Nothing in this subsection shall
affect the activities or obligations of a company's general
account.
(e) In no event shall the establishment of one or more
protected cells alone constitute or be deemed to be a
fraudulent conveyance, an intent by the company to defraud
creditors, or the carrying out of business by the company for
any other fraudulent purpose.
(215 ILCS 5/179A-30 new)
Sec. 179A-30. Rehabilitation and liquidation of
protected cell companies.
(a) Notwithstanding any contrary provision in this Code,
the rules promulgated under this Code, or any other
applicable law or rule, upon any order of rehabilitation,
conservation, or liquidation of a domestic company that is a
protected cell company, the receiver shall be bound to deal
with the company's assets and liabilities, including
protected cell assets and protected cell liabilities, in
accordance with the requirements set forth in this Article.
(b) With respect to amounts recoverable under any
insurance securitization entered into or outstanding in any
protected cell of a protected cell company, the amount
recoverable by the receiver shall not be reduced or
diminished as a result of the entry of an order of
rehabilitation, conservation, or liquidation with respect to
the protected cell company notwithstanding any provisions to
the contrary in the financial instrument governing such
insurance securitization.
(215 ILCS 5/179A-35 new)
Sec. 179A-35. No transaction of an insurance business.
No insurance securitization effected under the provisions of
this Article shall be deemed to be an insurance policy or
contract of insurance and no investor in a securitization
transaction shall, by sole means of such investment, be
required to be licensed as an insurance company in the State
of Illinois.
(215 ILCS 5/179A-40 new)
Sec. 179A-40. Rules. The Director may promulgate
reasonable rules as may be necessary to effectuate the
purposes of this Article.
Section 99. Effective date. This Act takes effect upon
becoming law.
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