97TH GENERAL ASSEMBLY
State of Illinois
2011 and 2012
SB1760

 

Introduced 2/9/2011, by Sen. Mike Jacobs

 

SYNOPSIS AS INTRODUCED:
 
215 ILCS 5/173.1  from Ch. 73, par. 785.1

    Amends the Illinois Insurance Code in the provision concerning credit allowed a domestic ceding insurer. Provides that credit shall also be allowed when reinsurance is ceded to an assuming insurer that holds surplus, or its equivalent, in excess of $250 million and the Director of Insurance determines that it is an acceptable credit risk. Provides that in determining whether credit should be allowed, the Director shall consider certain factors. Effective immediately.


LRB097 10105 RPM 50286 b

 

 

A BILL FOR

 

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1    AN ACT concerning insurance.
 
2    Be it enacted by the People of the State of Illinois,
3represented in the General Assembly:
 
4    Section 5. The Illinois Insurance Code is amended by
5changing Section 173.1 as follows:
 
6    (215 ILCS 5/173.1)  (from Ch. 73, par. 785.1)
7    Sec. 173.1. Credit allowed a domestic ceding insurer.
8    (1) Except as otherwise provided under Article VIII 1/2 of
9this Code and related provisions of the Illinois Administrative
10Code, credit for reinsurance shall be allowed a domestic ceding
11insurer as either an admitted asset or a deduction from
12liability on account of reinsurance ceded only when the
13reinsurer meets the requirements of subsection (1)(A) or (B) or
14(C) or (D). Credit shall be allowed under subsection (1)(A) or
15(B) only as respects cessions of those kinds or classes of
16business in which the assuming insurer is licensed or otherwise
17permitted to write or assume in its state of domicile, or in
18the case of a U.S. branch of an alien assuming insurer, in the
19state through which it is entered and licensed to transact
20insurance or reinsurance. Credit shall be allowed under
21subsection (1)(C) of this Section only if the applicable
22requirements of subsection (1)(E) have been satisfied.
23        (A) Credit shall be allowed when the reinsurance is

 

 

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1    ceded to an assuming insurer that is authorized in this
2    State to transact the types of insurance ceded and has at
3    least $5,000,000 in capital and surplus.
4        (B) Credit shall be allowed when the reinsurance is
5    ceded to an assuming insurer that is accredited as a
6    reinsurer in this State. An accredited reinsurer is one
7    that:
8            (1) files with the Director evidence of its
9        submission to this State's jurisdiction;
10            (2) submits to this State's authority to examine
11        its books and records;
12            (3) is licensed to transact insurance or
13        reinsurance in at least one state, or in the case of a
14        U.S. branch of an alien assuming insurer is entered
15        through and licensed to transact insurance or
16        reinsurance in at least one state;
17            (4) files annually with the Director a copy of its
18        annual statement filed with the insurance department
19        of its state of domicile and a copy of its most recent
20        audited financial statement; and
21            (5) maintains a surplus as regards policyholders
22        in an amount that is not less than $20,000,000 and
23        whose accreditation has been approved by the Director.
24        No credit shall be allowed a domestic ceding insurer,
25        if the assuming insurers' accreditation has been
26        revoked by the Director after notice and hearing.

 

 

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1        (C)(1) Credit shall be allowed when the reinsurance is
2        ceded to an assuming insurer that maintains a trust
3        fund in a qualified United States financial
4        institution, as defined in subsection 3(B), for the
5        payment of the valid claims of its United States
6        policyholders and ceding insurers, their assigns and
7        successors in interest. The assuming insurer shall
8        report to the Director information substantially the
9        same as that required to be reported on the NAIC annual
10        and quarterly financial statement by authorized
11        insurers and any other financial information that the
12        Director deems necessary to determine the financial
13        condition of the assuming insurer and the sufficiency
14        of the trust fund. The assuming insurer shall submit to
15        examination of its books and records by the Director
16        and bear the expense of examination.
17            (2)(a) Credit for reinsurance shall not be granted
18        under this subsection unless the form of the trust and
19        any amendments to the trust have been approved by:
20                (i) the regulatory official of the state where
21            the trust is domiciled; or
22                (ii) the regulatory official of another state
23            who, pursuant to the terms of the trust instrument,
24            has accepted principal regulatory oversight of the
25            trust.
26            (b) The form of the trust and any trust amendments

 

 

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1        also shall be filed with the regulatory official of
2        every state in which the ceding insurer beneficiaries
3        of the trust are domiciled. The trust instrument shall
4        provide that contested claims shall be valid and
5        enforceable upon the final order of any court of
6        competent jurisdiction in the United States. The trust
7        shall vest legal title to its assets in its trustees
8        for the benefit of the assuming insurer's United States
9        policyholders and ceding insurees and their assigns
10        and successors in interest. The trust and the assuming
11        insurer shall be subject to examination as determined
12        by the Director.
13            (c) The trust shall remain in effect for as long as
14        the assuming insurer has outstanding obligations due
15        under the reinsurance agreements subject to the trust.
16        No later than February 28 of each year the trustee of
17        the trust shall report to the Director in writing the
18        balance of the trust and a list of the trust's
19        investments at the preceding year-end and shall
20        certify the date of termination of the trust, if so
21        planned, or certify that the trust will not expire
22        prior to the next following December 31.
23            (3) The following requirements apply to the
24        following categories of assuming insurer:
25                (a) The trust fund for a single assuming
26            insurer shall consist of funds in trust in an

 

 

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1            amount not less than the assuming insurer's
2            liabilities attributable to reinsurance ceded by
3            U.S. ceding insurers, and in addition, the
4            assuming insurer shall maintain a trusteed surplus
5            of not less than $20,000,000.
6                (b)(i) In the case of a group including
7            incorporated and individual unincorporated
8            underwriters:
9                    (I) for reinsurance ceded under
10                reinsurance agreements with an inception,
11                amendment, or renewal date on or after August
12                1, 1995, the trust shall consist of a trusteed
13                account in an amount not less than the group's
14                several liabilities attributable to business
15                ceded by U.S. domiciled ceding insurers to any
16                member of the group;
17                    (II) for reinsurance ceded under
18                reinsurance agreements with an inception date
19                on or before July 31, 1995 and not amended or
20                renewed after that date, notwithstanding the
21                other provisions of this Act, the trust shall
22                consist of a trusteed account in an amount not
23                less than the group's several insurance and
24                reinsurance liabilities attributable to
25                business written in the United States; and
26                    (III) in addition to these trusts, the

 

 

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1                group shall maintain in trust a trusteed
2                surplus of which not less than $100,000,000
3                shall be held jointly for the benefit of the
4                U.S. domiciled ceding insurers of any member of
5                the group for all years of account.
6                (ii) The incorporated members of the group
7            shall not be engaged in any business other than
8            underwriting as a member of the group and shall be
9            subject to the same level of solvency regulation
10            and control by the group's domiciliary regulator
11            as are the unincorporated members.
12                (iii) Within 90 days after its financial
13            statements are due to be filed with the group's
14            domiciliary regulator, the group shall provide to
15            the Director an annual certification by the
16            group's domiciliary regulator of the solvency of
17            each underwriter member, or if a certification is
18            unavailable, financial statements prepared by
19            independent public accountants of each underwriter
20            member of the group.
21                (c) In the case of a group of incorporated
22            insurers under common administration, the group
23            shall:
24                    (i) have continuously transacted an
25                insurance business outside the United States
26                for at least 3 years immediately before making

 

 

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1                application for accreditation;
2                    (ii) maintain aggregate policyholders'
3                surplus of not less than $10,000,000,000;
4                    (iii) maintain a trust in an amount not
5                less than the group's several liabilities
6                attributable to business ceded by United
7                States domiciled ceding insurers to any member
8                of the group pursuant to reinsurance contracts
9                issued in the name of the group;
10                    (iv) in addition, maintain a joint
11                trusteed surplus of which not less than
12                $100,000,000 shall be held jointly for the
13                benefit of the United States ceding insurers of
14                any member of the group as additional security
15                for these liabilities; and
16                    (v) within 90 days after its financial
17                statements are due to be filed with the group's
18                domiciliary regulator, make available to the
19                Director an annual certification of each
20                underwriter member's solvency by the member's
21                domiciliary regulator and financial statements
22                of each underwriter member of the group
23                prepared by its independent public accountant.
24        (D) Credit shall be allowed when the reinsurance is
25    ceded to an assuming insurer not meeting the requirements
26    of subsection (1) (A), (B), or (C) but only with respect to

 

 

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1    the insurance of risks located in jurisdictions where that
2    reinsurance is required by applicable law or regulation of
3    that jurisdiction.
4        (D-5) Credit shall also be allowed when the reinsurance
5    is ceded to an assuming insurer that holds surplus, or its
6    equivalent, in excess of $250 million and the Director, in
7    his or her discretion, determines that it is an acceptable
8    credit risk. In determining whether credit should be
9    allowed under this subsection (1)(D-5), the Director shall
10    consider the following:
11            (1) That the reinsurer has a secure financial
12        strength rating from at least 2 nationally recognized
13        statistical rating organizations deemed acceptable by
14        the Director. The Director shall give appropriate
15        consideration to insurer group ratings that have been
16        issued.
17            (2) The structure and authority of the domiciliary
18        regulator with regard to solvency regulation
19        requirements and the financial surveillance of the
20        reinsurer.
21            (3) The substance of financial and operating
22        standards for reinsurers in the domiciliary
23        jurisdiction.
24            (4) The form and substance of financial reports
25        required to be filed by the reinsurers in the
26        domiciliary jurisdiction or other public financial

 

 

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1        statements filed in accordance with generally accepted
2        accounting principles.
3            (5) The domiciliary regulator's willingness to
4        cooperate with United States regulators in general and
5        the Department of Insurance in particular.
6            (6) Whether the domiciliary jurisdiction of the
7        reinsurer allows United States reinsurers to reinsure
8        ceding insurers domiciled in that jurisdiction on
9        terms and conditions that are at least as favorable as
10        those provided by this State for non-United States
11        reinsurers reinsuring United States domiciled ceding
12        insurers.
13            (7) The history of performance by reinsurers in the
14        domiciliary jurisdiction.
15            (8) Any documented evidence of substantial
16        problems with enforcement of valid United States
17        judgments in the domiciliary jurisdiction.
18            (9) Any other matters deemed relevant by the
19        Director. The Director may, in lieu of granting full
20        credit under this Section, reduce the amount required
21        to be held in trust under subsection (1)(C)(1) or
22        reduce the amount of funds required to be held under
23        subsection (2)(A).
24        (E) If the assuming insurer is not licensed to transact
25    insurance in this State or an accredited reinsurer in this
26    State, the credit permitted by subsection (1)(C) shall not

 

 

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1    be allowed unless the assuming insurer agrees in the
2    reinsurance agreements:
3            (1) that in the event of the failure of the
4        assuming insurer to perform its obligations under the
5        terms of the reinsurance agreement, the assuming
6        insurer, at the request of the ceding insurer, shall
7        submit to the jurisdiction of any court of competent
8        jurisdiction in any state of the United States, will
9        comply with all requirements necessary to give the
10        court jurisdiction, and will abide by the final
11        decision of the court or of any appellate court in the
12        event of an appeal; and
13            (2) to designate the Director or a designated
14        attorney as its true and lawful attorney upon whom may
15        be served any lawful process in any action, suit, or
16        proceeding instituted by or on behalf of the ceding
17        company.
18        This provision is not intended to conflict with or
19    override the obligation of the parties to a reinsurance
20    agreement to arbitrate their disputes, if an obligation to
21    arbitrate is created in the agreement.
22        (F) If the assuming insurer does not meet the
23    requirements of subsection (1)(A) or (B), the credit
24    permitted by subsection (1)(C) shall not be allowed unless
25    the assuming insurer agrees in the trust agreements to the
26    following conditions:

 

 

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1            (1) Notwithstanding any other provisions in the
2        trust instrument, if the trust fund is inadequate
3        because it contains an amount less than the amount
4        required by subsection (C)(3) of this Section or if the
5        grantor of the trust has been declared insolvent or
6        placed into receivership, rehabilitation, liquidation,
7        or similar proceedings under the laws of its state or
8        country of domicile, the trustee shall comply with an
9        order of the state official with regulatory oversight
10        over the trust or with an order of a court of competent
11        jurisdiction directing the trustee to transfer to the
12        state official with regulatory oversight all of the
13        assets of the trust fund.
14            (2) The assets shall be distributed by and claims
15        shall be filed with and valued by the state official
16        with regulatory oversight in accordance with the laws
17        of the state in which the trust is domiciled that are
18        applicable to the liquidation of domestic insurance
19        companies.
20            (3) If the state official with regulatory
21        oversight determines that the assets of the trust fund
22        or any part thereof are not necessary to satisfy the
23        claims of the U.S. ceding insurers of the grantor of
24        the trust, the assets or part thereof shall be returned
25        by the state official with regulatory oversight to the
26        trustee for distribution in accordance with the trust

 

 

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1        agreement.
2            (4) The grantor shall waive any rights otherwise
3        available to it under U.S. law that are inconsistent
4        with the provision.
5    (2) Credit for the reinsurance ceded by a domestic insurer
6to an assuming insurer not meeting the requirements of
7subsection (1) shall be allowed in an amount not exceeding the
8assets or liabilities carried by the ceding insurer. The credit
9shall not exceed the amount of funds held by or held in trust
10for the ceding insurer under a reinsurance contract with the
11assuming insurer as security for the payment of obligations
12thereunder, if the security is held in the United States
13subject to withdrawal solely by, and under the exclusive
14control of, the ceding insurer; or, in the case of a trust,
15held in a qualified United States financial institution, as
16defined in subsection (3)(B). This security may be in the form
17of:
18        (A) Cash.
19        (B) Securities listed by the Securities Valuation
20    Office of the National Association of Insurance
21    Commissioners that conform to the requirements of Article
22    VIII of this Code that are not issued by an affiliate of
23    either the assuming or ceding company.
24        (C) Clean, irrevocable, unconditional, letters of
25    credit issued or confirmed by a qualified United States
26    financial institution, as defined in subsection (3)(A).

 

 

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1    The letters of credit shall be effective no later than
2    December 31 of the year for which filing is being made, and
3    in the possession of, or in trust for, the ceding company
4    on or before the filing date of its annual statement.
5    Letters of credit meeting applicable standards of issuer
6    acceptability as of the dates of their issuance (or
7    confirmation) shall, notwithstanding the issuing (or
8    confirming) institution's subsequent failure to meet
9    applicable standards of issuer acceptability, continue to
10    be acceptable as security until their expiration,
11    extension, renewal, modification, or amendment, whichever
12    first occurs.
 
13    (3)(A) For purposes of subsection 2(C), a "qualified United
14    States financial institution" means an institution that:
15            (1) is organized or, in the case of a U.S. office
16        of a foreign banking organization, licensed under the
17        laws of the United States or any state thereof;
18            (2) is regulated, supervised, and examined by U.S.
19        federal or state authorities having regulatory
20        authority over banks and trust companies;
21            (3) has been designated by either the Director or
22        the Securities Valuation Office of the National
23        Association of Insurance Commissioners as meeting such
24        standards of financial condition and standing as are
25        considered necessary and appropriate to regulate the

 

 

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1        quality of financial institutions whose letters of
2        credit will be acceptable to the Director; and
3            (4) is not affiliated with the assuming company.
4        (B) A "qualified United States financial institution"
5    means, for purposes of those provisions of this law
6    specifying those institutions that are eligible to act as a
7    fiduciary of a trust, an institution that:
8            (1) is organized or, in the case of the U.S. branch
9        or agency office of a foreign banking organization,
10        licensed under the laws of the United States or any
11        state thereof and has been granted authority to operate
12        with fiduciary powers;
13            (2) is regulated, supervised, and examined by
14        federal or state authorities having regulatory
15        authority over banks and trust companies; and
16            (3) is not affiliated with the assuming company,
17        however, if the subject of the reinsurance contract is
18        insurance written pursuant to Section 155.51 of this
19        Code, the financial institution may be affiliated with
20        the assuming company with the prior approval of the
21        Director.
22(Source: P.A. 90-381, eff. 8-14-97.)
 
23    Section 99. Effective date. This Act takes effect upon
24becoming law.