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1
HOUSE RESOLUTION

 
2    WHEREAS, Effective November 27, 2018, the Illinois General
3Assembly passed an Article entitled The Domestic Stock
4Division Law (215 ILCS 5/35B-1 et.seq.); this law allows an
5Illinois domestic stock insurance company to divide itself
6into two or more resulting companies; and
 
7    WHEREAS, Since its enactment, the Illinois Life and Health
8Insurance Guaranty Association has been very concerned with
9certain aspects of the law that could allow for
10non-transparent transactions and materially deficient
11resulting insurance companies; and
 
12    WHEREAS, The Illinois Life and Health Insurance Guaranty
13Association has proposed amendments to the law in 2019, 2020,
14and 2021 on various key deficiencies found within the law; the
15law allows an existing Illinois domestic insurance company to
16divide into two or more companies under a Division Plan; the
17legislation could be used by an insurance company to segregate
18an unprofitable book of business from the remainder of the
19company's profitable business and supporting assets; only the
20new company would be responsible for fulfilment of contractual
21obligations to policy holders transferred to the new company,
22not the original insurance company; together, those policy
23holders and the Association would then bear the risk of

 

 

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1insufficient assets or unpredictable liabilities transferred
2to the new company without the support of the original
3insurance company's financial strength; and
 
4    WHEREAS, The Division Plan can be approved without a
5hearing; all documents supporting the Division Plan and the
6Division Plan itself are deemed confidential, unless the
7Director of Insurance elects otherwise; even if a hearing is
8held at the Director's discretion, only the Division Plan will
9become public, not the supporting financial and actuarial
10information and documents, which remain confidential and not
11subject to public disclosure through typical discovery such as
12interrogatories and request for production of documents,
13subpoena, or even a Freedom of Information Act request; a new
14company's obligations to policy holders can be supported by
15inferior assets; the legislation requires that the Director
16"shall approve" the Plan unless certain conditions are not
17met; some of the conditions include that the Plan will not
18create a new company that will be insolvent and the remaining
19assets of the new company will not be unreasonably small in
20relation to the business and transactions in which the new
21company will engage; and
 
22    WHEREAS, In determining if these two conditions have been
23met, the Director may consider inferior assets transferred to
24the new company; the financial safety of an existing insurance

 

 

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1company must be judged on the basis of "admitted assets",
2i.e., assets defined and deemed as high quality under existing
3insurance law and regulations; under the Division Law, the
4financial safety and solvency of the new company can be
5measured using non-admitted assets, assets which are inferior
6and do not meet the criteria of high quality of admitted
7assets; the Division Law specifies that non-admitted assets
8can include, "without limitation", (1) Reinsurance Agreements,
9(2) Parental Guarantees, (3) Support Agreements, (4) Keep Well
10Agreements, (5) Capital Maintenance Agreements, (6) Contingent
11Capital Agreements, and (7) Other; since the original company
12cannot use such non-admitted assets to support policy holder
13liabilities, the provision whereby a new unproven resulting
14company can use such non-admitted assets is inappropriate; and
 
15    WHEREAS, The Division Law allows a Plan to be filed and
16approved without notice to the public or to policy holders,
17without a hearing and without public disclosure of the
18Division Plan or the documents justifying the Division Plan;
19the policy holders have no right to opt out of the Plan that
20segregates their policies from the company they chose as their
21insurance company; the practical effect of the Division Plan
22is to have the policies assumed by a new, unproven company
23without affording policy holders the option of staying with
24the original company they selected when buying insurance; and
 

 

 

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1    WHEREAS, The NAIC has created a group to study Division
2Plans and other forms of insurance business transfers;
3provisions in the Illinois Division Law have been heavily
4criticized by various parties during those proceedings; the
5concerns are so great among the life insurance industry that
6the ACLI has adopted principles and guidelines with respect to
7proposed division laws and actively lobbies against numerous
8provisions currently contained in the Illinois Division Law;
9the ACLI Principles and Guidelines specifically provide that
10all transactions be subject to public notice and public
11hearing with notice to policy holders, reinsurers, state
12regulators, Guaranty Associations, and other interested
13parties; the ACLI provisions include a robust review by the
14regulator of the entire transaction, its impact on policy
15holders, the solvency of the new company, asset liability
16matching, and other significant provisions; an independent
17expert must be utilized as part of the process before approval
18of the Division Plan can be made; the independent expert must
19have access to documents concerning the business purpose of
20the proposed transaction, capital adequacy and risk-based
21capital considerations, cash flow and reserve testing, the
22impact, if any, of concentrations of lines of business
23following the transaction, business plans, management
24confidence, experience, and integrity; the Illinois Division
25Law does not meet even the basic provisions of the ACLI
26Principles and Guidelines; and
 

 

 

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1    WHEREAS, For three legislative sessions, the Illinois Life
2and Health Insurance Guaranty Association has proposed simple
3and straightforward amendments to correct the most serious of
4the problems with the Illinois Division Law; those amendments
5include addressing the requirement that public notice be
6given, actual notice given to policy holders, regulators,
7reinsurers, and Guaranty Associations, and a requirement for a
8public hearing; the amendments provide for discovery of key
9financial documents supporting the Division Plan, such as
10financial analysis and actuarial studies; the amendments also
11eliminate the use of inferior non-admitted assets to support
12policy holder liabilities transferred to the resulting
13company; and
 
14    WHEREAS, Since the passage of the Division Law in 2018,
15the Illinois Life and Health Insurance Guaranty Association
16representatives have been actively, transparently, and
17diligently engaged with interested parties to seek resolution
18of the four proposed amendments: (1) provide notice, (2)
19provide public hearing, (3) exclude the use of non admitted
20assets, and (4) provide certain information (i.e. actuarial,
21financial); and
 
22    WHEREAS, The Illinois Division Law contains provisions
23that are contrary to the interests of Illinois consumers and

 

 

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1policy holders; the failure of the Illinois Division Law to
2require notice of the Division Plan, a public hearing,
3discovery of key documents, and the use of inferior assets to
4support policy holder liabilities results in the potential for
5serious disruption and harm to Illinois consumers; therefore,
6be it
 
7    RESOLVED, BY THE HOUSE OF REPRESENTATIVES OF THE ONE
8HUNDRED SECOND GENERAL ASSEMBLY OF THE STATE OF ILLINOIS, that
9we urge the Department of Insurance not to approve of any
10divisions under the Illinois Division Law without the consumer
11protections detailed in the above amendments; and be it
12further
 
13    RESOLVED, That a suitable copy of this resolution be
14delivered to the Illinois Department of Insurance.