Section 3113.10  Authority (Repealed)

 

(Source:  Repealed at 8 Ill. Reg. 25007, effective January 1, 1985)

 

Section 3113.20  Purpose and Scope

 

a)         The purpose of this Part is:

 

1)         To implement Sections 500-70, 500-110 and 500-115 of Article XXXI of the Illinois Insurance Code [215 ILCS 5/500-70, 500-110 and 500-115] .  Failure to adhere to the standards  set forth in this Part shall subject the offender, in addition to any other penalties or remedies provided by law, to proceedings under Article XXXI of the Illinois Insurance Code  [215 ILCS 5/Art. XXXI]; and

 

2)         To establish minimum standards required of licensees to assure the proper handling of insurance transactions specifically in regard to premiums and other monies received from insurers, insureds, other licensees or business entities .

 

b)         This Part applies to all persons, resident and non-resident, who are licensed under the Illinois Insurance Code as insurance producers, limited insurance representatives, temporary insurance producers and surplus lines licensees (referred to in this Part as "licensee") and to business entities licensed  pursuant to Article XXXI of the Illinois Insurance Code.

 

(Source:  Amended at 26 Ill. Reg. 16518, effective October 28, 2002)

 

 

Section 3113.30  Definitions

 

            Financial Institution means a Federal or State chartered bank(s) or savings and loan institution(s) which is a member of the Federal Deposit Insurance Corporation (FDIC) or the Federal Savings and Loan Insurance Corporation (FSLIC).

 

            Premium means any amount of money charged to the insured or to be returned to the insured by the insurer for the assumption of liability through the issuance of policies or contracts for insurance.

 

            Premium Fund Trust Account (hereafter referred to as PFTA) means a special fiduciary account established and maintained by a licensee into which all premiums collected are to be deposited.

 

            Primary Dealer means a financial institution or government securities dealer who reports daily to the Federal Reserve Bank of New York.  (A list of primary dealers is made available by the Federal Reserve Bank of New York, 33 Liberty Street, New York, New York 10045.)

 

            Quasi-Resident means a non-resident licensee who has a place of business in Illinois or who produces 50% or more of his or her premium volume on Illinois property or risks.  For purposes of this definition, a place of business means any identification, designation or location in Illinois used by a Quasi-Resident for insurance purposes.  Such identification, designation or location may include but is not limited to the use of an Illinois telephone number, address, post office box or lock box.

 

(Source:  Amended at 28 Ill. Reg. 7303, effective May 10, 2004)

 

Section 3113.40  Premium Fund Trust Account

 

a)         All licensees required to maintain a PFTA, pursuant to subsection (c), shall establish and maintain a PFTA in a financial institution.  All resident and quasi-resident licensees required to maintain a PFTA pursuant to this Section shall maintain such PFTA with one or more financial institutions located within the State of Illinois and subject to the jurisdiction of the Illinois courts.  Licensees are not required to maintain a separate PFTA for each insurer unless required by an insurer(s).

 

b)         All licensees required to maintain a PFTA, pursuant to subsection (c), shall certify at each license renewal or reinstatement date that premiums are held in a PFTA.  The account must be designated as a Premium Fund Trust Account on the bank records and those words shall be displayed on the face of the checks of that account.

 

c)         A PFTA must be established and maintained if a licensee:

 

1)         Holds any premiums for 15 days or more before remitting to an insurer or other licensee.

 

2)         Deposits any collected premiums into a financial institution account or other account or uses the premiums, even though the premiums are remitted within 15 days.

 

d)         The absence of a PFTA does not relieve the licensee of the obligation to hold the premiums in a fiduciary capacity, and the premiums shall not be used for purposes other than those authorized by this Part.

 

e)         All licensees who maintain or are required to maintain a PFTA must deposit all premiums received into the PFTA.

 

f)         Non-premium monies received by the licensee for soliciting, negotiating, effecting, procuring, renewing, continuing or binding policies of insurance may be deposited into the PFTA.  Examples of non-premium monies are service fees, policy fees, late charges, inspection fees and surplus lines premium taxes.

 

g)         All monies deposited into the PFTA are considered to be fiduciary funds until lawfully withdrawn.

 

h)         The following disbursements may be lawfully withdrawn from the PFTA:

 

1)         Net or gross premium remittances due other licensees or insurers. Claims payments or reinsurance premiums when offset at the direction of the insurer may be transferred to another account;

 

2)         Return premiums due insureds;

 

3)         Commissions due the licensee, net of any financial institution fees or service charges, or commissions due another licensee only when the commission withdrawal is matched and identified with premiums previously deposited into the PFTA;

 

4)         Non-premium monies when matched and identified with prior non-premium PFTA deposits;

 

5)         Interest or other revenue which the licensee is authorized to retain.

 

6)         Withdrawals pursuant to subsections (h)(3), (4) and (5) must be made payable to the licensee or another licensee.

 

i)          The PFTA shall not be used as a general operating account or claim payment account.

 

j)          The PFTA balance in the financial institution shall at all times be the amount deposited less lawful withdrawals.  If the balance in the financial institution is less than the amount deposited less lawful withdrawals, the licensee shall be deemed to have misappropriated fiduciary funds and to have acted in a financially irresponsible manner.

 

k)         All licensees may place PFTA funds in interest bearing or income producing assets and retain the interest or income thereon, provided the licensee obtains the prior written authorization of the insurer on whose behalf the funds are to be held.  The written authorization from the insurer shall be on a form the same as Exhibit A or other written form signed and dated by the licensee and the insurer.  Employing the use of specialized techniques or strategies which incur additional risks to generate higher returns or to extend maturities is not permitted.  Such prohibited techniques include but are not limited to the use of financial futures, options, or other derivatives, swaps, synthetic assets, margin purchases, short sales, pledging or other encumbrance of PFTA assets or balances, and when issued trading.  In addition to savings and checking accounts in a financial institution, a licensee may invest in the following assets:

 

1)         Direct obligations of the United States of America or U.S. Government agency securities with maturities of not more than one year.

 

2)         Certificates of deposit, with a maturity of not more than one year, issued by financial institutions which are members of the FDIC or the FSLIC.

 

3)         Repurchase agreements with financial institutions or government securities dealers recognized as primary dealers by the Federal Reserve System provided that:

 

A)        the value of the repurchase agreement is collateralized with direct obligations of the United States of America or U.S. Government agency securities or other assets that are allowable investments for PFTA funds; and

 

B)        the collateral has a market value at the time the repurchase agreement is entered into at least equal to the value of the repurchase agreement; and

 

C)        the repurchase agreement does not exceed 30 days.

 

4)         Commercial paper, provided the commercial paper is rated at least P-1 by Moody's Investors Service, Inc. and at least A-1 by Standard & Poor's Corporation.

 

5)         Obligations issued by states and possessions of the United States, including Puerto Rico and the District of Columbia, and their political subdivisions, agencies and instrumentalities, or multi-state agencies or authorities, including general obligation bonds, revenue bonds and short term notes, with maturities of not more than one year, and rated at least Aa1, MIG-1/VMIG-1 or Prime-1 by Moody's Investor Service, Inc. or AA, SP-1 or A-1 by Standard and Poor's Corporation.  Such obligations must be payable or guaranteed from taxes or revenues of such entities if such entity has not been in default in the payment of principal or interest on any of its direct or guaranteed obligations in the last 5 years.

 

6)         Money Market Mutual Funds registered with the U.S. Securities and Exchange Commission under Rule 2a-7 of The Investment Company Act of 1940, which are rated Aaa by Moody's Investors Service, Inc. or AAAm by Standard & Poor's Rating Services.

 

l)          Each investment transaction authorized pursuant to subsection (k) shall be made in the name of the licensee's PFTA.  The licensee shall maintain evidence of any such investments.  Each investment transaction shall flow through the licensee's PFTA.

 

(Source:  Amended at 28 Ill. Reg. 7303, effective May 10, 2004)

 

Section 3113.50  Minimum Record Requirements

 

a)         Licensees shall maintain books and records which reflect all insurance transactions, specifically in regard to premiums and other monies received and deposited into the PFTA and lawfully withdrawn from the PFTA.  The preparation, journalizing and posting of such books and records must be performed no less than every 30 days.

 

b)         Failure to maintain on a timely basis the minimum books and records pursuant to this Part shall be deemed evidence of untrustworthiness, incompetence and financial irresponsibility.  For the purpose of this subsection timely means not less than every 30 days.

 

c)         All books and records for a calendar or fiscal year shall be maintained for at least 7 years thereafter.

 

d)         Licensees shall maintain a cash receipts register of all monies received.  The minimum detail required in the register shall be:

 

1)         Date monies received and date deposited.  If the licensee records the date of deposit of each cash receipt elsewhere in his books and records the date of deposit is not required in the cash receipts register.

 

2)         Amount received – If the amount received does not agree with the amount billed, the licensee shall prepare a written record of the application of the amount received.

 

3)         Name of insured, licensee or insurer making the payment.

 

4)         Policy number or other description of the receipt.  The description shall be in such detail as to permit the Department's examiner to identify the source document substantiating the receipt.

 

e)         Licensees shall maintain a cash disbursement register of all disbursements.  The minimum detail required in the register shall be:

 

1)         Date disbursed or endorsed to insurer(s), other licensee(s), insureds or transferred to another account; and

 

2)         Check number; and

 

3)         Amount disbursed – If the amount disbursed does not agree with the amount billed, the licensee shall prepare a written record as to which policies, insureds and amounts the disbursement is to apply.  The written record shall be sent with the disbursement and a copy maintained by the licensee; and

 

4)         Name of insurer, licensee, insured or other account pursuant to Section 3113.40(g) to whom the payment or transfer was made; and

 

5)         Policy number or other description of the disbursement.  The description shall be in such detail to identify the source document substantiating the purpose of the disbursement; and

 

6)         If the disbursement is a commission payment to the licensee or another licensee, the disbursement shall be supported by a written record of the following:

 

A)        Name of insured;

 

B)        Policy number;

 

C)        Gross premium;

 

D)        Commission rate;

 

E)        Net commission (Equals the amount of the PFTA check);

 

F)         Check number to which the written record applies.

 

7)         Commissions may be withdrawan only on premiums deposited into the PFTA.  The relationship between premium deposited and the commission withdrawal for that premium deposit must be documented in writing.

 

8)         If the disbursement is for other non-premium monies previously deposited into the PFTA, the disbursement description shall reflect the matching non-premium deposit which the withdrawal represents.

 

f)         All PFTA journal entries for receipts and disbursements shall be supported by evidential matter as provided in Sections 3113.50(d) and 3113.50(e).  The evidential matter must be referenced in the journal entry so that it may be traced for verification.

 

g)         Licensees shall prepare and maintain monthly financial institution account reconciliations of the PFTA.

 

h)         Licensees shall maintain positive running balances in the PFTA.  The positive balance shall be reflected in the check stubs or disbursement register after each deposit or disbursement entry.

 

(Source:  Amended at 14 Ill. Reg. 2088, effective January 19, 1990)

 

Section 3113.60  Return Premium

 

a)         Return premiums must be paid to the insured or credited to the insured's account within 15 days after receipt from the insurer or other licensee.  If the return premium is reflected as a credit on the licensee's billing statement from the insurer or other licensee, the licensee must pay the return premium or credit the insured's account within 15 days subsequent to payment of the statement or the due date of the statement whichever is sooner.  If the return premium is to be credited to the insured's account, the credit must be shown and applied to the next billing statement sent to the insured.

 

b)         If the credit results in a credit balance on the insured's account the credit must be returned within 15 days unless the licensee receives written authorization from the insured to retain the credit balance and other developed credit balances for a period of no more than 12 months from the date of authorization. Such authorization must contain a notification to the insured that he has the right to withdraw the authorization in writing and that the return premium will be refunded within 15 days of the authorization withdrawal. A copy of the authorization must be maintained in the licensee's file and a file must be given to the insured at the time that the authorization is obtained. If authorization is obtained, the licensee must send monthly written notification to the insured which clearly reflects a credit owed to the insured.

 

(Source:  Amended at 14 Ill. Reg. 2088, effective January 19, 1990)

 

Section 3113.70  Severability

 

If any provision of this Part or the application thereof to any person or circumstance is for any reason held to be invalid, the remainder of the Part and the application of such provision to other persons or circumstances shall not be affected thereby.

 

(Source:  Added at 8 Ill. Reg. 25007, effective January 1, 1985)

Section 3113.EXHIBIT A   Consent and Authorization Form

 

I		hereby give		written (or)
	principal		licensee

 

permission and authorization to place on deposit with any Federal or State chartered bank(s) money which represents premium to be held or held on my behalf pursuant to 50 Ill. Adm. Code 3113 for interest or income producing purposes.  I further waive any right to ownership in any interest or revenue produced from this deposit.

 

I agree and consent to the above
	principal			licensee
	Date:

 

(Source:  Amended at 8 Ill. Reg. 25007, effective January 1, 1985)