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Full Text of HB1956  102nd General Assembly

HB1956 102ND GENERAL ASSEMBLY

  
  

 


 
102ND GENERAL ASSEMBLY
State of Illinois
2021 and 2022
HB1956

 

Introduced 2/17/2021, by Rep. Thaddeus Jones

 

SYNOPSIS AS INTRODUCED:
 
See Index

    Amends the Illinois Insurance Code. In provisions concerning enterprise risk filings, describes insurance holding company systems that are required to file an annual group capital calculation and those that are exempt from filing a group capital calculation. Provides that the ultimate controlling person of every insurer subject to registration and scoped into the NAIC Liquidity Stress Test Framework shall file the results of a specific year's liquidity stress test. Sets forth restrictions on insurer publishing. In provisions concerning credit allowed for domestic ceding insurers, provides terms by which credit is allowed for reinsurance. Provides that credit shall be allowed when reinsurance is ceded to an assuming insurer that meets specified conditions. Provides that the Director shall timely create and publish a list of reciprocal jurisdictions. Provides that the Director shall timely create and publish a list of assuming insurers that have satisfied specified conditions and to which cessions shall be granted. Provides that the Director may revoke or suspend the eligibility of the assuming insurer. Provides that the ceding insurer or its representative may seek and obtain an order requiring that the assuming insurer post security for all outstanding ceded liabilities under specified conditions. Provides that credit may be taken only for reinsurance agreements entered into, amended, or renewed on or after the effective date of the amendatory Act and only for losses incurred and reported on or after specified dates. Provides that the amendatory Act shall not limit or in any way alter the capacity of parties to a reinsurance agreement to agree on requirements for security or other terms in that reinsurance agreement except as expressly prohibited by applicable law or regulation, shall not authorize an assuming insurer to withdraw or reduce the security provided under any reinsurance agreement except as permitted by the terms of the agreement, and shall not limit or in any way alter the capacity of parties to any reinsurance agreement to renegotiate the agreement. Defines "group capital calculation instructions", "NAIC Liquidity Stress Test Framework", and "scope criteria". Makes other changes. Effective December 31, 2022.


LRB102 13691 BMS 21381 b

 

 

A BILL FOR

 

HB1956LRB102 13691 BMS 21381 b

1    AN ACT concerning regulation.
 
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 Sections 35B-25, 131.1, 131.5, 131.14b, 131.15,
6131.22, and 173.1 and by adding Section 131.22a as follows:
 
7    (215 ILCS 5/35B-25)
8    Sec. 35B-25. Plan of division approval.
9    (a) A division shall not become effective until it is
10approved by the Director after reasonable notice and a public
11hearing, if the notice and hearing are deemed by the Director
12to be in the public interest. The Director shall hold a public
13hearing if one is requested by the dividing company. A hearing
14conducted under this Section shall be conducted in accordance
15with Article 10 of the Illinois Administrative Procedure Act.
16    (b) The Director shall approve a plan of division unless
17the Director finds that:
18        (1) the interest of any class of policyholder or
19    shareholder of the dividing company will not be properly
20    protected;
21        (2) each new company created by the proposed division,
22    except a new company that is a nonsurviving party to a
23    merger pursuant to subsection (b) of Section 156, would be

 

 

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1    ineligible to receive a license to do insurance business
2    in this State pursuant to Section 5;
3        (2.5) each new company created by the proposed
4    division, except a new company that is a nonsurviving
5    party to a merger pursuant to subsection (b) of Section
6    156, that will be a member insurer of the Illinois Life and
7    Health Insurance Guaranty Association and that will have
8    policy liabilities allocated to it will not be licensed to
9    do insurance business in each state where such policies
10    were written by the dividing company;
11        (3) the proposed division violates a provision of the
12    Uniform Fraudulent Transfer Act;
13        (4) the division is being made for purposes of
14    hindering, delaying, or defrauding any policyholders or
15    other creditors of the dividing company;
16        (5) one or more resulting companies will not be
17    solvent upon the consummation of the division; or
18        (6) the remaining assets of one or more resulting
19    companies will be, upon consummation of a division,
20    unreasonably small in relation to the business and
21    transactions in which the resulting company was engaged or
22    is about to engage.
23    (c) In determining whether the standards set forth in
24paragraph (3) of subsection (b) have been satisfied, the
25Director shall only apply the Uniform Fraudulent Transfer Act
26to a dividing company in its capacity as a resulting company

 

 

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1and shall not apply the Uniform Fraudulent Transfer Act to any
2dividing company that is not proposed to survive the division.
3    (d) In determining whether the standards set forth in
4paragraphs (3), (4), (5), and (6) of subsection (b) have been
5satisfied, the Director may consider all proposed assets of
6the resulting company, including, without limitation,
7reinsurance agreements, parental guarantees, support or keep
8well agreements, or capital maintenance or contingent capital
9agreements, in each case, regardless of whether the same would
10qualify as an admitted asset as defined in Section 3.1.
11    (e) In determining whether the standards set forth in
12paragraph (3) of subsection (b) have been satisfied, with
13respect to each resulting company, the Director shall, in
14applying the Uniform Fraudulent Transfer Act, treat:
15        (1) the resulting company as a debtor;
16        (2) liabilities allocated to the resulting company as
17    obligations incurred by a debtor;
18        (3) the resulting company as not having received
19    reasonably equivalent value in exchange for incurring the
20    obligations; and
21        (4) assets allocated to the resulting company as
22    remaining property.
23    (f) All information, documents, materials, and copies
24thereof submitted to, obtained by, or disclosed to the
25Director in connection with a plan of division or in
26contemplation thereof, including any information, documents,

 

 

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1materials, or copies provided by or on behalf of a domestic
2stock company in advance of its adoption or submission of a
3plan of division, shall be confidential and shall be subject
4to the same protection and treatment in accordance with
5Section 131.22 131.14d as documents and reports disclosed to
6or filed with the Director pursuant to subsection (a) of
7Section 131.14b until such time, if any, as a notice of the
8hearing contemplated by subsection (a) is issued.
9    (g) From and after the issuance of a notice of the hearing
10contemplated by subsection (a), all business, financial, and
11actuarial information that the domestic stock company requests
12confidential treatment, other than the plan of division, shall
13continue to be confidential and shall not be available for
14public inspection and shall be subject to the same protection
15and treatment in accordance with Section 131.22 131.14d as
16documents and reports disclosed to or filed with the Director
17pursuant to subsection (a) of Section 131.14b.
18    (h) All expenses incurred by the Director in connection
19with proceedings under this Section, including expenses for
20the services of any attorneys, actuaries, accountants, and
21other experts as may be reasonably necessary to assist the
22Director in reviewing the proposed division, shall be paid by
23the dividing company filing the plan of division. A dividing
24company may allocate expenses described in this subsection in
25a plan of division in the same manner as any other liability.
26    (i) If the Director approves a plan of division, the

 

 

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1Director shall issue an order that shall be accompanied by
2findings of fact and conclusions of law.
3    (j) The conditions in this Section for freeing one or more
4of the resulting companies from the liabilities of the
5dividing company and for allocating some or all of the
6liabilities of the dividing company shall be conclusively
7deemed to have been satisfied if the plan of division has been
8approved by the Director in a final order that is not subject
9to further appeal.
10(Source: P.A. 100-1118, eff. 11-27-18; 101-549, eff. 1-1-20.)
 
11    (215 ILCS 5/131.1)  (from Ch. 73, par. 743.1)
12    Sec. 131.1. Definitions. As used in this Article, the
13following terms have the respective meanings set forth in this
14Section unless the context requires otherwise:
15    (a) An "affiliate" of, or person "affiliated" with, a
16specific person, is a person that directly, or indirectly
17through one or more intermediaries, controls, or is controlled
18by, or is under common control with, the person specified.
19    (a-5) "Acquiring party" means such person by whom or on
20whose behalf the merger or other acquisition of control
21referred to in Section 131.4 is to be affected and any person
22that controls such person or persons.
23    (a-10) "Associated person" means, with respect to an
24acquiring party, (1) any beneficial owner of shares of the
25company to be acquired, owned, directly or indirectly, of

 

 

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1record or beneficially by the acquiring party, (2) any
2affiliate of the acquiring party or beneficial owner, and (3)
3any other person acting in concert, directly or indirectly,
4pursuant to any agreement, arrangement, or understanding,
5whether written or oral, with the acquiring party or
6beneficial owner, or any of their respective affiliates, in
7connection with the merger, consolidation, or other
8acquisition of control referred to in Section 131.4 of this
9Code.
10    (a-15) "Company" has the same meaning as "company" as
11defined in Section 2 of this Code, except that it does not
12include agencies, authorities, or instrumentalities of the
13United States, its possessions and territories, the
14Commonwealth of Puerto Rico, the District of Columbia, or a
15state or political subdivision of a state.
16    (b) "Control" (including the terms "controlling",
17"controlled by" and "under common control with") means the
18possession, direct or indirect, of the power to direct or
19cause the direction of the management and policies of a
20person, whether through the ownership of voting securities,
21the holding of shareholders' or policyholders' proxies by
22contract other than a commercial contract for goods or
23non-management services, or otherwise, unless the power is
24solely the result of an official position with or corporate
25office held by the person. Control is presumed to exist if any
26person, directly or indirectly, owns, controls, holds with the

 

 

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1power to vote, or holds shareholders' proxies representing 10%
2or more of the voting securities of any other person, or holds
3or controls sufficient policyholders' proxies to elect the
4majority of the board of directors of the domestic company.
5This presumption may be rebutted by a showing made in the
6manner as the Director may provide by rule. The Director may
7determine, after furnishing all persons in interest notice and
8opportunity to be heard and making specific findings of fact
9to support such determination, that control exists in fact,
10notwithstanding the absence of a presumption to that effect.
11    (b-5) "Enterprise risk" means any activity, circumstance,
12event, or series of events involving one or more affiliates of
13a company that, if not remedied promptly, is likely to have a
14material adverse effect upon the financial condition or
15liquidity of the company or its insurance holding company
16system as a whole, including, but not limited to, anything
17that would cause the company's risk-based capital to fall into
18company action level as set forth in Article IIA of this Code
19or would cause the company to be in hazardous financial
20condition as set forth in Article XII 1/2 of this Code.
21    (b-10) "Exchange Act" means the Securities Exchange Act of
221934, as amended, together with the rules and regulations
23promulgated thereunder.
24    (b-12) "Group capital calculation instructions" means the
25group capital calculation instructions as adopted by the NAIC
26and as amended by the NAIC from time to time in accordance with

 

 

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1the procedures adopted by the NAIC.
2    (c) "Insurance holding company system" means two or more
3affiliated persons, one or more of which is an insurance
4company as defined in paragraph (e) of Section 2 of this Code.
5    (d) (Blank).
6    (d-2) "NAIC Liquidity Stress Test Framework" is a separate
7NAIC publication which includes a history of the NAIC's
8development of regulatory liquidity stress testing, the scope
9criteria applicable for a specific data year, and the
10liquidity stress test instructions, and reporting templates
11for a specific data year, such scope criteria, instructions,
12and reporting template being as adopted by the NAIC and as
13amended by the NAIC from time to time in accordance with the
14procedures adopted by the NAIC.
15    (d-5) "Non-operating holding company" is a general
16business corporation functioning solely for the purpose of
17forming, owning, acquiring, and managing subsidiary business
18entities and having no other business operations not related
19thereto.
20    (d-10) "Own", "owned," or "owning" means shares (1) with
21respect to which a person has title or to which a person's
22nominee, custodian, or other agent has title and which such
23nominee, custodian, or other agent is holding on behalf of the
24person or (2) with respect to which a person (A) has purchased
25or has entered into an unconditional contract, binding on both
26parties, to purchase the shares, but has not yet received the

 

 

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1shares, (B) owns a security convertible into or exchangeable
2for the shares and has tendered the security for conversion or
3exchange, (C) has an option to purchase or acquire, or rights
4or warrants to subscribe to, the shares and has exercised such
5option, rights, or warrants, or (D) holds a securities futures
6contract to purchase the shares and has received notice that
7the position will be physically settled and is irrevocably
8bound to receive the underlying shares. To the extent that any
9affiliates of the stockholder or beneficial owner are acting
10in concert with the stockholder or beneficial owner, the
11determination of shares owned may include the effect of
12aggregating the shares owned by the affiliate or affiliates.
13Whether shares constitute shares owned shall be decided by the
14Director in his or her reasonable determination.
15    (e) "Person" means an individual, a corporation, a limited
16liability company, a partnership, an association, a joint
17stock company, a trust, an unincorporated organization, any
18similar entity or any combination of the foregoing acting in
19concert, but does not include any securities broker performing
20no more than the usual and customary broker's function or
21joint venture partnership exclusively engaged in owning,
22managing, leasing or developing real or tangible personal
23property other than capital stock.
24    (e-5) "Policyholders' proxies" are proxies that give the
25holder the right to vote for the election of the directors and
26other corporate actions not in the day to day operations of the

 

 

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1company.
2    (f) (Blank).
3    (f-5) "Scope criteria", as detailed in the NAIC Liquidity
4Stress Test Framework, are the designated exposure bases along
5with minimum magnitudes thereof for the specified data year,
6used to establish a preliminary list of insurers considered
7scoped into the NAIC Liquidity Stress Test Framework for that
8data year.
9    (g) "Subsidiary" of a specified person is an affiliate
10controlled by such person directly, or indirectly through one
11or more intermediaries.
12    (h) "Voting Security" is a security which gives to the
13holder thereof the right to vote for the election of directors
14and includes any security convertible into or evidencing a
15right to acquire a voting security.
16    (i) (Blank).
17    (j) (Blank).
18    (k) (Blank).
19(Source: P.A. 98-609, eff. 1-1-14.)
 
20    (215 ILCS 5/131.5)  (from Ch. 73, par. 743.5)
21    Sec. 131.5. Statement; contents. In order to seek the
22approval of the Director pursuant to Section 131.8, the
23applicant must file a statement with the Director under oath
24or affirmation which contains as a minimum the following
25information:

 

 

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1        (1) The name and address of each acquiring party, and
2            (a) if such person is an individual, his principal
3        occupation and all offices and positions held during
4        the past 5 years, and any conviction of crimes, other
5        than minor traffic violations, during the past 10
6        years;
7            (b) if such person is not an individual, a report
8        of the nature of its business operations during the
9        past 5 years or for such lesser period as the person
10        and any predecessors thereof has been in existence; an
11        informative description of the business intended to be
12        conducted by the person and the person's subsidiaries;
13        and a list of all individuals who are or who have been
14        selected to become directors or executive officers of
15        the person, or who perform or will perform functions
16        appropriate to such positions. The list must include
17        for each individual the information required by
18        subsection (1)(a).
19        (2) The source, nature and amount of the consideration
20    used or to be used in effecting the merger, consolidation
21    or other acquisition of control, a description of any
22    transaction wherein funds were or are to be obtained for
23    any such purpose, including any pledge of the company's
24    own securities or the securities of any of its
25    subsidiaries or affiliates, and the identity of persons
26    furnishing such consideration. However, where a source of

 

 

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1    such consideration is a loan made in the lender's ordinary
2    course of business, the identity of the lender must remain
3    confidential, if the person filing the statement so
4    requests.
5        (3) Financial information as to the earnings and
6    financial condition of each acquiring party for the
7    preceding 5 fiscal years of each acquiring party (or for
8    such lesser period as the acquiring party and any
9    predecessors thereof have been in existence) audited by an
10    independent certified public accountant in accordance with
11    generally accepted auditing standards and similar
12    unaudited information as of a date not earlier than 90
13    days prior to the filing of the statement.
14        (4) Any plans or proposals which each acquiring party
15    may have to liquidate such company, to sell its assets or
16    merge or consolidate it with any person, or to make any
17    other material change in its business or corporate
18    structure or management.
19        (5) The number of shares of any security referred to
20    in Section 131.4 which each acquiring party proposes to
21    acquire, the terms of the offer, request, invitation,
22    agreement, or acquisition referred to in Section 131.4,
23    and a statement as to the method by which the fairness of
24    the proposal was arrived.
25        (6) The amount of each class of any security referred
26    to in Section 131.4 which is beneficially owned or

 

 

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1    concerning which there is a right to acquire beneficial
2    ownership by each acquiring party.
3        (7) A full description of any existing contracts,
4    arrangements or understandings with respect to any
5    security referred to in Section 131.4 in which any
6    acquiring party is involved, including but not limited to
7    transfer of any of the securities, joint ventures, loan or
8    option arrangements, puts or calls, guarantees of loans,
9    guarantees against loss or guarantees of profits, division
10    of losses or profits, or the giving or withholding of
11    proxies. The description must identify the persons with
12    whom such contracts, arrangements or understandings have
13    been entered into.
14        (8) A description of the acquisition of any security
15    or policyholders' proxy referred to in Section 131.4
16    during the 12 calendar months preceding the filing of the
17    statement, by any acquiring party, including the dates of
18    acquisition, names of the acquiring parties, and
19    consideration paid or agreed to be paid therefor.
20        (9) A description of any recommendations to acquire
21    any security referred to in Section 131.4 made during the
22    12 calendar months preceding the filing of the statement,
23    by any acquiring party, or by anyone based upon interviews
24    or at the suggestion of such acquiring party.
25        (10) Copies of all tender offers for, requests or
26    invitations for tenders of, exchange offers for, and

 

 

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1    agreements to acquire or exchange any securities referred
2    to in Section 131.4, and (if distributed) of additional
3    soliciting material relating thereto.
4        (11) The terms of any agreement, contract or
5    understanding made with, or proposed to be made with, any
6    broker-dealer as to solicitation of securities referred to
7    in Section 131.4 for tender, and the amount of any fees,
8    commissions or other compensation to be paid to
9    broker-dealers with regard thereto.
10        (12) Beginning July 1, 2014, an agreement by the
11    person required to file the statement referred to in this
12    Section 131.5 that the person will provide the annual
13    report specified in subsection (a) of Section 131.14b for
14    so long as control exists.
15        (13) Beginning July 1, 2014, an acknowledgement by the
16    person required to file the statement referred to in this
17    Section 131.5 that the person and all subsidiaries within
18    its control in the insurance holding company system shall
19    provide information to the Director upon request as
20    necessary to evaluate enterprise risk to the company.
21        (14) Any additional information as the Director may by
22    rule or regulation prescribe as necessary or appropriate
23    for the protection of policyholders or in the public
24    interest.
25        (15) With respect to each acquiring party, the
26    following information:

 

 

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1            (A) the name and address of all associated persons
2        and a detailed description of every agreement,
3        arrangement, and understanding between the acquiring
4        party and all associated persons in connection with
5        the merger, consolidation, or other acquisition of
6        control;
7            (B) the class or series and number of shares of
8        securities of the company that are directly or
9        indirectly owned beneficially and of record by the
10        acquiring party or the associated persons or both; and
11            (C) a detailed description of each proxy,
12        contract, arrangement, understanding, or relationship
13        pursuant to which the acquiring party or the
14        associated persons, or both, have a right to vote, or
15        cause or direct the vote of, any securities of the
16        company.
17(Source: P.A. 98-609, eff. 1-1-14.)
 
18    (215 ILCS 5/131.14b)
19    Sec. 131.14b. Enterprise risk filings filing.
20    (a) Annual enterprise risk report. The ultimate
21controlling person of every company subject to registration
22shall also file an annual enterprise risk report. The report
23shall, to the best of the ultimate controlling person's
24knowledge and belief, identify the material risks within the
25insurance holding company system that could pose enterprise

 

 

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1risk to the company. The report shall be filed with the lead
2state commissioner of the insurance holding company system as
3determined by the procedures within the Financial Analysis
4Handbook adopted by the National Association of Insurance
5Commissioners.
6    (b) Group capital calculation. Except as provided in this
7subsection, the ultimate controlling person of every insurer
8subject to registration shall concurrently file with the
9registration an annual group capital calculation as directed
10by the lead state commissioner. The report shall be completed
11in accordance with the NAIC Group Capital Calculation
12Instructions, which may permit the lead state commissioner to
13allow a controlling person who is not the ultimate controlling
14person to file the group capital calculation. The report shall
15be filed with the lead state commissioner of the insurance
16holding company system as determined by the commissioner in
17accordance with the procedures within the Financial Analysis
18Handbook adopted by the NAIC. Insurance holding company
19systems described in the following are exempt from filing the
20group capital calculation:
21        (1) an insurance holding company system that has only
22    one insurer within its holding company structure, that
23    only writes business and is only licensed in Illinois, and
24    that assumes no business from any other insurer;
25        (2) an insurance holding company system that is
26    required to perform a group capital calculation specified

 

 

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1    by the United States Federal Reserve Board; the lead state
2    commissioner shall request the calculation from the
3    Federal Reserve Board under the terms of information
4    sharing agreements in effect; if the Federal Reserve Board
5    cannot share the calculation with the lead state
6    commissioner, the insurance holding company system is not
7    exempt from the group capital calculation filing;
8        (3) an insurance holding company system whose non-U.S.
9    group-wide supervisor is located within a reciprocal
10    jurisdiction as described in paragraph (C-10) of
11    subsection (1) of Section 173.1 that recognizes the U.S.
12    state regulatory approach to group supervision and group
13    capital; and
14        (4) an insurance holding company system:
15            (i) that provides information to the lead state
16        that meets the requirements for accreditation under
17        the NAIC financial standards and accreditation
18        program, either directly or indirectly through the
19        group-wide supervisor, who has determined such
20        information is satisfactory to allow the lead state to
21        comply with the NAIC group supervision approach, as
22        detailed in the NAIC Financial Analysis Handbook; and
23            (ii) whose non-U.S. group-wide supervisor that is
24        not in a reciprocal jurisdiction recognizes and
25        accepts, as specified by the commissioner in
26        regulation, the group capital calculation as the

 

 

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1        world-wide group capital assessment for U.S. insurance
2        groups who operate in that jurisdiction.
3        (5) Notwithstanding the provisions of paragraphs (3)
4    and (4) of this subsection, a lead state commissioner
5    shall require the group capital calculation for U.S.
6    operations of any non-U.S. based insurance holding company
7    system where, after any necessary consultation with other
8    supervisors or officials, it is deemed appropriate by the
9    lead state commissioner for prudential oversight and
10    solvency monitoring purposes or for ensuring the
11    competitiveness of the insurance marketplace.
12        (6) Notwithstanding the exemptions from filing the
13    group capital calculation stated in paragraphs (1) through
14    (4) of this subsection, the lead state commissioner has
15    the discretion to exempt the ultimate controlling person
16    from filing the annual group capital calculation or to
17    accept a limited group capital filing or report in
18    accordance with criteria as specified by the Director in
19    regulation.
20    (c) Liquidity stress test. The ultimate controlling person
21of every insurer subject to registration and also scoped into
22the NAIC Liquidity Stress Test Framework shall file the
23results of a specific year's liquidity stress test. The filing
24shall be made to the lead state insurance commissioner of the
25insurance holding company system as determined by the
26procedures within the Financial Analysis Handbook adopted by

 

 

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1the National Association of Insurance Commissioners:
2        (1) The NAIC Liquidity Stress Test Framework includes
3    scope criteria applicable to a specific data year. These
4    scope criteria are reviewed at least annually by the NAIC
5    Financial Stability Task Force or its successor. Any
6    change to the NAIC Liquidity Stress Test Framework or to
7    the data year for which the scope criteria are to be
8    measured shall be effective on January 1 of the year
9    following the calendar year when such changes are adopted.
10    Insurers meeting at least one threshold of the scope
11    criteria are considered scoped into the NAIC Liquidity
12    Stress Test Framework for the specified data year unless
13    the lead state insurance commissioner, in consultation
14    with the NAIC Financial Stability Task Force or its
15    successor, determines the insurer should not be scoped
16    into the Framework for that data year. Similarly, insurers
17    that do not trigger at least one threshold of the scope
18    criteria are considered scoped out of the NAIC Liquidity
19    Stress Test Framework for the specified data year, unless
20    the lead state insurance commissioner, in consultation
21    with the NAIC Financial Stability Task Force or its
22    successor, determines the insurer should be scoped into
23    the Framework for that data year.
24        The lead state insurance commissioner, in consultation
25    with the Financial Stability Task Force or its successor,
26    shall assess the regulator's wish to avoid having insurers

 

 

HB1956- 20 -LRB102 13691 BMS 21381 b

1    scoped in and out of the NAIC Liquidity Stress Test
2    Framework on a frequent basis as part of the determination
3    for an insurer.
4        (2) The performance of, and filing of the results
5    from, a specific year's liquidity stress test shall comply
6    with the NAIC Liquidity Stress Test Framework's
7    instructions and reporting templates for that year and any
8    lead state insurance commissioner determinations, in
9    conjunction with the NAIC Financial Stability Task Force
10    or its successor, provided within the Framework.
11(Source: P.A. 98-609, eff. 7-1-14.)
 
12    (215 ILCS 5/131.15)  (from Ch. 73, par. 743.15)
13    Sec. 131.15. No information need be disclosed on the
14registration statement filed under Section 131.14 if the
15information is not material for the purposes of Sections
16131.13 through 131.19. Unless the Director by rule, regulation
17or order provides otherwise, sales, purchases, exchanges,
18loans or extensions of credit, investments, or guarantees
19involving one-half of one percent or less of a company's
20admitted assets as of the 31st day of December next preceding,
21are not deemed material for purposes of Sections 131.13
22through 131.19. The description of materiality provided in
23this Section shall not apply for purposes of subsections (b)
24and (c) of Section 131.14b.
25(Source: P.A. 84-805.)
 

 

 

HB1956- 21 -LRB102 13691 BMS 21381 b

1    (215 ILCS 5/131.22)  (from Ch. 73, par. 743.22)
2    Sec. 131.22. Confidential treatment.
3    (a) Documents, materials, or other information in the
4possession or control of the Department that are obtained by
5or disclosed to the Director or any other person in the course
6of an examination or investigation made pursuant to this
7Article and all information reported pursuant to this Article,
8with the exception of information submitted pursuant to
9Section 131.5 through Section 131.10 that is not personal
10financial information, are recognized by this State as being
11proprietary and to contain trade secrets, and shall be
12confidential by law and privileged, shall not be subject to
13the Illinois Freedom of Information Act, shall not be subject
14to subpoena, and shall not be subject to discovery or
15admissible in evidence in any private civil action. However,
16the Director is authorized to use the documents, materials, or
17other information in the furtherance of any regulatory or
18legal action brought as a part of the Director's official
19duties. The Director shall not otherwise make the documents,
20materials, or other information public without the prior
21written consent of the company to which it pertains unless the
22Director, after giving the company and its affiliates who
23would be affected thereby prior written notice and an
24opportunity to be heard, determines that the interest of
25policyholders, shareholders, or the public shall be served by

 

 

HB1956- 22 -LRB102 13691 BMS 21381 b

1the publication thereof, in which event the Director may
2publish all or any part in such manner as may be deemed
3appropriate.
4    (b) Neither the Director nor any person who received
5documents, materials, or other information while acting under
6the authority of the Director or with whom such documents,
7materials, or other information are shared pursuant to this
8Article shall be permitted or required to testify in any
9private civil action concerning any confidential documents,
10materials, or information subject to subsection (a) of this
11Section.
12    (c) In order to assist in the performance of the
13Director's duties, the Director:
14        (1) may share documents, materials, or other
15    information, including the confidential and privileged
16    documents, materials, or information subject to subsection
17    (a) of this Section, including proprietary and trade
18    secret documents and materials, with other state, federal,
19    and international regulatory agencies, with the NAIC and
20    its affiliates and subsidiaries, and with state, federal,
21    and international law enforcement authorities, including
22    members of any supervisory college allowed by this
23    Article, provided that the recipient agrees in writing to
24    maintain the confidentiality and privileged status of the
25    document, material, or other information, and has verified
26    in writing the legal authority to maintain

 

 

HB1956- 23 -LRB102 13691 BMS 21381 b

1    confidentiality;
2        (1.5) notwithstanding paragraph (1) of this subsection
3    (c), may only share confidential and privileged documents,
4    material, or information reported pursuant to subsection
5    (a) of Section 131.14b with commissioners of states having
6    statutes or regulations substantially similar to
7    subsection (a) of this Section and who have agreed in
8    writing not to disclose such information;
9        (2) may receive documents, materials, or information,
10    including otherwise confidential and privileged documents,
11    materials, or information, including proprietary and trade
12    secret information, from the NAIC and its affiliates and
13    subsidiaries and from regulatory and law enforcement
14    officials of other foreign or domestic jurisdictions, and
15    shall maintain as confidential or privileged any document,
16    material, or information received with notice or the
17    understanding that it is confidential or privileged under
18    the laws of the jurisdiction that is the source of the
19    document, material, or information; any such documents,
20    materials, or information, while in the Director's
21    possession, shall not be subject to the Illinois Freedom
22    of Information Act and shall not be subject to subpoena;
23    and
24        (3) (blank).
25    (c-5) Written shall enter into written agreements with the
26NAIC governing sharing and use of information provided

 

 

HB1956- 24 -LRB102 13691 BMS 21381 b

1pursuant to this Article consistent with this subsection (c)
2that shall:
3        (1) (i) specify procedures and protocols regarding the
4    confidentiality and security of information shared with
5    the NAIC and its affiliates and subsidiaries pursuant to
6    this Article, including procedures and protocols for
7    sharing by the NAIC with other state, federal, or
8    international regulators; the agreement shall provide that
9    the recipient agrees in writing to maintain the
10    confidentiality and privileged status of the documents,
11    materials, or other information and has verified in
12    writing the legal authority to maintain such
13    confidentiality;
14        (2) (ii) specify that ownership of information shared
15    with the NAIC and its affiliates and subsidiaries pursuant
16    to this Article remains with the Director and the NAIC's
17    use of the information is subject to the direction of the
18    Director;
19        (3) (iii) require prompt notice to be given to a
20    company whose confidential information in the possession
21    of the NAIC pursuant to this Article is subject to a
22    request or subpoena to the NAIC for disclosure or
23    production; and
24        (4) (iv) require the NAIC and its affiliates and
25    subsidiaries to consent to intervention by a company in
26    any judicial or administrative action in which the NAIC

 

 

HB1956- 25 -LRB102 13691 BMS 21381 b

1    and its affiliates and subsidiaries may be required to
2    disclose confidential information about the company shared
3    with the NAIC and its affiliates and subsidiaries pursuant
4    to this Article; and .
5        (5) excluding documents, material, or information
6    reported pursuant to subsection (c) of Section 131.14b,
7    prohibit the NAIC or third-party consultant from storing
8    the information shared pursuant to this Code in a
9    permanent database after the underlying analysis is
10    completed.
11    (d) The sharing of documents, materials, or information by
12the Director pursuant to this Article shall not constitute a
13delegation of regulatory authority or rulemaking, and the
14Director is solely responsible for the administration,
15execution, and enforcement of the provisions of this Article.
16    (e) No waiver of any applicable privilege or claim of
17confidentiality in the documents, materials, or information
18shall occur as a result of disclosure to the Director under
19this Section or as a result of sharing as authorized in
20subsection (c) of this Section.
21    (f) Documents, materials, or other information in the
22possession or control of the NAIC pursuant to this Article
23shall be confidential by law and privileged, shall not be
24subject to the Illinois Freedom of Information Act, shall not
25be subject to subpoena, and shall not be subject to discovery
26or admissible in evidence in any private civil action.

 

 

HB1956- 26 -LRB102 13691 BMS 21381 b

1(Source: P.A. 98-609, eff. 1-1-14.)
 
2    (215 ILCS 5/131.22a new)
3    Sec. 131.22a. Restrictions on insurer publishing. The
4group capital calculation and resulting group capital ratio
5required under subsection (b) of Section 131.14b and the
6liquidity stress test along with its results and supporting
7disclosures required under subsection (c) of Section 131.14b
8are regulatory tools for assessing group risks and capital
9adequacy and group liquidity risks, respectively, and are not
10intended as a means to rank insurers or insurance holding
11company systems generally. Therefore, except as otherwise may
12be required under the provisions of this Code, the making,
13publishing, disseminating, circulating, or placing before the
14public, or causing directly or indirectly to be made,
15published, disseminated, circulated, or placed before the
16public in a newspaper, magazine, or other publication, or in
17the form of a notice, circular, pamphlet, letter, or poster,
18or over any radio or television station or any electronic
19means of communication available to the public, or in any
20other way as an advertisement, announcement, or statement
21containing a representation or statement with regard to the
22group capital calculation, group capital ratio, the liquidity
23stress test results, or supporting disclosures for the
24liquidity stress test of any insurer or any insurer group, or
25of any component derived in the calculation by any insurer,

 

 

HB1956- 27 -LRB102 13691 BMS 21381 b

1broker, or other person engaged in any manner in the insurance
2business would be misleading and is therefore prohibited;
3however, if any materially false statement with respect to the
4group capital calculation, resulting group capital ratio, an
5inappropriate comparison of any amount to an insurer's or
6insurance group's group capital calculation or resulting group
7capital ratio, liquidity stress test result, supporting
8disclosures for the liquidity stress test, or an inappropriate
9comparison of any amount to an insurer's or insurance group's
10liquidity stress test result or supporting disclosures is
11published in any written publication and the insurer is able
12to demonstrate to the Director with substantial proof the
13falsity of such statement or the inappropriateness, as the
14case may be, then the insurer may publish announcements in a
15written publication if the sole purpose of the announcement is
16to rebut the materially false statement.
 
17    (215 ILCS 5/173.1)  (from Ch. 73, par. 785.1)
18    Sec. 173.1. Credit allowed a domestic ceding insurer.
19    (1) Except as otherwise provided under Article VIII 1/2 of
20this Code and related provisions of the Illinois
21Administrative Code, credit for reinsurance shall be allowed a
22domestic ceding insurer as either an admitted asset or a
23deduction from liability on account of reinsurance ceded only
24when the reinsurer meets the requirements of paragraph (A), or
25(B), or (B-5), or (C), or (C-5), (C-10), or (D) of this

 

 

HB1956- 28 -LRB102 13691 BMS 21381 b

1subsection (1). Credit shall be allowed under paragraph (A),
2(B), or (B-5) of this subsection (1) only as respects cessions
3of those kinds or classes of business in which the assuming
4insurer is licensed or otherwise permitted to write or assume
5in its state of domicile, or in the case of a U.S. branch of an
6alien assuming insurer, in the state through which it is
7entered and licensed to transact insurance or reinsurance.
8Credit shall be allowed under paragraph (B-5) or (C) of this
9subsection (1) only if the applicable requirements of
10paragraph (E) of this subsection (1) have been satisfied.
11        (A) Credit shall be allowed when the reinsurance is
12    ceded to an assuming insurer that is authorized in this
13    State to transact the types of insurance ceded and has at
14    least $5,000,000 in capital and surplus.
15        (B) Credit shall be allowed when the reinsurance is
16    ceded to an assuming insurer that is accredited as a
17    reinsurer in this State. An accredited reinsurer is one
18    that:
19            (1) files with the Director evidence of its
20        submission to this State's jurisdiction;
21            (2) submits to this State's authority to examine
22        its books and records;
23            (3) is licensed to transact insurance or
24        reinsurance in at least one state, or in the case of a
25        U.S. branch of an alien assuming insurer is entered
26        through and licensed to transact insurance or

 

 

HB1956- 29 -LRB102 13691 BMS 21381 b

1        reinsurance in at least one state;
2            (4) files annually with the Director a copy of its
3        annual statement filed with the insurance department
4        of its state of domicile and a copy of its most recent
5        audited financial statement; and
6            (5) maintains a surplus as regards policyholders
7        in an amount that is not less than $20,000,000 and
8        whose accreditation has been approved by the Director.
9        (B-5)(1) Credit shall be allowed when the reinsurance
10    is ceded to an assuming insurer that is domiciled in, or in
11    the case of a U.S. branch of an alien assuming insurer is
12    entered through, a state that employs standards regarding
13    credit for reinsurance substantially similar to those
14    applicable under this Code and the assuming insurer or
15    U.S. branch of an alien assuming insurer:
16            (a) maintains a surplus as regards policyholders
17        in an amount not less than $20,000,000; and
18            (b) submits to the authority of this State to
19        examine its books and records.
20        (2) The requirement of item (a) of subparagraph (1) of
21    paragraph (B-5) of this subsection (1) does not apply to
22    reinsurance ceded and assumed pursuant to pooling
23    arrangements among insurers in the same holding company
24    system.
25         (C)(1) Credit shall be allowed when the reinsurance
26    is ceded to an assuming insurer that maintains a trust

 

 

HB1956- 30 -LRB102 13691 BMS 21381 b

1    fund in a qualified United States financial institution,
2    as defined in paragraph (B) of subsection (3) of this
3    Section, for the payment of the valid claims of its United
4    States policyholders and ceding insurers, their assigns
5    and successors in interest. The assuming insurer shall
6    report to the Director information substantially the same
7    as that required to be reported on the NAIC annual and
8    quarterly financial statement by authorized insurers and
9    any other financial information that the Director deems
10    necessary to determine the financial condition of the
11    assuming insurer and the sufficiency of the trust fund.
12    The assuming insurer shall provide or make the information
13    available to the ceding insurer. The assuming insurer may
14    decline to release trade secrets or commercially sensitive
15    information that would qualify as exempt from disclosure
16    under the Freedom of Information Act. The Director shall
17    also make the information publicly available, subject only
18    to such reasonable objections as might be raised to a
19    request pursuant to the Freedom of Information Act, as
20    determined by the Director. The assuming insurer shall
21    submit to examination of its books and records by the
22    Director and bear the expense of examination.
23        (2)(a) Credit for reinsurance shall not be granted
24    under this subsection unless the form of the trust and any
25    amendments to the trust have been approved by:
26            (i) the regulatory official of the state where the

 

 

HB1956- 31 -LRB102 13691 BMS 21381 b

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

 

 

HB1956- 32 -LRB102 13691 BMS 21381 b

1    insurer's chief executive officer or chief financial
2    officer shall certify to the Director that the trust fund
3    contains funds in an amount not less than the assuming
4    insurer's liabilities (as reported to the assuming insurer
5    by its cedent) attributable to reinsurance ceded by U.S.
6    ceding insurers, and in addition, a trusteed surplus of no
7    less than $20,000,000. In the event that item (a-5) of
8    subparagraph (3) of this paragraph (C) applies to the
9    trust, the assuming insurer's chief executive officer or
10    chief financial officer shall then certify to the Director
11    that the trust fund contains funds in an amount not less
12    than the assuming insurer's liabilities (as reported to
13    the assuming insurer by its cedent) attributable to
14    reinsurance ceded by U.S. ceding insurers and, in
15    addition, a reduced trusteed surplus of not less than the
16    amount that has been authorized by the regulatory
17    authority having principal regulatory oversight of the
18    trust.
19        (d) No later than February 28 of each year, an
20    assuming insurer that maintains a trust fund in accordance
21    with this paragraph (C) shall provide or make available,
22    if requested by a beneficiary under the trust fund, the
23    following information to the assuming insurer's U.S.
24    ceding insurers or their assigns and successors in
25    interest:
26            (i) a copy of the form of the trust agreement and

 

 

HB1956- 33 -LRB102 13691 BMS 21381 b

1        any trust amendments to the trust agreement pertaining
2        to the trust fund;
3            (ii) a copy of the annual and quarterly financial
4        information, and its most recent audited financial
5        statement provided to the Director by the assuming
6        insurer, including any exhibits and schedules thereto;
7            (iii) any financial information provided to the
8        Director by the assuming insurer that the Director has
9        deemed necessary to determine the financial condition
10        of the assuming insurer and the sufficiency of the
11        trust fund;
12            (iv) a copy of any annual and quarterly financial
13        information provided to the Director by the trustee of
14        the trust fund maintained by the assuming insurer,
15        including any exhibits and schedules thereto;
16            (v) a copy of the information required to be
17        reported by the trustee of the trust to the Director
18        under the provisions of this paragraph (C); and
19            (vi) a written certification that the trust fund
20        consists of funds in trust in an amount not less than
21        the assuming insurer's liabilities attributable to
22        reinsurance liabilities (as reported to the assuming
23        insurer by its cedent) attributable to reinsurance
24        ceded by U.S. ceding insurers and, in addition, a
25        trusteed surplus of not less than $20,000,000.
26        (3) The following requirements apply to the following

 

 

HB1956- 34 -LRB102 13691 BMS 21381 b

1    categories of assuming insurer:
2            (a) The trust fund for a single assuming insurer
3        shall consist of funds in trust in an amount not less
4        than the assuming insurer's liabilities attributable
5        to reinsurance ceded by U.S. ceding insurers, and in
6        addition, the assuming insurer shall maintain a
7        trusteed surplus of not less than $20,000,000, except
8        as provided in item (a-5) of this subparagraph (3).
9            (a-5) At any time after the assuming insurer has
10        permanently discontinued underwriting new business
11        secured by the trust for at least 3 full years, the
12        Director with principal regulatory oversight of the
13        trust may authorize a reduction in the required
14        trusteed surplus, but only after a finding, based on
15        an assessment of the risk, that the new required
16        surplus level is adequate for the protection of U.S.
17        ceding insurers, policyholders, and claimants in light
18        of reasonably foreseeable adverse loss development.
19        The risk assessment may involve an actuarial review,
20        including an independent analysis of reserves and cash
21        flows, and shall consider all material risk factors,
22        including, when applicable, the lines of business
23        involved, the stability of the incurred loss
24        estimates, and the effect of the surplus requirements
25        on the assuming insurer's liquidity or solvency. The
26        minimum required trusteed surplus may not be reduced

 

 

HB1956- 35 -LRB102 13691 BMS 21381 b

1        to an amount less than 30% of the assuming insurer's
2        liabilities attributable to reinsurance ceded by U.S.
3        ceding insurers covered by the trust.
4            (b)(i) In the case of a group including
5        incorporated and individual unincorporated
6        underwriters:
7                (I) for reinsurance ceded under reinsurance
8            agreements with an inception, amendment, or
9            renewal date on or after January 1, 1993, the
10            trust shall consist of a trusteed account in an
11            amount not less than the respective underwriters'
12            several liabilities attributable to business ceded
13            by U.S. domiciled ceding insurers to any member of
14            the group;
15                (II) for reinsurance ceded under reinsurance
16            agreements with an inception date on or before
17            December 31, 1992 and not amended or renewed after
18            that date, notwithstanding the other provisions of
19            this Act, the trust shall consist of a trusteed
20            account in an amount not less than the group's
21            several insurance and reinsurance liabilities
22            attributable to business written in the United
23            States; and
24                (III) in addition to these trusts, the group
25            shall maintain in trust a trusteed surplus of
26            which not less than $100,000,000 shall be held

 

 

HB1956- 36 -LRB102 13691 BMS 21381 b

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

 

 

HB1956- 37 -LRB102 13691 BMS 21381 b

1                (iii) maintain a trust in an amount not less
2            than the group's several liabilities attributable
3            to business ceded by United States domiciled
4            ceding insurers to any member of the group
5            pursuant to reinsurance contracts issued in the
6            name of the group;
7                (iv) in addition, maintain a joint trusteed
8            surplus of which not less than $100,000,000 shall
9            be held jointly for the benefit of the United
10            States ceding insurers of any member of the group
11            as additional security for these liabilities; and
12                (v) within 90 days after its financial
13            statements are due to be filed with the group's
14            domiciliary regulator, make available to the
15            Director an annual certification of each
16            underwriter member's solvency by the member's
17            domiciliary regulator and financial statements of
18            each underwriter member of the group prepared by
19            its independent public accountant.
20        (C-5) Credit shall be allowed when the reinsurance is
21    ceded to an assuming insurer that has been certified by
22    the Director as a reinsurer in this State and secures its
23    obligations in accordance with the requirements of this
24    paragraph (C-5).
25            (1) In order to be eligible for certification, the
26        assuming insurer shall meet the following

 

 

HB1956- 38 -LRB102 13691 BMS 21381 b

1        requirements:
2                (a) the assuming insurer must be domiciled and
3            licensed to transact insurance or reinsurance in a
4            qualified jurisdiction, as determined by the
5            Director pursuant to subparagraph (3) of this
6            paragraph (C-5);
7                (b) the assuming insurer must maintain minimum
8            capital and surplus, or its equivalent, in an
9            amount not less than $250,000,000 or such greater
10            amount as determined by the Director pursuant to
11            regulation; this requirement may also be satisfied
12            by an association, including incorporated and
13            individual unincorporated underwriters, having
14            minimum capital and surplus equivalents (net of
15            liabilities) of at least $250,000,000 and a
16            central fund containing a balance of at least
17            $250,000,000;
18                (c) the assuming insurer must maintain
19            financial strength ratings from 2 or more rating
20            agencies deemed acceptable by the Director; these
21            ratings shall be based on interactive
22            communication between the rating agency and the
23            assuming insurer and shall not be based solely on
24            publicly available information; each certified
25            reinsurer shall be rated on a legal entity basis,
26            with due consideration being given to the group

 

 

HB1956- 39 -LRB102 13691 BMS 21381 b

1            rating where appropriate, except that an
2            association, including incorporated and individual
3            unincorporated underwriters, that has been
4            approved to do business as a single certified
5            reinsurer may be evaluated on the basis of its
6            group rating; these financial strength ratings
7            shall be one factor used by the Director in
8            determining the rating that is assigned to the
9            assuming insurer; acceptable rating agencies
10            include the following:
11                    (i) Standard & Poor's;
12                    (ii) Moody's Investors Service;
13                    (iii) Fitch Ratings;
14                    (iv) A.M. Best Company; or
15                    (v) any other nationally recognized
16                statistical rating organization;
17                (d) the assuming insurer must agree to submit
18            to the jurisdiction of this State, appoint the
19            Director as its agent for service of process in
20            this State, and agree to provide security for 100%
21            of the assuming insurer's liabilities attributable
22            to reinsurance ceded by U.S. ceding insurers if it
23            resists enforcement of a final U.S. judgment; and
24                (e) the assuming insurer must agree to meet
25            applicable information filing requirements as
26            determined by the Director, both with respect to

 

 

HB1956- 40 -LRB102 13691 BMS 21381 b

1            an initial application for certification and on an
2            ongoing basis.
3            (2) An association, including incorporated and
4        individual unincorporated underwriters, may be a
5        certified reinsurer. In order to be eligible for
6        certification, in addition to satisfying the
7        requirements of subparagraph (1) of this paragraph
8        (C-5):
9                (a) the association shall satisfy its minimum
10            capital and surplus requirements through the
11            capital and surplus equivalents (net of
12            liabilities) of the association and its members,
13            which shall include a joint central fund that may
14            be applied to any unsatisfied obligation of the
15            association or any of its members, in the amounts
16            specified in item (b) of subparagraph (1) of this
17            paragraph (C-5);
18                (b) the incorporated members of the
19            association shall not be engaged in any business
20            other than underwriting as a member of the
21            association and shall be subject to the same level
22            of regulation and solvency control by the
23            association's domiciliary regulator as are the
24            unincorporated members; and
25                (c) within 90 days after its financial
26            statements are due to be filed with the

 

 

HB1956- 41 -LRB102 13691 BMS 21381 b

1            association's domiciliary regulator, the
2            association shall provide to the Director an
3            annual certification by the association's
4            domiciliary regulator of the solvency of each
5            underwriter member; or if a certification is
6            unavailable, financial statements, prepared by
7            independent public accountants, of each
8            underwriter member of the association.
9            (3) The Director shall create and publish a list
10        of qualified jurisdictions, under which an assuming
11        insurer licensed and domiciled in such jurisdiction is
12        eligible to be considered for certification by the
13        Director as a certified reinsurer.
14                (a) In order to determine whether the
15            domiciliary jurisdiction of a non-U.S. assuming
16            insurer is eligible to be recognized as a
17            qualified jurisdiction, the Director shall
18            evaluate the appropriateness and effectiveness of
19            the reinsurance supervisory system of the
20            jurisdiction, both initially and on an ongoing
21            basis, and consider the rights, benefits, and
22            extent of reciprocal recognition afforded by the
23            non-U.S. jurisdiction to reinsurers licensed and
24            domiciled in the U.S. A qualified jurisdiction
25            must agree in writing to share information and
26            cooperate with the Director with respect to all

 

 

HB1956- 42 -LRB102 13691 BMS 21381 b

1            certified reinsurers domiciled within that
2            jurisdiction. A jurisdiction may not be recognized
3            as a qualified jurisdiction if the Director has
4            determined that the jurisdiction does not
5            adequately and promptly enforce final U.S.
6            judgments and arbitration awards. The costs and
7            expenses associated with the Director's review and
8            evaluation of the domiciliary jurisdictions of
9            non-U.S. assuming insurers shall be borne by the
10            certified reinsurer or reinsurers domiciled in
11            such jurisdiction.
12                (b) Additional factors to be considered in
13            determining whether to recognize a qualified
14            jurisdiction include, but are not limited to, the
15            following:
16                    (i) the framework under which the assuming
17                insurer is regulated;
18                    (ii) the structure and authority of the
19                domiciliary regulator with regard to solvency
20                regulation requirements and financial
21                surveillance;
22                    (iii) the substance of financial and
23                operating standards for assuming insurers in
24                the domiciliary jurisdiction;
25                    (iv) the form and substance of financial
26                reports required to be filed or made publicly

 

 

HB1956- 43 -LRB102 13691 BMS 21381 b

1                available by reinsurers in the domiciliary
2                jurisdiction and the accounting principles
3                used;
4                    (v) the domiciliary regulator's
5                willingness to cooperate with U.S. regulators
6                in general and the Director in particular;
7                    (vi) the history of performance by
8                assuming insurers in the domiciliary
9                jurisdiction;
10                    (vii) any documented evidence of
11                substantial problems with the enforcement of
12                final U.S. judgments in the domiciliary
13                jurisdiction; and
14                    (viii) any relevant international
15                standards or guidance with respect to mutual
16                recognition of reinsurance supervision adopted
17                by the International Association of Insurance
18                Supervisors or its successor organization.
19                (c) If, upon conducting an evaluation under
20            this paragraph with respect to the reinsurance
21            supervisory system of any non-U.S. assuming
22            insurer, the Director determines that the
23            jurisdiction qualifies to be recognized as a
24            qualified jurisdiction, the Director shall publish
25            notice and evidence of such recognition in an
26            appropriate manner. The Director may establish a

 

 

HB1956- 44 -LRB102 13691 BMS 21381 b

1            procedure to withdraw recognition of those
2            jurisdictions that are no longer qualified.
3                (d) The Director shall consider the list of
4            qualified jurisdictions through the NAIC committee
5            process in determining qualified jurisdictions. If
6            the Director approves a jurisdiction as qualified
7            that does not appear on the list of qualified
8            jurisdictions, then the Director shall provide
9            thoroughly documented justification in accordance
10            with criteria to be developed under regulations.
11                (e) U.S. jurisdictions that meet the
12            requirement for accreditation under the NAIC
13            financial standards and accreditation program
14            shall be recognized as qualified jurisdictions.
15                (f) If a certified reinsurer's domiciliary
16            jurisdiction ceases to be a qualified
17            jurisdiction, then the Director may suspend the
18            reinsurer's certification indefinitely, in lieu of
19            revocation.
20            (4) If an applicant for certification has been
21        certified as a reinsurer in an NAIC accredited
22        jurisdiction, then the Director may defer to that
23        jurisdiction's certification and to the rating
24        assigned by that jurisdiction if the assuming insurer
25        submits a properly executed Form CR-1 and such
26        additional information as the Director requires. Such

 

 

HB1956- 45 -LRB102 13691 BMS 21381 b

1        assuming insurer shall be considered to be a certified
2        reinsurer in this State but only upon the Director's
3        assignment of an Illinois rating, which shall be made
4        based on the requirements of subparagraph (5) of this
5        paragraph (C-5). The following shall apply:
6                (a) Any change in the certified reinsurer's
7            status or rating in the other jurisdiction shall
8            apply automatically in Illinois as of the date it
9            takes effect in the other jurisdiction. The
10            certified reinsurer shall notify the Director of
11            any change in its status or rating within 10 days
12            after receiving notice of the change.
13                (b) The Director may withdraw recognition of
14            the other jurisdiction's rating at any time and
15            assign a new rating in accordance with
16            subparagraph (5) of this paragraph (C-5).
17                (c) The Director may withdraw recognition of
18            the other jurisdiction's certification at any time
19            with written notice to the certified reinsurer.
20            Unless the Director suspends or revokes the
21            certified reinsurer's certification in accordance
22            with item (c) of subparagraph (9) of this
23            paragraph (C-5), the certified reinsurer's
24            certification shall remain in good standing in
25            Illinois for a period of 3 months, which shall be
26            extended if additional time is necessary to

 

 

HB1956- 46 -LRB102 13691 BMS 21381 b

1            consider the assuming insurer's application for
2            certification in Illinois.
3            (5) The Director shall assign a rating to each
4        certified reinsurer pursuant to rules adopted by the
5        Department. Factors that shall be considered as part
6        of the evaluation process include the following:
7                (a) The certified reinsurer's financial
8            strength rating from an acceptable rating agency.
9            Financial strength ratings shall be classified
10            according to the following ratings categories:
11                    (i) Ratings Category "Secure - 1"
12                corresponds to the highest level of rating
13                given by a rating agency, including, but not
14                limited to, A.M. Best Company rating A++;
15                Standard & Poor's rating AAA; Moody's
16                Investors Service rating Aaa; and Fitch
17                Ratings rating AAA.
18                    (ii) Ratings Category "Secure - 2"
19                corresponds to the second-highest level of
20                rating or group of ratings given by a rating
21                agency, including, but not limited to, A.M.
22                Best Company rating A+; Standard & Poor's
23                rating AA+, AA, or AA-; Moody's Investors
24                Service ratings Aa1, Aa2, or Aa3; and Fitch
25                Ratings ratings AA+, AA, or AA-.
26                    (iii) Ratings Category "Secure - 3"

 

 

HB1956- 47 -LRB102 13691 BMS 21381 b

1                corresponds to the third-highest level of
2                rating or group of ratings given by a rating
3                agency, including, but not limited to, A.M.
4                Best Company rating A; Standard & Poor's
5                ratings A+ or A; Moody's Investors Service
6                ratings A1 or A2; and Fitch Ratings ratings A+
7                or A.
8                    (iv) Ratings Category "Secure - 4"
9                corresponds to the fourth-highest level of
10                rating or group of ratings given by a rating
11                agency, including, but not limited to, A.M.
12                Best Company rating A-; Standard & Poor's
13                rating A-; Moody's Investors Service rating
14                A3; and Fitch Ratings rating A-.
15                    (v) Ratings Category "Secure - 5"
16                corresponds to the fifth-highest level of
17                rating or group of ratings given by a rating
18                agency, including, but not limited to, A.M.
19                Best Company ratings B++ or B+; Standard &
20                Poor's ratings BBB+, BBB, or BBB-; Moody's
21                Investors Service ratings Baa1, Baa2, or Baa3;
22                and Fitch Ratings ratings BBB+, BBB, or BBB-.
23                    (vi) Ratings Category "Vulnerable - 6"
24                corresponds to a level of rating given by a
25                rating agency, other than those described in
26                subitems (i) through (v) of this item (a),

 

 

HB1956- 48 -LRB102 13691 BMS 21381 b

1                including, but not limited to, A.M. Best
2                Company rating B, B-, C++, C+, C, C-, D, E, or
3                F; Standard & Poor's ratings BB+, BB, BB-, B+,
4                B, B-, CCC, CC, C, D, or R; Moody's Investors
5                Service ratings Ba1, Ba2, Ba3, B1, B2, B3,
6                Caa, Ca, or C; and Fitch Ratings ratings BB+,
7                BB, BB-, B+, B, B-, CCC+, CCC, CCC-, or D.
8                A failure to obtain or maintain at least 2
9            financial strength ratings from acceptable rating
10            agencies shall result in loss of eligibility for
11            certification.
12                (b) The business practices of the certified
13            reinsurer in dealing with its ceding insurers,
14            including its record of compliance with
15            reinsurance contractual terms and obligations.
16                (c) For certified reinsurers domiciled in the
17            U.S., a review of the most recent applicable NAIC
18            Annual Statement Blank, either Schedule F (for
19            property and casualty reinsurers) or Schedule S
20            (for life and health reinsurers).
21                (d) For certified reinsurers not domiciled in
22            the U.S., a review annually of Form CR-F (for
23            property and casualty reinsurers) or Form CR-S
24            (for life and health reinsurers).
25                (e) The reputation of the certified reinsurer
26            for prompt payment of claims under reinsurance

 

 

HB1956- 49 -LRB102 13691 BMS 21381 b

1            agreements, based on an analysis of ceding
2            insurers' Schedule F reporting of overdue
3            reinsurance recoverables, including the proportion
4            of obligations that are more than 90 days past due
5            or are in dispute, with specific attention given
6            to obligations payable to companies that are in
7            administrative supervision or receivership.
8                (f) Regulatory actions against the certified
9            reinsurer.
10                (g) The report of the independent auditor on
11            the financial statements of the insurance
12            enterprise, on the basis described in item (h) of
13            this subparagraph (5).
14                (h) For certified reinsurers not domiciled in
15            the U.S., audited financial statements (audited
16            Generally Accepted Accounting Principles (U.S.
17            GAAP) basis statement if available, audited
18            International Financial Reporting Standards (IFRS)
19            basis statements are allowed but must include an
20            audited footnote reconciling equity and net income
21            to U.S. GAAP basis or, with the permission of the
22            Director, audited IFRS basis statements with
23            reconciliation to U.S. GAAP basis certified by an
24            officer of the company), regulatory filings, and
25            actuarial opinion (as filed with the non-U.S.
26            jurisdiction supervisor). Upon the initial

 

 

HB1956- 50 -LRB102 13691 BMS 21381 b

1            application for certification, the Director shall
2            consider the audited financial statements filed
3            with its non-U.S. jurisdiction supervisor for the
4            3 years immediately preceding the date of the
5            initial application for certification.
6                (i) The liquidation priority of obligations to
7            a ceding insurer in the certified reinsurer's
8            domiciliary jurisdiction in the context of an
9            insolvency proceeding.
10                (j) A certified reinsurer's participation in
11            any solvent scheme of arrangement, or similar
12            procedure, that involves U.S. ceding insurers. The
13            Director shall receive prior notice from a
14            certified reinsurer that proposes participation by
15            the certified reinsurer in a solvent scheme of
16            arrangement.
17            The maximum rating that a certified reinsurer may
18        be assigned shall correspond to its financial strength
19        rating, which shall be determined according to
20        subitems (i) through (vi) of item (a) of this
21        subparagraph (5). The Director shall use the lowest
22        financial strength rating received from an acceptable
23        rating agency in establishing the maximum rating of a
24        certified reinsurer.
25            (6) Based on the analysis conducted under item (e)
26        of subparagraph (5) of this paragraph (C-5) of a

 

 

HB1956- 51 -LRB102 13691 BMS 21381 b

1        certified reinsurer's reputation for prompt payment of
2        claims, the Director may make appropriate adjustments
3        in the security the certified reinsurer is required to
4        post to protect its liabilities to U.S. ceding
5        insurers, provided that the Director shall, at a
6        minimum, increase the security the certified reinsurer
7        is required to post by one rating level under item (a)
8        of subparagraph (8) of this paragraph (C-5) if the
9        Director finds that:
10                (a) more than 15% of the certified reinsurer's
11            ceding insurance clients have overdue reinsurance
12            recoverables on paid losses of 90 days or more
13            that are not in dispute and that exceed $100,000
14            for each cedent; or
15                (b) the aggregate amount of reinsurance
16            recoverables on paid losses that are not in
17            dispute that are overdue by 90 days or more
18            exceeds $50,000,000.
19            (7) The Director shall post notice on the
20        Department's website promptly upon receipt of any
21        application for certification, including instructions
22        on how members of the public may respond to the
23        application. The Director may not take final action on
24        the application until at least 30 days after posting
25        the notice required by this subparagraph. The Director
26        shall publish a list of all certified reinsurers and

 

 

HB1956- 52 -LRB102 13691 BMS 21381 b

1        their ratings.
2            (8) A certified reinsurer shall secure obligations
3        assumed from U.S. ceding insurers under this
4        subsection (1) at a level consistent with its rating.
5                (a) The amount of security required in order
6            for full credit to be allowed shall correspond
7            with the applicable ratings category:
8                    Secure - 1: 0%.
9                    Secure - 2: 10%.
10                    Secure - 3: 20%.
11                    Secure - 4: 50%.
12                    Secure - 5: 75%.
13                    Vulnerable - 6: 100%.
14                (b) Nothing in this subparagraph (8) shall
15            prohibit the parties to a reinsurance agreement
16            from agreeing to provisions establishing security
17            requirements that exceed the minimum security
18            requirements established for certified reinsurers
19            under this Section.
20                (c) In order for a domestic ceding insurer to
21            qualify for full financial statement credit for
22            reinsurance ceded to a certified reinsurer, the
23            certified reinsurer shall maintain security in a
24            form acceptable to the Director and consistent
25            with the provisions of subsection (2) of this
26            Section, or in a multibeneficiary trust in

 

 

HB1956- 53 -LRB102 13691 BMS 21381 b

1            accordance with paragraph (C) of this subsection
2            (1), except as otherwise provided in this
3            subparagraph (8).
4                (d) If a certified reinsurer maintains a trust
5            to fully secure its obligations subject to
6            paragraph (C) of this subsection (1), and chooses
7            to secure its obligations incurred as a certified
8            reinsurer in the form of a multibeneficiary trust,
9            then the certified reinsurer shall maintain
10            separate trust accounts for its obligations
11            incurred under reinsurance agreements issued or
12            renewed as a certified reinsurer with reduced
13            security as permitted by this subsection or
14            comparable laws of other U.S. jurisdictions and
15            for its obligations subject to paragraph (C) of
16            this subsection (1). It shall be a condition to
17            the grant of certification under this paragraph
18            (C-5) that the certified reinsurer shall have
19            bound itself, by the language of the trust and
20            agreement with the Director with principal
21            regulatory oversight of each such trust account,
22            to fund, upon termination of any such trust
23            account, out of the remaining surplus of such
24            trust any deficiency of any other such trust
25            account. The certified reinsurer shall also
26            provide or make available, if requested by a

 

 

HB1956- 54 -LRB102 13691 BMS 21381 b

1            beneficiary under a trust, all the information
2            that is required to be provided under the
3            requirements of item (d) of subparagraph (2) of
4            paragraph (C) of this subsection (1) to the
5            certified reinsurer's U.S. ceding insurers or
6            their assigns and successors in interest. The
7            assuming insurer may decline to release trade
8            secrets or commercially sensitive information that
9            would qualify as exempt from disclosure under the
10            Freedom of Information Act.
11                (e) The minimum trusteed surplus requirements
12            provided in paragraph (C) of this subsection (1)
13            are not applicable with respect to a
14            multibeneficiary trust maintained by a certified
15            reinsurer for the purpose of securing obligations
16            incurred under this subsection, except that such
17            trust shall maintain a minimum trusteed surplus of
18            $10,000,000.
19                (f) With respect to obligations incurred by a
20            certified reinsurer under this subsection (1), if
21            the security is insufficient, then the Director
22            may reduce the allowable credit by an amount
23            proportionate to the deficiency and may impose
24            further reductions in allowable credit upon
25            finding that there is a material risk that the
26            certified reinsurer's obligations will not be paid

 

 

HB1956- 55 -LRB102 13691 BMS 21381 b

1            in full when due.
2            (9)(a) In the case of a downgrade by a rating
3        agency or other disqualifying circumstance, the
4        Director shall by written notice assign a new rating
5        to the certified reinsurer in accordance with the
6        requirements of subparagraph (5) of this paragraph
7        (C-5).
8            (b) If the rating of a certified reinsurer is
9        upgraded by the Director, then the certified reinsurer
10        may meet the security requirements applicable to its
11        new rating on a prospective basis, but the Director
12        shall require the certified reinsurer to post security
13        under the previously applicable security requirements
14        as to all contracts in force on or before the effective
15        date of the upgraded rating. If the rating of a
16        certified reinsurer is downgraded by the Director,
17        then the Director shall require the certified
18        reinsurer to meet the security requirements applicable
19        to its new rating for all business it has assumed as a
20        certified reinsurer.
21            (c) The Director may suspend, revoke, or otherwise
22        modify a certified reinsurer's certification at any
23        time if the certified reinsurer fails to meet its
24        obligations or security requirements under this
25        Section or if other financial or operating results of
26        the certified reinsurer, or documented significant

 

 

HB1956- 56 -LRB102 13691 BMS 21381 b

1        delays in payment by the certified reinsurer, lead the
2        Director to reconsider the certified reinsurer's
3        ability or willingness to meet its contractual
4        obligations. In seeking to suspend, revoke, or
5        otherwise modify a certified reinsurer's
6        certification, the Director shall follow the
7        procedures provided in paragraph (G) of this
8        subsection (1).
9            (d) For purposes of this subsection (1), a
10        certified reinsurer whose certification has been
11        terminated for any reason shall be treated as a
12        certified reinsurer required to secure 100% of its
13        obligations.
14                (i) As used in this item (d), the term
15            "terminated" refers to revocation, suspension,
16            voluntary surrender and inactive status.
17                (ii) If the Director continues to assign a
18            higher rating as permitted by other provisions of
19            this Section, then this requirement does not apply
20            to a certified reinsurer in inactive status or to
21            a reinsurer whose certification has been
22            suspended.
23            (e) Upon revocation of the certification of a
24        certified reinsurer by the Director, the assuming
25        insurer shall be required to post security in
26        accordance with subsection (2) of this Section in

 

 

HB1956- 57 -LRB102 13691 BMS 21381 b

1        order for the ceding insurer to continue to take
2        credit for reinsurance ceded to the assuming insurer.
3        If funds continue to be held in trust, then the
4        Director may allow additional credit equal to the
5        ceding insurer's pro rata share of the funds,
6        discounted to reflect the risk of uncollectibility and
7        anticipated expenses of trust administration.
8            (f) Notwithstanding the change of a certified
9        reinsurer's rating or revocation of its certification,
10        a domestic insurer that has ceded reinsurance to that
11        certified reinsurer may not be denied credit for
12        reinsurance for a period of 3 months for all
13        reinsurance ceded to that certified reinsurer, unless
14        the reinsurance is found by the Director to be at high
15        risk of uncollectibility.
16            (10) A certified reinsurer that ceases to assume
17        new business in this State may request to maintain its
18        certification in inactive status in order to continue
19        to qualify for a reduction in security for its
20        in-force business. An inactive certified reinsurer
21        shall continue to comply with all applicable
22        requirements of this subsection (1), and the Director
23        shall assign a rating that takes into account, if
24        relevant, the reasons why the reinsurer is not
25        assuming new business.
26            (11) Credit for reinsurance under this paragraph

 

 

HB1956- 58 -LRB102 13691 BMS 21381 b

1        (C-5) shall apply only to reinsurance contracts
2        entered into or renewed on or after the effective date
3        of the certification of the assuming insurer.
4            (12) The Director shall comply with all reporting
5        and notification requirements that may be established
6        by the NAIC with respect to certified reinsurers and
7        qualified jurisdictions.
8        (C-10)(1) Credit shall be allowed when the reinsurance
9    is ceded to an assuming insurer meeting each of the
10    conditions set forth in this subparagraph.
11            (a) The assuming insurer must have its head office
12        in or be domiciled in, as applicable, and be licensed
13        in a reciprocal jurisdiction. As used in this
14        paragraph (C-10), "reciprocal jurisdiction" means a
15        jurisdiction that meets one of the following:
16                (i) a non-U.S. jurisdiction that is subject to
17            an in-force covered agreement with the United
18            States, each within its legal authority, or, in
19            the case of a covered agreement between the United
20            States and European Union, is a member state of
21            the European Union; as used in this subitem,
22            "covered agreement" means an agreement entered
23            into pursuant to the Dodd-Frank Wall Street Reform
24            and Consumer Protection Act (31 U.S.C. 313 and
25            314) that is currently in effect or in a period of
26            provisional application and addresses the

 

 

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1            elimination, under specified conditions, of
2            collateral requirements as a condition for
3            entering into any reinsurance agreement with a
4            ceding insurer domiciled in this State or for
5            allowing the ceding insurer to recognize credit
6            for reinsurance;
7                (ii) a U.S. jurisdiction that meets the
8            requirements for accreditation under the NAIC
9            financial standards and accreditation program; or
10                (iii) a qualified jurisdiction, as determined
11            by the Director pursuant to subparagraph (3) of
12            paragraph (C-5) of subsection (1) of this Section,
13            that is not otherwise described in subitem (i) or
14            (ii) of this item and that meets certain
15            additional requirements, consistent with the terms
16            and conditions of in-force covered agreements, as
17            specified by the Department by rule.
18            (b) The assuming insurer must have and maintain,
19        on an ongoing basis, minimum capital and surplus, or
20        its equivalent, calculated according to the
21        methodology of its domiciliary jurisdiction, in an
22        amount to be set forth by rule. If the assuming insurer
23        is an association, including incorporated and
24        individual unincorporated underwriters, it must have
25        and maintain, on an ongoing basis, minimum capital and
26        surplus equivalents (net of liabilities) calculated

 

 

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1        according to the methodology applicable in its
2        domiciliary jurisdiction and a central fund containing
3        a balance in amounts to be set forth by rule.
4            (c) The assuming insurer must have and maintain,
5        on an ongoing basis, a minimum solvency or capital
6        ratio, as applicable, that will be set forth by rule.
7        If the assuming insurer is an association, including
8        incorporated and individual unincorporated
9        underwriters, it must have and maintain, on an ongoing
10        basis, a minimum solvency or capital ratio in the
11        reciprocal jurisdiction where the assuming insurer has
12        its head office or is domiciled, as applicable, and is
13        also licensed.
14            (d) The assuming insurer must provide adequate
15        assurance to the Director, in a form specified by the
16        Department by rule, as follows:
17                (i) the assuming insurer must provide prompt
18            written notice and explanation to the Director if
19            it falls below the minimum requirements set forth
20            in items (b) or (c) of this subparagraph or if any
21            regulatory action is taken against it for serious
22            noncompliance with applicable law;
23                (ii) the assuming insurer must consent in
24            writing to the jurisdiction of the courts of this
25            State and to the appointment of the Director as
26            agent for service of process; the Director may

 

 

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1            require that consent for service of process be
2            provided to the Director and included in each
3            reinsurance agreement; nothing in this subitem
4            (ii) shall limit or in any way alter the capacity
5            of parties to a reinsurance agreement to agree to
6            alternative dispute resolution mechanisms, except
7            to the extent such agreements are unenforceable
8            under applicable insolvency or delinquency laws;
9                (iii) the assuming insurer must consent in
10            writing to pay all final judgments obtained by a
11            ceding insurer or its legal successor, whenever
12            enforcement is sought, that have been declared
13            enforceable in the jurisdiction where the judgment
14            was obtained;
15                (iv) each reinsurance agreement must include a
16            provision requiring the assuming insurer to
17            provide security in an amount equal to 100% of the
18            assuming insurer's liabilities attributable to
19            reinsurance ceded pursuant to that agreement if
20            the assuming insurer resists enforcement of a
21            final judgment that is enforceable under the law
22            of the jurisdiction in which it was obtained or a
23            properly enforceable arbitration award, whether
24            obtained by the ceding insurer or by its legal
25            successor on behalf of its resolution estate; and
26                (v) the assuming insurer must confirm that it

 

 

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1            is not presently participating in any solvent
2            scheme of arrangement which involves this State's
3            ceding insurers and agree to notify the ceding
4            insurer and the Director and to provide security
5            in an amount equal to 100% of the assuming
6            insurer's liabilities to the ceding insurer if the
7            assuming insurer enters into such a solvent scheme
8            of arrangement; the security shall be in a form
9            consistent with the provisions of paragraph (C-5)
10            of subsection (1) and subsection (2) and as
11            specified by the Department by rule.
12            (e) If requested by the Director, the assuming
13        insurer or its legal successor must provide, on behalf
14        of itself and any legal predecessors, certain
15        documentation to the Director, as specified by the
16        Department by rule.
17            (f) The assuming insurer must maintain a practice
18        of prompt payment of claims under reinsurance
19        agreements pursuant to criteria set forth by rule.
20            (g) The assuming insurer's supervisory authority
21        must confirm to the Director on an annual basis, as of
22        the preceding December 31 or at the annual date
23        otherwise statutorily reported to the reciprocal
24        jurisdiction, that the assuming insurer complied with
25        the requirements set forth in items (b) and (c) of this
26        subparagraph.

 

 

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1            (h) Nothing in this subparagraph precludes an
2        assuming insurer from providing the Director with
3        information on a voluntary basis.
4        (2) The Director shall timely create and publish a
5    list of reciprocal jurisdictions.
6            (a) The Director's list shall include any
7        reciprocal jurisdiction as defined under subitems (i)
8        and (ii) of item (a) of subparagraph (1) of this
9        paragraph, and shall consider any other reciprocal
10        jurisdiction included on the list of reciprocal
11        jurisdictions published through the NAIC committee
12        process. The Director may approve a jurisdiction that
13        does not appear on the NAIC list of reciprocal
14        jurisdictions in accordance with criteria to be
15        developed by rules adopted by the Department.
16            (b) The Director may remove a jurisdiction from
17        the list of reciprocal jurisdictions upon a
18        determination that the jurisdiction no longer meets
19        the requirements of a reciprocal jurisdiction in
20        accordance with a process set forth in rules adopted
21        by the Department, except that the Director shall not
22        remove from the list a reciprocal jurisdiction as
23        defined under subitems (i) and (ii) of item (a) of
24        subparagraph (1) of this paragraph. If otherwise
25        allowed pursuant to this Section, credit for
26        reinsurance ceded to an assuming insurer that has its

 

 

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1        home office or is domiciled in that jurisdiction shall
2        be allowed upon removal of a reciprocal jurisdiction
3        from this list.
4        (3) The Director shall timely create and publish a
5    list of assuming insurers that have satisfied the
6    conditions set forth in this paragraph and to which
7    cessions shall be granted credit in accordance with this
8    paragraph. The Director may add an assuming insurer to the
9    list if a NAIC-accredited jurisdiction has added the
10    assuming insurer to a list of assuming insurers or if,
11    upon initial eligibility, the assuming insurer submits the
12    information to the Director as required under item (d) of
13    subparagraph (1) of this paragraph and complies with any
14    additional requirements that the Department may impose by
15    rule except to the extent that they conflict with an
16    applicable covered agreement.
17        (4) If the Director determines that an assuming
18    insurer no longer meets one or more of the requirements
19    under this paragraph, the Director may revoke or suspend
20    the eligibility of the assuming insurer for recognition
21    under this paragraph in accordance with procedures set
22    forth by rule.
23            (a) While an assuming insurer's eligibility is
24        suspended, no reinsurance agreement issued, amended,
25        or renewed after the effective date of the suspension
26        qualifies for credit except to the extent that the

 

 

HB1956- 65 -LRB102 13691 BMS 21381 b

1        assuming insurer's obligations under the contract are
2        secured in accordance with subsection (2).
3            (b) If an assuming insurer's eligibility is
4        revoked, no credit for reinsurance may be granted
5        after the effective date of the revocation with
6        respect to any reinsurance agreements entered into by
7        the assuming insurer, including reinsurance agreements
8        entered into before the date of revocation, except to
9        the extent that the assuming insurer's obligations
10        under the contract are secured in a form acceptable to
11        the Director and consistent with the provisions of
12        subsection (2).
13        (5) If subject to a legal process of rehabilitation,
14    liquidation, or conservation, as applicable, the ceding
15    insurer or its representative may seek and, if determined
16    appropriate by the court in which the proceedings are
17    pending, may obtain an order requiring that the assuming
18    insurer post security for all outstanding ceded
19    liabilities.
20        (6) Nothing in this paragraph shall limit or in any
21    way alter the capacity of parties to a reinsurance
22    agreement to agree on requirements for security or other
23    terms in that reinsurance agreement except as expressly
24    prohibited by this Section or other applicable law or
25    regulation.
26        (7) Credit may be taken under this paragraph only for

 

 

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1    reinsurance agreements entered into, amended, or renewed
2    on or after the effective date of this amendatory Act of
3    the 102nd General Assembly and only with respect to losses
4    incurred and reserves reported on or after the later of:
5            (i) the date on which the assuming insurer has met
6        all eligibility requirements pursuant to subparagraph
7        (1) of this paragraph; and
8            (ii) the effective date of the new reinsurance
9        agreement, amendment, or renewal.
10        This subparagraph does not alter or impair a ceding
11    insurer's right to take credit for reinsurance, to the
12    extent that credit is not available under this paragraph,
13    as long as the reinsurance qualifies for credit under any
14    other applicable provision of this Section.
15        (8) Nothing in this paragraph shall authorize an
16    assuming insurer to withdraw or reduce the security
17    provided under any reinsurance agreement except as
18    permitted by the terms of the agreement.
19        (9) Nothing in this paragraph shall limit or in any
20    way alter the capacity of parties to any reinsurance
21    agreement to renegotiate the agreement.
22        (D) Credit shall be allowed when the reinsurance is
23    ceded to an assuming insurer not meeting the requirements
24    of paragraph (A), (B), (B-5), or (C), (C-5), or (C-10) of
25    this subsection (1) but only with respect to the insurance
26    of risks located in jurisdictions where that reinsurance

 

 

HB1956- 67 -LRB102 13691 BMS 21381 b

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

 

 

HB1956- 68 -LRB102 13691 BMS 21381 b

1    arbitrate is created in the agreement.
2        (F) If the assuming insurer does not meet the
3    requirements of paragraph (A), or (B), (B-5), or (C-10) of
4    this subsection (1), the credit permitted by paragraph (C)
5    or (C-5) of this subsection (1) shall not be allowed
6    unless the assuming insurer agrees in the trust agreements
7    to the following conditions:
8            (1) Notwithstanding any other provisions in the
9        trust instrument, if the trust fund is inadequate
10        because it contains an amount less than the amount
11        required by subparagraph (3) of paragraph (C) of this
12        subsection (1) or if the grantor of the trust has been
13        declared insolvent or placed into receivership,
14        rehabilitation, liquidation, or similar proceedings
15        under the laws of its state or country of domicile, the
16        trustee shall comply with an order of the state
17        official with regulatory oversight over the trust or
18        with an order of a court of competent jurisdiction
19        directing the trustee to transfer to the state
20        official with regulatory oversight all of the assets
21        of the trust fund.
22            (2) The assets shall be distributed by and claims
23        shall be filed with and valued by the state official
24        with regulatory oversight in accordance with the laws
25        of the state in which the trust is domiciled that are
26        applicable to the liquidation of domestic insurance

 

 

HB1956- 69 -LRB102 13691 BMS 21381 b

1        companies.
2            (3) If the state official with regulatory
3        oversight determines that the assets of the trust fund
4        or any part thereof are not necessary to satisfy the
5        claims of the U.S. ceding insurers of the grantor of
6        the trust, the assets or part thereof shall be
7        returned by the state official with regulatory
8        oversight to the trustee for distribution in
9        accordance with the trust agreement.
10            (4) The grantor shall waive any rights otherwise
11        available to it under U.S. law that are inconsistent
12        with the provision.
13        (G) If an accredited or certified reinsurer ceases to
14    meet the requirements for accreditation or certification,
15    then the Director may suspend or revoke the reinsurer's
16    accreditation or certification.
17            (1) The Director must give the reinsurer notice
18        and opportunity for hearing. The suspension or
19        revocation may not take effect until after the
20        Director's order on hearing, unless:
21                (a) the reinsurer waives its right to hearing;
22                (b) the Director's order is based on
23            regulatory action by the reinsurer's domiciliary
24            jurisdiction or the voluntary surrender or
25            termination of the reinsurer's eligibility to
26            transact insurance or reinsurance business in its

 

 

HB1956- 70 -LRB102 13691 BMS 21381 b

1            domiciliary jurisdiction or in the primary
2            certifying state of the reinsurer under
3            subparagraph (4) of paragraph (C-5) of this
4            subsection (1); or
5                (c) the Director finds that an emergency
6            requires immediate action and a court of competent
7            jurisdiction has not stayed the Director's action.
8            (2) While a reinsurer's accreditation or
9        certification is suspended, no reinsurance contract
10        issued or renewed after the effective date of the
11        suspension qualifies for credit except to the extent
12        that the reinsurer's obligations under the contract
13        are secured in accordance with subsection (2) of this
14        Section. If a reinsurer's accreditation or
15        certification is revoked, no credit for reinsurance
16        may be granted after the effective date of the
17        revocation, except to the extent that the reinsurer's
18        obligations under the contract are secured in
19        accordance with subsection (2) of this Section.
20        (H) The following provisions shall apply concerning
21    concentration of risk:
22            (1) A ceding insurer shall take steps to manage
23        its reinsurance recoverable proportionate to its own
24        book of business. A domestic ceding insurer shall
25        notify the Director within 30 days after reinsurance
26        recoverables from any single assuming insurer, or

 

 

HB1956- 71 -LRB102 13691 BMS 21381 b

1        group of affiliated assuming insurers, exceeds 50% of
2        the domestic ceding insurer's last reported surplus to
3        policyholders, or after it is determined that
4        reinsurance recoverables from any single assuming
5        insurer, or group of affiliated assuming insurers, is
6        likely to exceed this limit. The notification shall
7        demonstrate that the exposure is safely managed by the
8        domestic ceding insurer.
9            (2) A ceding insurer shall take steps to diversify
10        its reinsurance program. A domestic ceding insurer
11        shall notify the Director within 30 days after ceding
12        to any single assuming insurer, or group of affiliated
13        assuming insurers, more than 20% of the ceding
14        insurer's gross written premium in the prior calendar
15        year, or after it has determined that the reinsurance
16        ceded to any single assuming insurer, or group of
17        affiliated assuming insurers, is likely to exceed this
18        limit. The notification shall demonstrate that the
19        exposure is safely managed by the domestic ceding
20        insurer.
21    (2) Credit for the reinsurance ceded by a domestic insurer
22to an assuming insurer not meeting the requirements of
23subsection (1) of this Section shall be allowed in an amount
24not exceeding the assets or liabilities carried by the ceding
25insurer. The credit shall not exceed the amount of funds held
26by or held in trust for the ceding insurer under a reinsurance

 

 

HB1956- 72 -LRB102 13691 BMS 21381 b

1contract with the assuming insurer as security for the payment
2of obligations thereunder, if the security is held in the
3United States subject to withdrawal solely by, and under the
4exclusive control of, the ceding insurer; or, in the case of a
5trust, held in a qualified United States financial
6institution, as defined in paragraph (B) of subsection (3) of
7this Section. This security may be in the form of:
8        (A) Cash.
9        (B) Securities listed by the Securities Valuation
10    Office of the National Association of Insurance
11    Commissioners, including those deemed exempt from filing
12    as defined by the Purposes and Procedures Manual of the
13    Securities Valuation Office that conform to the
14    requirements of Article VIII of this Code that are not
15    issued by an affiliate of either the assuming or ceding
16    company.
17        (C) Clean, irrevocable, unconditional, letters of
18    credit issued or confirmed by a qualified United States
19    financial institution, as defined in paragraph (A) of
20    subsection (3) of this Section. The letters of credit
21    shall be effective no later than December 31 of the year
22    for which filing is being made, and in the possession of,
23    or in trust for, the ceding company on or before the filing
24    date of its annual statement. Letters of credit meeting
25    applicable standards of issuer acceptability as of the
26    dates of their issuance (or confirmation) shall,

 

 

HB1956- 73 -LRB102 13691 BMS 21381 b

1    notwithstanding the issuing (or confirming) institution's
2    subsequent failure to meet applicable standards of issuer
3    acceptability, continue to be acceptable as security until
4    their expiration, extension, renewal, modification, or
5    amendment, whichever first occurs.
6        (D) Any other form of security acceptable to the
7    Director.
8    (3)(A) For purposes of paragraph (C) of subsection (2) of
9this Section, a "qualified United States financial
10institution" means an institution that:
11        (1) is organized or, in the case of a U.S. office of a
12    foreign banking organization, licensed under the laws of
13    the United States or any state thereof;
14        (2) is regulated, supervised, and examined by U.S.
15    federal or state authorities having regulatory authority
16    over banks and trust companies;
17        (3) has been designated by either the Director or the
18    Securities Valuation Office of the National Association of
19    Insurance Commissioners as meeting such standards of
20    financial condition and standing as are considered
21    necessary and appropriate to regulate the quality of
22    financial institutions whose letters of credit will be
23    acceptable to the Director; and
24        (4) is not affiliated with the assuming company.
25    (B) A "qualified United States financial institution"
26means, for purposes of those provisions of this law specifying

 

 

HB1956- 74 -LRB102 13691 BMS 21381 b

1those institutions that are eligible to act as a fiduciary of a
2trust, an institution that:
3        (1) is organized or, in the case of the U.S. branch or
4    agency office of a foreign banking organization, licensed
5    under the laws of the United States or any state thereof
6    and has been granted authority to operate with fiduciary
7    powers;
8        (2) is regulated, supervised, and examined by federal
9    or state authorities having regulatory authority over
10    banks and trust companies; and
11        (3) is not affiliated with the assuming company,
12    however, if the subject of the reinsurance contract is
13    insurance written pursuant to Section 155.51 of this Code,
14    the financial institution may be affiliated with the
15    assuming company with the prior approval of the Director.
16    (C) Except as set forth in subparagraph (11) of paragraph
17(C-5) of subsection (1) of this Section as to cessions by
18certified reinsurers, this amendatory Act of the 100th General
19Assembly shall apply to all cessions after the effective date
20of this amendatory Act of the 100th General Assembly under
21reinsurance agreements that have an inception, anniversary, or
22renewal date not less than 6 months after the effective date of
23this amendatory Act of the 100th General Assembly.
24    (D) The Department shall adopt rules implementing the
25provisions of this Article.
26(Source: P.A. 100-1118, eff. 11-27-18.)
 

 

 

HB1956- 75 -LRB102 13691 BMS 21381 b

1    Section 99. Effective date. This Act takes effect December
231, 2022.

 

 

HB1956- 76 -LRB102 13691 BMS 21381 b

1 INDEX
2 Statutes amended in order of appearance
3    215 ILCS 5/35B-25
4    215 ILCS 5/131.1from Ch. 73, par. 743.1
5    215 ILCS 5/131.5from Ch. 73, par. 743.5
6    215 ILCS 5/131.14b
7    215 ILCS 5/131.15from Ch. 73, par. 743.15
8    215 ILCS 5/131.22from Ch. 73, par. 743.22
9    215 ILCS 5/131.22a new
10    215 ILCS 5/173.1from Ch. 73, par. 785.1