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92nd General Assembly

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Public Act 92-0124

SB864 Enrolled                                LRB9205491JScsA

    AN ACT concerning reinsurance.

    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
adding Article XIE as follows:

    (215 ILCS 5/Art. XIE heading new)
    ARTICLE XIE.  Special Purpose Reinsurance Vehicle Law

    (215 ILCS 5/179E-1 new)
    Sec. 179E-1.  Short title. This Article may be  cited  as
the Special Purpose Reinsurance Vehicle Law.

    (215 ILCS 5/179E-5 new)
    Sec. 179E-5.  Purpose. This Article is adopted to provide
for  the  creation  of  Special  Purpose Reinsurance Vehicles
("SPRV") exclusively to facilitate the securitization of  one
or  more  ceding  insurers'  risk  as  a  means  of accessing
alternative sources of capital and achieving the benefits  of
securitization.    Investors   in   fully   funded  insurance
securitization transactions provide funds that are  available
to  the  SPRV  to  secure  the  aggregate limit under an SPRV
contract that provides coverage against the occurrence  of  a
triggering  event.   The  creation  of  SPRVs  is intended to
achieve  greater   efficiencies   in   conducting   insurance
securitizations, to diversify and broaden insurers' access to
sources  of  risk  bearing  capital,  and  to  make insurance
securitization generally available on reasonable terms to  as
many U.S. insurers as possible.
    Under  the  terms of the typical securities underlying an
insurance  securitization  transaction,  proceeds  from   the
issuance  of  securities  are  repaid  to  the  investor on a
specified maturity date with interest or dividends  unless  a
triggering   event   occurs.   The  insurance  securitization
proceeds are available to pay the SPRV's obligations  to  the
ceding  insurer  if  the  triggering event occurs, as well as
being available to satisfy the SPRV's obligation to repay the
insurance securitization investors if a triggering event does
not occur.  Insurance securitization transactions  have  been
performed   by   alien   companies  to  utilize  efficiencies
available to those alien companies  that  are  not  currently
available  to  domestic companies. This Article is adopted to
allow    more    efficiency    in    conducting     insurance
securitizations,  to  allow  ceding insurers easier access to
alternative sources of risk bearing capital, and  to  promote
the benefits of insurance securitization to U.S. insurers.

    (215 ILCS 5/179E-10 new)
    Sec.   179E-10.  Exemption  from  insurance  laws  within
limitations.
    (a)  An SPRV is subject to the following:
         (1) Articles I, XII 1/2, XXIV, XXV (Sections 408 and
    412 only), and XXVIII (except for  Sections  445,  445.1,
    445.2, 445.3, 445.4, and 445.5) of this Code; and
         (2)  Sections  132.1  through  134, 137 through 140,
    155.01, 155.03, and 155.04 of this Code.
    (b)  No other provisions of this Code apply  to  an  SPRV
organized under this Article, except as otherwise provided in
this Article.

    (215 ILCS 5/179E-15 new)
    Sec. 179E-15.  Definitions. For purposes of this Article,
the following terms have the indicated meanings:
    "Aggregate  limit"  means  the maximum sum payable to the
ceding insurer under an SPRV contract.
      "Ceding  insurer"  means  one  or  more   insurers   or
reinsurers  under  common  control  that  enters into an SPRV
contract with an SPRV.
    "Control" (including the terms "controlling," "controlled
by" and "under common control with")  means  the  possession,
direct  or  indirect,  of  the  power  to direct or cause the
direction of the management and policies of a person, whether
through the ownership of voting securities, by contract other
than  a  commercial  contract  for  goods  or  non-management
services, or otherwise, unless the power is the result of  an
official  position  with  or  corporate  office  held  by the
person.  Control shall be presumed to exist  if  any  person,
directly  or indirectly, owns, controls, holds with the power
to vote, or holds proxies representing, 10% or  more  of  the
voting  securities of any other person.  This presumption may
be rebutted by a showing that  control  does  not,  in  fact,
exist.    Notwithstanding the foregoing, for purposes of this
Article,  the  fact  that  an   SPRV   exclusively   provides
reinsurance  to a ceding insurer under an SPRV contract shall
not by itself be sufficient grounds for a  finding  that  the
SPRV or the SPRV organizer or owner is controlled by or under
common control with the ceding insurer.
    "Fair Value" means:
         (1)  as to cash, the amount thereof; and
         (2)  as to an asset other than cash:
              (A)  the  amount  at  which that asset could be
         bought or sold  in  a  current  transaction  between
         arms-length, willing parties;
              (B)  quoted  market  price  for  the  asset  in
         active markets should be used if available; and
              (C)  if quoted market prices are not available,
         a   value  determined  using  the  best  information
         available considering  values  of  like  assets  and
         other  valuation  methods,  such as present value of
         future cash flows, historical value of the  same  or
         similar  assets  or  comparison  to  values of other
         asset  classes  the  value  of   which   have   been
         historically related to the subject asset.
    "Fully  funded"  means  that,  with  respect  to  an SPRV
contract, the fair value of the assets held in trust by or on
behalf of the SPRV under the SPRV contract  on  the  date  on
which  the  SPRV  contract is effected, equals or exceeds the
aggregate limit as defined in this Article.
    "Indemnity trigger" means a transaction term by which the
SPRV's obligation  to  pay  the  ceding  insurer  for  losses
covered  by  an  SPRV  contract  is  triggered  by the ceding
insurer incurring a specified level of losses.
    "Insolvency" or "insolvent" means that the SPRV is unable
to pay its  obligations  when  they  are  due,  unless  those
obligations are the subject of a bona fide dispute.
    "Non-indemnity trigger" means a transaction term by which
the SPRV's obligation to pay the ceding insurer under an SPRV
contract  arises  from  the  occurrence  or existence of some
event or condition other than the ceding insurer incurring  a
specified  level of losses under its insurance or reinsurance
contracts.
    "Permitted investments" means those investments that meet
the qualifications set forth in Section 179E-85.
    "Qualified  U.S.  financial   institution"   means,   for
purposes of meeting the requirements of a  trustee under this
Article, a financial institution that is eligible to act as a
fiduciary of a trust, and that is:
         (1)  organized  or,  in the case of a U.S. branch or
    agency  office  of  a   foreign   banking   organization,
    licensed,  under  the  laws  of  the United States or any
    state of the United States; and
         (2)  regulated, supervised, and examined by  federal
    or  state  authorities  having  regulatory authority over
    banks and trust companies.
    "Special purpose reinsurance vehicle" or "SPRV" means  an
entity,  domiciled  in  and  organized under the laws of this
State, that has received a limited certificate  of  authority
from  the  Director  under  this  Article exclusively for the
limited  purpose  of  entering  into  and  effectuating  SPRV
insurance securitizations, SPRV contracts, and other  related
transactions permitted by this Article.
    "SPRV contract" means a contract between the SPRV and the
ceding  insurer  pursuant to which the SPRV agrees to pay the
ceding insurer an agreed amount  upon  the  occurrence  of  a
triggering event.
    "SPRV   insurance  securitization"  means  a  package  of
related   risk   transfer   instruments   and    facilitating
administrative  agreements  by which proceeds are obtained by
an SPRV through the issuance of  securities,  which  proceeds
are  held  in  trust  pursuant  to  the  requirements of this
Article to secure the obligations of the SPRV under  an  SPRV
contract with one or more ceding insurers, wherein the SPRV's
obligation  to  return  the  full  initial  investment to the
holders of those  securities,  pursuant  to  the  transaction
terms,  is  contingent upon those funds not being used to pay
the obligations of the SPRV to the ceding insurers under  the
SPRV Contract.
    "SPRV  organizer"  means  one  or  more  persons who have
organized or intend  to  organize  an  SPRV  under  authority
obtained pursuant to Section 179E-20.
    "SPRV securities" means the securities issued by an SPRV.
    "Triggering  event"  means an event or condition that, if
and when it occurs or exists, obligates the SPRV  to  make  a
payment to the ceding insurer under the provisions of an SPRV
contract.

    (215 ILCS 5/179E-20 new)
    Sec. 179E-20.  Limited certificate of authority.
    (a)  Within  30  days  after receipt by the Director of a
complete  filing  by  the  prospective  SPRV  organizer   for
authority  to form or acquire an SPRV, which SPRV shall exist
and operate expressly for the limited purposes set  forth  in
this  Article, the application shall be deemed approved and a
limited certificate of  authority  shall  be  issued,  unless
before  the  expiration  of  the  30-day  period the Director
approves or disapproves the application in writing. A limited
certificate of authority may not be issued unless the country
or state of domicile of each ceding insurer has notified  the
Director  in  writing  that  they  have  not  disapproved the
transaction.  A  complete  filing  of  the  application  must
include the following:
         (1)  an affidavit verifying  that  each  prospective
    SPRV  organizer  the  SPRV  meets the requirements as set
    forth in this Article;
         (2)  a  representation  that  the  prospective  SPRV
    organizer  intends  to  form  an  SPRV  to   operate   in
    accordance  with  the  requirements  set  forth  in  this
    Article;
         (3)  the proposed name of the subject SPRV;
         (4)  biographical    descriptions   of   each   SPRV
    organizer setting forth  their  legal  names,  any  names
    under  which  they  have or are conducting their affairs,
    and any affiliations with other  persons  as  defined  in
    Article  VIII  1/2, together with such other biographical
    information as the Director may request;
         (5)  the source and form of the minimum  capital  to
    be contributed to the SPRV;
         (6)  any  persons  with  which  the SPRV is or, upon
    formation, will be affiliated as defined in Article  VIII
    1/2;
         (7)  the  names  and biographical information of the
    proposed members of the board of directors and  principal
    officers  of  the  SPRV, setting forth their legal names,
    any names under which they have or are  conducting  their
    affairs  and  any  affiliations  with  other  persons  as
    defined  in  Article  VIII  1/2, together with such other
    biographical information as the Director may request; and
         (8)  a  plan   of   operation,   consisting   of   a
    description of the contemplated insurance securitization,
    the  SPRV  contract, and related transactions, which plan
    of operation must include:
              (A)  draft documentation or, at the  discretion
         of  the Director, a written summary, of all material
         agreements that will be entered into  to  effectuate
         the  insurance  securitization  and the related SPRV
         contract,  including  the  names   of   the   ceding
         insurers, the nature of the risks being assumed, and
         the    maximum   amounts,   purpose,   nature,   and
         interrelationships  of  the   various   transactions
         required to effectuate the insurance securitization;
              (B)  the investment strategy of the  SPRV and a
         representation  that  (i)  the  investment  strategy
         complies  with the investment requirements set forth
         in  this  Article  and  (ii)   includes   investment
         practices  or  other  provisions  to  preserve asset
         values  that  will  facilitate  attainment  of  full
         funding during the term of the  securitization  with
         assets  that  can  be  monetized  in  response  to a
         triggering  event  without  a  substantial  loss  in
         value;
              (C)  a  description  of  the  method  by  which
         losses covered by the SPRV contract that may develop
         after the termination of the contract period are  to
         be  addressed  under  the  provisions  of  the  SPRV
         contract; and
              (D)  a  representation that the trust agreement
         and  the  trusts  holding  assets  that  secure  the
         obligations of the SPRV under the SPRV contract  and
         the  SPRV  contract  with  the  ceding  insurers  in
         connection   with   the    contemplated    insurance
         securitization will be structured in accordance with
         the requirements set forth in this Article.
    (b)  The  Director  may  not  approve  the application or
issue a limited certificate of authority until he or she  has
found   that  the  proposed  plan  of  operation  provides  a
reasonable expectation of a successful  operation,  based  on
the proposed SPRV organizer, directors, and officers being of
known  good  character  and  that  there is no good reason to
believe that they are  affiliated,  directly  or  indirectly,
through    ownership,    control,   management,   reinsurance
transactions, or other insurance or business  relations  with
any  person  or  persons  known  to have been involved in the
improper manipulation of assets, accounts or reinsurance.
    (c)  Upon approval by the Director of the application and
the issuance of a limited certificate of authority, the  SPRV
may  be  acquired  or  formed  and,  in  accordance  with the
approved plan of operation, the SPRV may enter into contracts
and conduct other activities within the parameters set  forth
in the filed plan of operation.
    (d)  The limited certificate of authority so issued shall
state  that  the  SPRV's  authorization to be involved in the
business of reinsurance is limited to  only  the  reinsurance
activities  that  the  SPRV  is allowed to conduct under this
Article.
    (e)  The SPRV organizer must provide a  complete  set  of
the  documentation  of  the  insurance  securitization to the
Director upon  closing of the transactions including, but not
limited to, an opinion  of  legal  counsel  with  respect  to
compliance  with this and any other applicable laws as of the
effective date of the transaction. Any material change of the
SPRV's plan of operation described in  items (1) through  (8)
of subsection (a) including, but not limited to, the issuance
of  new  securities to continue the securitization activities
of the SPRV under this  Article  after  expiration  and  full
satisfaction  of  the  initial  securitization  transactions,
requires prior approval of the Director, however, a change in
the   counterparty  to  swap  transactions  for  an  existing
securitization as allowed under this  Article  shall  not  be
deemed  a  material  change.  Any material change that is not
disapproved by the Director in writing within 15  days  after
its submission shall be deemed approved.

    (215 ILCS 5/179E-25 new)
    Sec.  179E-25.  Limited  purpose  of  SPRV.  This Article
authorizes SPRVs to be created for  the  limited  purpose  of
entering  into  insurance  securitization  transactions  with
investors  and  into  related  agreements  to pay one or more
ceding insurers agreed upon amounts under  an  SPRV  contract
upon  the  occurrence  of  triggering  events  related to the
insurance business of the ceding insurer.  An  SPRV  may  not
issue a contract for assumption of risk or indemnification of
loss other than an SPRV contract as defined herein.

    (215 ILCS 5/179E-30 new)
    Sec.  179E-30.  Approved  transactions  and  operation of
SPRVs.
    (a)  SPRVs authorized under this Article may at any given
time enter into and effectuate SPRV  contracts  with  one  or
more  ceding  insurers,  provided  that  the  SPRV  contracts
obligate  the SPRV to indemnify the ceding insurer for losses
and that contingent obligations of the SPRV  under  the  SPRV
contracts  are  securitized  in  full  through  a single SPRV
insurance securitization and are  fully  funded  and  secured
with assets held in trust in accordance with the requirements
of  this  Article pursuant to agreements contemplated by this
Article and invested in a manner that meets the criteria  set
forth in Section 179E-85 of this Article.
    (b)  An  SPRV  may  enter into such agreements with third
parties and conduct such business as is necessary to  fulfill
its  obligations  and  administrative  duties incident to the
insurance  securitization  and  the   SPRV   contract.    The
agreements may include entering into swap agreements or other
transactions  that  have  the  objective  of  leveling timing
differences  in  funding  up-front  or  ongoing   transaction
expenses  or  managing  credit  or  interest rate risk of the
investments in trust to assure that the assets held in  trust
will be sufficient to satisfy (i) payment or repayment of the
securities  issued  pursuant  to  an insurance securitization
transaction or (ii) the obligations of  the  SPRV  under  the
SPRV  contract.   In  fulfilling its function, the SPRV shall
adhere to the following requirements and shall, to the extent
of its powers, ensure that contracts obligating other parties
to perform certain functions incident to its  operations  are
substantively  and  materially  consistent with the following
requirements and guidelines:
         (1)  An SPRV shall have a distinct name, which shall
    include the designation "SPRV".  The name of the SPRV may
    not be deceptively similar to, or likely to  be  confused
    with  or  mistaken  for, any other existing business name
    registered in this State.
         (2)  Unless  otherwise  provided  in  the  plan   of
    operation,  the principal place of business and office of
    any SPRV organized under this Article must be located  in
    this State.
         (3)  The  assets  of  an  SPRV must be preserved and
    administered by or on behalf of the SPRV to  satisfy  the
    liabilities  and  obligations of the SPRV incident to the
    insurance securitization and  other  related  agreements,
    including the SPRV contract.
         (4)  Assets  of  the SPRV that are pledged to secure
    obligations of the SPRV to a ceding insurer under an SPRV
    contract must be held in  trust  and  administered  by  a
    qualified U.S. financial institution.  The qualified U.S.
    financial  institution may not control, be controlled by,
    or be under common control with, the SPRV or  the  ceding
    insurers.
         (5)  The  agreement governing any  trust must create
    one or more trust accounts into which all pledged  assets
    must   be   deposited   and  held  until  distributed  in
    accordance with the trust agreement.  The pledged  assets
    must  be  held  by the trustee at the trustee's office in
    the United States and may  be  held  in  certificated  or
    electronic form.
         (6)  The   provisions   for   withdrawal  by  ceding
    insurers of assets from the  trust  shall  be  clean  and
    unconditional,    subject    only    to   the   following
    requirements:
              (A)  the ceding insurer shall have the right to
         withdraw assets from the trust account at any  time,
         without  notice to the SPRV, subject only to written
         notice to the trustee from the ceding  insurer  that
         funds in the amount requested are due and payable by
         the SPRV;
              (B)  no  other  statement  or  document need be
         presented in order to withdraw  assets,  except  the
         ceding   insurer  may  be  required  to  acknowledge
         receipt of withdrawn assets;
              (C)  the trust agreement must indicate that  it
         is  not  subject to any conditions or qualifications
         outside of the trust agreement;
              (D)  the  trust  agreement  may   not   contain
         references to any other agreements or documents; and
              (E)  no  reference may be made to the fact that
         the funds may represent reinsurance premiums or that
         the funds  have  been  deposited  for  any  specific
         purpose.
         (7)  The trust agreement must be established for the
    sole  use  and  benefit of the ceding insurer at least to
    the full extent of the SPRV's obligations to  the  ceding
    insurer  under  the  SPRV contract. If there is more than
    one ceding insurer, a separate trust  agreement  must  be
    entered  with  each  ceding  insurer and a separate trust
    account must be maintained for each ceding insurer.
         (8)  The  trust  agreement  must  provide  for   the
    trustee to:
              (A)  receive  assets  and  hold all assets in a
         safe place;
              (B)  determine that all assets are in a form so
         that  the  ceding  insurer  or  the  trustee,   upon
         direction   by  the  ceding  insurer  may,  whenever
         necessary, negotiate any the assets, without consent
         or signature from the SPRV or any  other  person  or
         entity;
              (C)  furnish to the SPRV, the Director, and the
         ceding  insurer  a  statement  of  all assets in the
         trust  account  reported  at  fair  value  upon  its
         inception and at intervals no less frequent than the
         end of each calendar quarter;
              (D)  notify the SPRV and  the  ceding  insurer,
         within  10  days,  of any deposits to or withdrawals
         from the trust account;
              (E)  upon written demand of the ceding insurer,
         immediately take any  and  all  steps  necessary  to
         transfer  absolutely  and  unequivocally  all right,
         title, and interest in the assets held in the  trust
         account  to  the ceding insurer and deliver physical
         custody of the assets to the ceding insurer; and
              (F)  allow no substitutions or  withdrawals  of
         assets  from  the  trust  account, except on written
         instructions from the ceding insurer.
         (9)  The trust agreement must provide that at  least
    30 days, but not more than 45 days, before termination of
    the  trust  account,  written notification of termination
    shall be delivered by the trustee to the ceding insurer.
         (10)  The trust agreement may be made subject to and
    governed by the laws of any state,  in  addition  to  the
    requirements  for  the trust as provided in this Article,
    provided that the state  is  disclosed  in  the  plan  of
    operation filed with and approved, or deemed approved, by
    the Director under Section 179E-20.
         (11)  The  trust agreement must prohibit invasion of
    the trust corpus for the purpose of  paying  compensation
    to, or reimbursing the expenses of, the trustee.
         (12)  The  trust  agreement  must  provide  that the
    trustee shall be liable for its own  negligence,  willful
    misconduct, or lack of good faith.
         (13)  Notwithstanding   the   provisions   of  items
    (6)(C), (6)(D), and (6)(E) of  this  subsection  or  item
    (14)(E)  of  this  subsection,  when a trust agreement is
    established in conjunction with an  SPRV  contract,  then
    the  trust  agreement may provide that the ceding insurer
    must undertake to use and apply any  amounts  drawn  upon
    the  trust  account,  without  diminution  because of the
    insolvency of the ceding insurer or  the  SPRV,  for  the
    following purposes:
              (A)  to  pay  or  reimburse  the ceding insurer
         amounts due to the ceding insurer under the specific
         SPRV  contract  including,  but  not   limited   to,
         unearned  premiums due to the ceding insurer, if not
         otherwise paid by the SPRV in  accordance  with  the
         terms of the agreement; or
              (B)  when   the  ceding  insurer  has  received
         notification of termination of  the  trust  account,
         and  when  the SPRV's entire "obligations" under the
         specific  SPRV  contract  remain  unliquidated   and
         undischarged  10 days prior to the termination date,
         to withdraw amounts equal to those  obligations  and
         deposit  those amounts in a separate account, in the
         name of the ceding insurer, in  any  qualified  U.S.
         financial   institution,   apart  from  its  general
         assets,  in  trust  for  those  uses  and   purposes
         specified  in item (13)(A) of this subsection as may
         remain executory after the withdrawal  and  for  any
         period  after  the  termination date.  "Obligations"
         within the meaning of this subsection  may,  without
         duplication, include:
                   (i)  losses  and loss expenses paid by the
              ceding insurer,  but  not  recovered  from  the
              SPRV;
                   (ii)  reserves  for  losses  reported  and
              outstanding;
                   (iii)  reserves  for  losses  incurred but
              not reported;
                   (iv)  reserves for  loss expenses;
                   (v)  reserves for unearned premiums; and
                   (vi)  any  other  amounts  that,  together
              with  (iv),  represent  the   aggregate   limit
              remaining under the SPRV contract if the period
              of  coverage  or the agreed upon period of loss
              development has yet to expire.
    The provisions to be  included  in  the  trust  agreement
pursuant  to this item (13) may, in lieu thereof, be included
in the underlying SPRV contract.
         (14)  An SPRV contract must contain provisions that:
              (A)  require the SPRV to enter  into  a   trust
         agreement  specifying what recoverables or reserves,
         or both, the agreement is to cover and to  establish
         a  trust  account  for  the  benefit  of  the ceding
         insurer;
              (B)  stipulate that  assets  deposited  in  the
         trust  account  must  be  valued  according to their
         current  fair  value,  and  may  consist   only   of
         permitted investments;
              (C)  require the SPRV, before depositing assets
         with    the   trustee,   to   execute   assignments,
         endorsements in blank, or transfer  legal  title  to
         the trustee of all shares, obligations, or any other
         assets  requiring  assignments,  in  order  that the
         ceding insurer, or the trustee upon the direction of
         the ceding insurer, may whenever necessary negotiate
         the assets without consent  or  signature  from  the
         SPRV or any other entity;
              (D)  require  that  all  settlements of account
         between the ceding insurer and the SPRV be  made  in
         cash or its equivalent; and
              (E)  stipulate  that  the  SPRV  and the ceding
         insurer agree that the assets in the trust  account,
         established   under   the  provisions  of  the  SPRV
         contract, may be withdrawn by the ceding insurer  at
         any  time,  notwithstanding  any other provisions in
         the SPRV contract, and shall be utilized and applied
         by the ceding insurer or any successor by  operation
         of  law of the ceding insurer, including (subject to
         the provisions  of  Section  179E-80),  but  without
         further  limitation,  any liquidator, rehabilitator,
         receiver, or  conservator  of  the  ceding  insurer,
         without diminution because of insolvency on the part
         of  the  ceding  insurer  or  the SPRV, only for the
         following purposes:
                   (i)  to transfer all of those assets  into
              the  trust  account  for  the  benefit  of  the
              ceding insurer under  the  terms  of  the  SPRV
              contract  and  in compliance with this Article;
              and
                   (ii)  to pay any other amounts the  ceding
              insurer claims are due under the SPRV contract.
         (15)  The SPRV contract entered into by the SPRV may
    contain  provisions  that give the SPRV the right to seek
    approval from the ceding insurer  to  withdraw  from  the
    trust  all  or  part  of  the  assets contained in it and
    transfer the assets to the SPRV, provided that:
              (A)  at the time of the  withdrawal,  the  SPRV
         replaces  the  withdrawn assets with other qualified
         assets having a fair value equal to the  fair  value
         of   the   assets   withdrawn   and  that  meet  the
         requirements of Section 179E-85; and
              (B)  after the withdrawals  and  transfer,  the
         fair  value  of  the  assets  in trust  securing the
         obligations of the SPRV under the SPRV  contract  is
         no  less  than an amount needed to satisfy the fully
         funded requirement of the SPRV contract. The  ceding
         insurer   shall   be   the  sole  judge  as  to  the
         application  of  these  provisions,  but  shall  not
         unreasonably nor arbitrarily withhold its approval.
         (16)  The investors in the SPRV must agree,  and  be
    contractually  obligated to so do, that any obligation to
    repay principal, interest, or dividends on the securities
    issued by the SPRV shall be reduced upon  the  occurrence
    of  a  triggering event, to the extent that the assets of
    the SPRV held in trust for  the  benefit  of  the  ceding
    insurer are remitted to the ceding insurer in fulfillment
    of the obligations of the SPRV under the SPRV contract.
         (17)  Assets held by an SPRV in trust must be valued
    at their fair value.
         (18)  The  proceeds  from  the sale of securities by
    the SPRV to investors must be deposited with the  trustee
    as  contemplated  by  this  Article,  and must be held or
    invested  by  the  trustee   in   accordance   with   the
    requirements of Section 179E-85.
         (19)  An  SPRV  organized  under  this  Article, may
    engage only in  fully  funded  indemnity  triggered  SPRV
    contracts   to  support  in  full  the  ceding  insurers'
    exposures assumed by the SPRV, except that  an  SPRV  may
    engage   in   an  SPRV  contract  that  is  non-indemnity
    triggered after the  Director,  in  accordance  with  the
    authority granted under Section 179E-100 of this Article,
    adopts  rules  addressing the treatment of the portion of
    the  risk  that  is  not   indemnity   based,   including
    accounting, disclosure, risk-based capital treatment, and
    the   manner   in   which   risks   associated  with  the
    non-indemnity based SPRV contract may  be  evaluated  and
    managed.  An  SPRV may not at any time enter into an SPRV
    contract that is  not  fully  funded,  whether  indemnity
    triggered or non-indemnity triggered.  Assets of the SPRV
    may be used to pay interest or other consideration on any
    outstanding  debt  or  other  obligation of the SPRV, and
    nothing in this item shall be construed or interpreted to
    prevent an SPRV from entering into a  swap  agreement  or
    other  transaction  that  has  the effect of guaranteeing
    interest or other consideration.
         (20)  The contracts or other documentation  relating
    to   an   SPRV   insurance  securitization  must  contain
    provisions identifying the SPRV that will enter into  the
    special purpose reinsurance securitization. The contracts
    or  other  documentation  must  clearly disclose that the
    assets of the SPRV, and only those assets, are  available
    to  pay the obligations of that SPRV. Notwithstanding the
    foregoing, and subject to the provisions of this  Article
    and  any  other  applicable  law  or rule, the failure to
    include  this  language  in  the   contracts   or   other
    documentation  may  not  be  used  as  the  sole basis by
    creditors, reinsurers, or other claimants  to  circumvent
    the provisions of this Article.
         (21)  Under   no   circumstances   may  an  SPRV  be
    authorized to:
              (A)  issue  or  otherwise  administer   primary
         insurance policies;
              (B)  have  any  obligation to the policyholders
         or reinsureds of the ceding insurer;
              (C)  enter into an SPRV contract with a  person
         that  is  not  licensed  or  otherwise authorized to
         conduct the business of insurance or reinsurance  in
         at least its state or country of domicile; or
              (D)  assume  or retain exposure to insurance or
         reinsurance losses for its own account that  is  not
         initially  fully  funded  by  proceeds  from an SPRV
         securitization that meets the requirements  of  this
         Article.
         (22)  At  the  cessation  of business of an SPRV the
    limited certificate of authority granted by the  Director
    shall  expire  and the SPRV shall no longer be authorized
    to conduct activities under this Article unless and until
    a new certificate of authority is issued  pursuant  to  a
    new filing in accordance with Section 179E-20.
         (23)  It   is  unlawful  for  an  SPRV  to  loan  or
    otherwise invest, or place any of its assets in  custody,
    trust,  or  under  management with, or to borrow money or
    receive a loan  from  (other  than  by  issuance  of  the
    securities pursuant to an SPRV insurance securitization),
    or advance from, anyone convicted of a felony, anyone who
    is  untrustworthy  or  of  known bad character, or anyone
    convicted of a criminal offense involving the  conversion
    or  misappropriation  of  fiduciary  funds  or  insurance
    accounts,  theft,  deceit,  fraud,  misrepresentation, or
    corruption.

    (215 ILCS 5/179E-35 new)
    Sec. 179E-35.  Powers.
    (a)  An SPRV authorized under this Article shall have the
necessary powers to enter into contracts and to conduct  such
other  commercial  activities as are necessary to fulfill the
purposes of this Article.  Those activities may include,  but
are  not  limited  to,  entering into SPRV contracts, issuing
securities of the SPRV and complying with the terms  thereof,
entering  into  trust,  swap,  and other agreements as may be
necessary  to  effectuate  an  insurance  securitization   in
compliance   with   the   limitations  and  pursuant  to  the
authorities granted to the SPRV under  this  Article  or  the
plan   of  operation  approved  or  deemed  approved  by  the
Director.
    (b)  An SPRV  organized  or  doing  business  under  this
Article  shall,  by  the name adopted by the SPRV, in law, be
capable of suing or being  sued,  and  may  make  or  enforce
contracts  in  relation to the business of the SPRV; may have
and use a common seal, and in the name of the SPRV  or  by  a
trustee  chosen  by the board of directors, shall, in law, be
capable of taking, purchasing, holding and disposing of  real
and  personal  property for carrying into effect the purposes
of its organization; and  may  by  its  board  of  directors,
trustees,  officers, or managers, make by-laws and amendments
thereto not inconsistent with the laws or the constitution of
this  State or of the  United  States,  which  by-laws  shall
define   the  manner  of  electing  directors,  trustees,  or
managers and  officers  of  the  SPRV,  together  with  their
qualifications and duties and fixing their term of office.

    (215 ILCS 5/179E-40 new)
    Sec.     179E-40.  Affiliation.    Notwithstanding    the
provisions of Article VIII 1/2, the SPRV, the SPRV organizer,
and subsequent debt or equity investors  in  SPRV  securities
shall  not  be  deemed  affiliates  of  the ceding insurer by
virtue of the SPRV contract between the  ceding  insurer  and
the  SPRV,  the securities of the SPRV, or related agreements
necessary to implement the SPRV insurance securitization.  An
SPRV  may  not be controlled by, may not control, and may not
be under common control with any ceding  insurer  that  is  a
party to an SPRV contract.

    (215 ILCS 5/179E-45 new)
    Sec.  179E-45.  Capitalization. An SPRV must have minimum
initial capital of not less than $5,000.  All of the  initial
capital  must  be  received by the SPRV in cash.  The minimum
initial capital required and all other funds of the  SPRV  in
excess  of  its minimum initial capital, including funds held
in trust to secure the obligations of the  SPRV  pursuant  to
its  obligations  under the SPRV contracts, shall be invested
as provided in Section 179E-85.

    (215 ILCS 5/179E-50 new)
    Sec. 179E-50.  Dividends. An SPRV may not declare or  pay
dividends  in  any form to its owners unless the dividends do
not decrease the capital of the SPRV below $5,000, and  after
giving  effect  to  the  dividends,  the  assets of the SPRV,
including assets held in trust pursuant to the terms  of  the
insurance   securitization,   are   sufficient  to  meet  its
obligations. Dividends  may  be  declared  by  the  board  of
directors  of  the SPRV if the declaration of dividends would
not violate the provisions of this Article or jeopardize  the
fulfillment  of  the  obligations  of the SPRV or the trustee
pursuant to  the  SPRV  insurance  securitization,  the  SPRV
contract or any related transaction.

    (215 ILCS 5/179E-55 new)
    Sec. 179E-55.  Records and financial reports.
    (a)  The  records  of the SPRV must be maintained in this
State  and  must  be  available  for   examination   by   the
Department.  The Director shall have the right to examine the
records of an SPRV at any time.  No later than 5 months after
the  fiscal year end of the SPRV, the SPRV must file with the
Director an audit by a certified public  accounting  firm  of
the financial statements of the SPRV and the trust accounts.
    (b)  No  later  than  March  1  of  each  year,  an  SPRV
organized  under  this  Article must file with the Director a
statement of operations, including, but  not  limited  to,  a
statement  of income, a balance sheet, and a detailed listing
of invested assets, including identification of  assets  held
in  trust  to  secure  the  SPRV's obligations under the SPRV
contract, for the year ending the previous December 31.   The
statements  shall  be prepared in accordance with Section 136
of this Code on such forms and shall reveal such  information
as shall be required by the Director.
    (c)  An  SPRV must keep its books and records in a manner
so that its financial condition, affairs, and operations  can
be  ascertained,  its  financial  statements  filed  with the
Director can be readily verified, and its compliance with the
provisions of this Article can be  determined.  An  SPRV  may
cause  any or all of the books or records to be photographed,
reproduced on film, or stored and reproduced electronically.
    (d)  All original books,  records,  documents,  accounts,
and  vouchers,  or  reproductions  of  those  items,  must be
preserved and kept available in this State for the purpose of
examination and  until  authority  to  destroy  or  otherwise
dispose  of  the  records  is  secured from the Director. The
original records may, however, be kept and maintained outside
this State if, according to a  plan  adopted  by  the  SPRV's
board of directors and approved by the Director, it maintains
other suitable records.

    (215 ILCS 5/179E-60 new)
    Sec. 179E-60.  Officers and directors.
    (a)  The  directors  of an SPRV shall elect such officers
they deem necessary to carry out the  purposes  of  the  SPRV
pursuant  to  this  Article.  The provisions of Section 10 of
this Code relating to the  indemnification  of  officers  and
directors  apply  to  and  govern  SPRVs organized under this
Article.
    (b)  An SPRV authorized to do business in this State must
notify the Director of the appointment or election of any new
officers or directors within 30 days after the appointment or
election.
    (c)  If, after notice and hearing afforded to the officer
or director, and after a finding that the officer or director
is incompetent or untrustworthy or of  known  bad  character,
the  Director  shall  order the removal of the person. If the
SPRV does not comply with a removal order within 30 days, the
Director may  suspend  that  SPRV's  limited  certificate  of
authority until such time as the order is complied with.
    (d)  An  SPRV  may  not make loans to any SPRV organizer,
owner, director, officer, manager, or affiliate.

    (215 ILCS 5/179E-65 new)
    Sec. 179E-65.  Fees and taxes. The  Director  may  charge
fees  to  reimburse  the  Director  for  expenses  and  costs
incurred  by  the  Department  incident to the examination of
financial statements and review of the plan of operation  and
to reimburse other such activities of the Director related to
the  formation  and  ongoing operation of an SPRV. An SPRV is
not  be  subject  to  State  premium  or  other  State  taxes
incidental to the operation of its business as  long  as  the
business remains within the limitations of this Article.

    (215 ILCS 5/179E-70 new)
    Sec.  179E-70.  Dissolution. An SPRV operating under this
Article may be dissolved by a vote of its board of  directors
at  any  time after the Director has approved that action.  A
voluntary dissolution may not be effected  or  allowed  until
and unless all of the obligations of the SPRV pursuant to the
insurance   securitization   have   been  fully  and  finally
satisfied pursuant to their terms.  In the case of  voluntary
dissolution,  the  disposition  of  the  affairs  of the SPRV
(including the settlement  of  all  outstanding  obligations)
shall  be  made by the officers or directors of the SPRV, and
when  the  liquidation  has  been  completed  and   a   final
statement,  in  acceptable  form, filed with and approved, or
deemed  approved,  by  the  Director,  the   provisions   for
voluntary  dissolution  under the laws of this State shall be
followed to dissolve the SPRV.

    (215 ILCS 5/179E-75 new)
    Sec.    179E-75.  Conservation,    rehabilitation,     or
liquidation.
    (a)  The  provisions  of Articles XIII and XIII 1/2 apply
to an SPRV, except to the extent modified in this Section.
    (b)  Notwithstanding the provisions  of  Section  188  of
this  Code, the Director may apply by petition to the Circuit
Court of Cook County, the Circuit Court of  Sangamon  County,
or  the  circuit  court of the county in which an SPRV has or
last had its principal office for an  order  authorizing  the
Director  to  conserve,  rehabilitate  or  liquidate  an SPRV
domiciled in  this  State  solely  on  one  or  more  of  the
following grounds:
         (1)  there    has    been   embezzlement,   wrongful
    sequestration, dissipation, or diversion of the assets of
    the SPRV intended to be used to pay amounts owed  to  the
    ceding insurer or the holders of SPRV securities; or
         (2)  the  SPRV  is  insolvent  and  the holders of a
    majority in outstanding principal amount of each class of
    SPRV  securities  request  or  consent  to  conservation,
    rehabilitation, or liquidation under this Article.
    The court shall not grant relief under item (1)  of  this
subsection  unless, after notice and a hearing, the Director,
who has  the  burden  of  proof,  establishes  by  clear  and
convincing evidence that the relief should be granted.
    (c)  Notwithstanding any contrary provision in this Code,
the   rules   promulgated  under  this  Code,  or  any  other
applicable law or  rule,  upon  any  order  of  conservation,
rehabilitation,  or  liquidation  of  the  SPRV, the receiver
shall  be  bound  to  deal  with  the   SPRV's   assets   and
liabilities, in accordance with the requirements set forth in
this Article.
    (d)  With  respect  to  amounts recoverable under an SPRV
contract, the amount recoverable by the receiver may  not  be
reduced or diminished as a result of the entry of an order of
conservation,  rehabilitation, or liquidation with respect to
the ceding insurer  notwithstanding  any  provisions  to  the
contrary  in  the  contracts or other documentation governing
the SPRV insurance securitization.
    (e)  Notwithstanding the provisions of Article  XIII  and
XIII   1/2  of  this  Code,  any  application,  petition,  or
temporary restraining order or injunction issued under  those
Articles, with respect to a ceding insurer shall not prohibit
the  transaction  of  any  business by an SPRV, including any
payment by an SPRV made pursuant to an SPRV security, or  any
action or proceeding against an SPRV or its assets.
    (f)  Notwithstanding  the provisions of Articles XIII and
XIII  1/2  of  this  Code,  the  commencement  of  a  summary
proceeding or other interim  proceeding  commenced  before  a
formal  delinquency  proceeding  with respect to an SPRV, and
any order issued by the court thereunder, shall not prohibit:
         (1)  the payment by an SPRV made pursuant to an SPRV
    security or SPRV contract; or
         (2)  the SPRV from taking  any  action  required  to
    make the payment.
    (g)  Notwithstanding any other provision of Articles XIII
and XIII 1/2 of this Code or other State law:
         (1)  a  receiver of a ceding insurer may not avoid a
    non-fraudulent transfer by a ceding insurer to an SPRV of
    money  or  other  property  made  pursuant  to  an   SPRV
    contract; and
         (2)  a   receiver   of   an  SPRV  may  not  void  a
    non-fraudulent transfer by the SPRV  of  money  or  other
    property  made  to  a  ceding insurer pursuant to an SPRV
    contract or made to or for the benefit of any  holder  of
    an SPRV security on account of the SPRV security.
    (h)  With   the  exception  of  the  fulfillment  of  the
obligations under an SPRV contract, and  notwithstanding  any
other  provisions  of this Article or other law of this State
to the contrary, the assets of an SPRV, including assets held
in trust, may not be consolidated with  or  included  in  the
estate  of  a  ceding  insurer  in any delinquency proceeding
against  the  ceding  insurer  under  this  Article  for  any
purpose,  including,  without  limitation,  distribution   to
creditors of the ceding insurer.
    (i)  Notwithstanding any other provision of this Article:
         (1)  A  domiciliary receiver of an SPRV domiciled in
    another state shall be vested by operation  of  law  with
    the  title to all of the assets, property, contracts, and
    rights of action, and all of  the  books,  accounts,  and
    other  records  of  the  SPRV located in this State.  The
    domiciliary receiver shall have the  immediate  right  to
    recover all of the vested property, assets, and causes of
    action of the SPRV located in this State.
         (2)  An ancillary proceeding may not be commenced or
    prosecuted  in  this  State  against an SPRV domiciled in
    another state.

    (215 ILCS 5/179E-80 new)
    Sec.  179E-80.  SPRV  not  subject  to  guaranty   funds,
residual market, or similar arrangements.
    (a)  An  SPRV  or the activities, assets, and obligations
relating to the SPRV are not subject  to  the  provisions  of
Articles  XXXIII  1/2 and XXXIV of this Code, and an SPRV may
not be assessed by or otherwise be required to contribute  to
any  guaranty fund or guaranty association in this State with
respect to the activities, assets, or obligations of an  SPRV
or the ceding insurer.
    (b)  An  SPRV  may  not  be  required  to  participate in
residual market, FAIR plan, or other similar plans to provide
insurance coverage, take out  policies,  assume  risks,  make
capital  contributions,  pay  or  be  otherwise obligated for
assessments, surcharges, or fees,  or  otherwise  support  or
participate in such plans or arrangements.

    (215 ILCS 5/179E-85 new)
    Sec. 179E-85.  Asset and investment limitations.
    (a)  Assets   of   the  SPRV  held  in  trust  to  secure
obligations under the SPRV contract must at all times be held
in:
         (1)  cash and cash equivalents;
         (2)  securities listed by the  Securities  Valuation
    Office  of  the  NAIC  and  qualifying as admitted assets
    under statutory accounting convention  in  its  state  of
    domicile; and
         (3)  any  other  form  of security acceptable to the
    Director.
    (b)  An SPRV may enter  into  swap  agreements  or  other
transactions  that  have  the  objective  of  leveling timing
differences in funding of  up-front  or  ongoing  transaction
expenses  or  managing  credit  or  interest rate risk of the
investments in the trust to ensure that the  investments  are
sufficient to assure payment or repayment of:
         (1)  the   securities   (and   related  interest  or
    principal payments) issued pursuant to an SPRV  insurance
    securitization transaction; or
         (2)  the SPRV's obligations under the SPRV contract.

    (215 ILCS 5/179E-90 new)
    Sec.   179E-90.  Credit  for  reinsurance  for  the  SPRV
contract. An SPRV contract  meeting  the  requirements  under
this   Article   shall  be  granted  credit  for  reinsurance
treatment or  shall  otherwise  qualify  as  an  asset  or  a
reduction  from liability for reinsurance ceded by a domestic
insurer to an assuming insurer under Section  173.1  of  this
Code for the benefit of the ceding insurer, provided and only
to  the  extent that (i) the fair value of the assets held in
trust for the benefit of the ceding insurer equal  or  exceed
the  obligations due and payable to the ceding insurer by the
SPRV under the SPRV contract, (ii) the  assets  are  held  in
trust  in  accordance with the requirements set forth in this
Article, (iii)  the assets are administered in the manner and
pursuant to arrangements as set forth in  this  Article,  and
(iv)  the  assets  are held or invested in one or more of the
forms allowed in Section 179E-85.

    (215 ILCS 5/179E-95 new)
    Sec. 179E-95.  Insurance securitization deemed not to  be
transaction  of  insurance business. The securities issued by
the SPRV under an SPRV insurance securitization shall not  be
deemed  to be insurance or reinsurance contracts. An investor
in  securities  issued  pursuant   to   an   SPRV   insurance
securitization  or  any holder of those securities shall not,
by sole means of the investment or holding, be deemed  to  be
transacting   an   insurance  business  in  this  State.  The
underwriters  or  selling   agents   (and   their   partners,
directors,  officers,  members,  managers, employees, agents,
representatives, and advisors) involved in an SPRV  insurance
securitization  shall  not  be  deemed  to  be  conducting an
insurance or  reinsurance  agency,  brokerage,  intermediary,
advisory,   or   consulting   business  by  virtue  of  their
activities in connection therewith.

    (215 ILCS 5/179E-100 new)
    Sec. 179E-100.  Authority to adopt  rules.  The  Director
may  promulgate rules necessary to effectuate the purposes of
this Article.  Any rules so promulgated will not  affect  any
existing  SPRV insurance securitization in effect at the time
of the promulgation.

    Section 99.  Effective date.  This Act takes effect  upon
becoming law.
    Passed in the General Assembly May 01, 2001.
    Approved July 20, 2001.

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