Full Text of HB5534 102nd General Assembly
HB5534eng 102ND GENERAL ASSEMBLY |
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| 1 | | AN ACT concerning regulation.
| 2 | | Be it enacted by the People of the State of Illinois,
| 3 | | represented in the General Assembly:
| 4 | | Section 1. Short title. This Act may be cited as the | 5 | | Insurance Business Transfer Act. | 6 | | Section 3. Purpose and intent. The purpose of this Act is | 7 | | to provide options to address the significant limitations in | 8 | | the current methods available to insurers to transfer or | 9 | | assume blocks of insurance business in an efficient and | 10 | | cost-effective manner that provides needed legal finality for | 11 | | such transfers in order to provide for improved operational | 12 | | and capital efficiency for insurance companies, stimulates the | 13 | | economy by attracting segments of the insurance industry to | 14 | | this State, makes this State an attractive home jurisdiction | 15 | | for insurance companies, encourages economic growth and | 16 | | increased investment in the financial services sector, and | 17 | | increases the availability of quality insurance industry jobs | 18 | | in this State. These purposes are accomplished by providing a | 19 | | basis and procedures for the transfer and statutory novation | 20 | | of policies from a transferring insurer to an assuming insurer | 21 | | by way of an insurance business transfer without the | 22 | | affirmative consent of policyholders or reinsureds. This Act | 23 | | establishes the requirements for notice and disclosure and |
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| 1 | | standards and procedures for the approval of the transfer and | 2 | | novation by the Director and a court pursuant to an insurance | 3 | | business transfer plan. This Act does not limit or restrict | 4 | | other means of effecting a transfer or novation. | 5 | | Section 5. Definitions. As used in this Act: | 6 | | "Affiliate" means a person that directly or indirectly, | 7 | | through one or more intermediaries, controls, is controlled | 8 | | by, or is under common control with the person specified. | 9 | | "Applicant" means a transferring insurer or reinsurer | 10 | | applying under this Act. | 11 | | "Assuming insurer" means an insurer domiciled in this | 12 | | State that assumes or seeks to assume policies from a | 13 | | transferring insurer pursuant to this Act. | 14 | | "Department" means the Department of Insurance. | 15 | | "Director" means the Director of Insurance. | 16 | | "Implementation order" means an order issued by a court | 17 | | under this Act. | 18 | | "Insurance business transfer" means a transfer and | 19 | | novation that, once approved pursuant to this Act, transfers | 20 | | insurance obligations or risks, or both, of existing or | 21 | | in-force contracts of insurance or reinsurance from a | 22 | | transferring insurer to an assuming insurer, and effects a | 23 | | novation of the transferred contracts of insurance or | 24 | | reinsurance with the result that the assuming insurer becomes | 25 | | directly liable to the policyholders of the transferring |
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| 1 | | insurer and the transferring insurer's insurance obligations | 2 | | or risks, or both, under the contracts are extinguished. | 3 | | "Insurance business transfer plan" means the plan | 4 | | submitted to the Department to accomplish the transfer and | 5 | | novation pursuant to an insurance business transfer, including | 6 | | any associated transfer of assets and rights from or on behalf | 7 | | of the transferring insurer to the assuming insurer. | 8 | | "Independent expert" means an impartial person who has no | 9 | | financial interest in either the assuming insurer or | 10 | | transferring insurer, has not been employed by or acted as an | 11 | | officer, director, consultant, or other independent contractor | 12 | | for either the assuming insurer or transferring insurer within | 13 | | the past 12 months, is not appointed by the Director to assist | 14 | | in any capacity in any insurer rehabilitation or delinquency | 15 | | proceeding, is receiving no compensation in connection with | 16 | | the transaction governed by this Act other than a fee based on | 17 | | a fixed or hourly basis that is not contingent on the approval | 18 | | or consummation of an insurance business transfer, and | 19 | | provides proof of insurance coverage that is satisfactory to | 20 | | the Director. | 21 | | "Insurer" means an insurance, surety, or reinsurance | 22 | | company, corporation, partnership, association, society, | 23 | | order, individual, or aggregation of individuals engaging in | 24 | | or proposing or attempting to engage in any kind of insurance | 25 | | or surety business, including the exchanging of reciprocal or | 26 | | inter-insurance contracts between individuals, partnerships, |
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| 1 | | and corporations. | 2 | | "Policy" means a policy, annuity contract, certificate of | 3 | | insurance, or a contract of reinsurance pursuant to which an | 4 | | insurer agrees to assume an obligation or risk, or both, of the | 5 | | policyholder or to make payments on behalf of, or to, the | 6 | | policyholder or its beneficiaries, including property, | 7 | | casualty, life, health, and any other line of insurance the | 8 | | Director approves by rule as suitable for an insurance | 9 | | business transfer. | 10 | | "Policyholder" means an insured or a reinsured under a | 11 | | policy that is part of the subject business. | 12 | | "Subject business" means the policy or policies that are | 13 | | the subject of the insurance business transfer plan. | 14 | | "Transfer and novation" means the transfer of insurance | 15 | | obligations or risks, or both, of existing or in-force | 16 | | policies from a transferring insurer to an assuming insurer | 17 | | that is intended to effect a novation of the transferred | 18 | | policies with the result that the assuming insurer becomes | 19 | | directly liable to the policyholders of the transferring | 20 | | insurer on the transferred policies and the transferring | 21 | | insurer's obligations or risks, or both, under the transferred | 22 | | policies are extinguished. | 23 | | "Transferring insurer" means an insurer or reinsurer that | 24 | | transfers and novates or seeks to transfer and novate | 25 | | obligations or risks, or both, under one or more policies to an | 26 | | assuming insurer pursuant to an insurance business transfer |
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| 1 | | plan. | 2 | | Section 10. Court authority. Notwithstanding any other | 3 | | provision of law, a court may issue any order, process, or | 4 | | judgment that is necessary or appropriate to carry out the | 5 | | provisions of this Act. No provision of this Act shall be | 6 | | construed to preclude a court from, on its own motion, taking | 7 | | any action or making any determination necessary or | 8 | | appropriate to enforce or implement court orders or rules or | 9 | | to prevent an abuse of power. | 10 | | Section 15. Notice requirements. | 11 | | (a) Whenever notice is required to be given by an | 12 | | applicant under this Act, except as otherwise permitted by a | 13 | | court or the Director, the applicant shall within 15 days | 14 | | after the event triggering the requirement transmit the | 15 | | notice: | 16 | | (1) to the chief insurance regulator in each | 17 | | jurisdiction: | 18 | | (A) in which the applicant holds or has ever held a | 19 | | certificate of authority; and | 20 | | (B) in which policies that are part of the subject | 21 | | business were issued or policyholders currently | 22 | | reside; | 23 | | (2) to the National Conference of Insurance Guaranty | 24 | | Funds, the National Organization of Life and Health |
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| 1 | | Insurance Guaranty Associations, and all state insurance | 2 | | guaranty associations for the states: | 3 | | (A) in which the applicant holds or has ever held a | 4 | | certificate of authority; and | 5 | | (B) in which policies that are part of the subject | 6 | | business were issued or policyholders currently | 7 | | reside; | 8 | | (3) to reinsurers of the applicant pursuant to the | 9 | | notice provisions of the reinsurance agreements applicable | 10 | | to the policies that are part of the subject business or, | 11 | | where an agreement has no provision for notice, by | 12 | | internationally recognized delivery service; | 13 | | (4) to all policyholders holding policies that are | 14 | | part of the subject business at their last known address | 15 | | as indicated by the records of the applicant or to the | 16 | | address to which premium notices or other policy documents | 17 | | are sent. A notice of transfer shall also be sent to the | 18 | | transferring insurer's agents or brokers of record on the | 19 | | subject business; and | 20 | | (5) by publication in a newspaper of general | 21 | | circulation in the state in which the applicant has its | 22 | | principal place of business and in such other publications | 23 | | that the Director requires. | 24 | | (b) If notice is given in accordance with this Section, | 25 | | any orders under this Act shall be conclusive with respect to | 26 | | all intended recipients of the notice whether or not they |
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| 1 | | receive actual notice. | 2 | | (c) If this Act requires that the applicant provide notice | 3 | | but the Director has been named receiver of the applicant, the | 4 | | Director shall provide the required notice. | 5 | | (d) Notice under this Section may take the form of | 6 | | first-class mail, facsimile, or electronic notice. | 7 | | Section 20. Application procedure. | 8 | | (a) An insurance business transfer plan shall be filed by | 9 | | the applicant with the Director for his or her review and | 10 | | approval. The plan may be supplemented by other information | 11 | | deemed necessary by the Director, and shall contain the | 12 | | following information or an explanation as to why the | 13 | | following information is not included: | 14 | | (1) the name, address, and telephone number of the | 15 | | transferring insurer and the assuming insurer and their | 16 | | respective direct and indirect controlling persons, if | 17 | | any; | 18 | | (2) a summary of the insurance business transfer plan; | 19 | | (3) an identification and description of the subject | 20 | | business; | 21 | | (4) the most recent audited financial statements and | 22 | | statutory annual and quarterly reports of the transferring | 23 | | insurer and the assuming insurer filed with their | 24 | | domiciliary regulator; | 25 | | (5) the most recent actuarial report and opinion that |
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| 1 | | quantify the liabilities associated with the subject | 2 | | business; | 3 | | (6) pro forma financial statements showing the | 4 | | projected statutory balance sheet, results of operation, | 5 | | and cash flows of the assuming insurer for the 3 years | 6 | | following the proposed transfer and novation; | 7 | | (7) officers' certificates of the transferring insurer | 8 | | and the assuming insurer attesting that each has obtained | 9 | | all required internal approvals and authorizations | 10 | | regarding the insurance business transfer plan and | 11 | | completed all necessary and appropriate actions relating | 12 | | thereto; | 13 | | (8) a proposal for plan implementation and | 14 | | administration, including the form of notice to be | 15 | | provided under the insurance business transfer plan to any | 16 | | policyholder whose policy is part of the subject business; | 17 | | (9) a full description as to how notice under the | 18 | | insurance business transfer plan shall be provided; | 19 | | (10) a description of any reinsurance arrangements | 20 | | that would pass to the assuming insurer under the | 21 | | insurance business transfer plan; | 22 | | (11) a description of any guarantees or additional | 23 | | reinsurance that will cover the subject business following | 24 | | the transfer and novation; | 25 | | (12) a statement describing the assuming insurer's | 26 | | proposed investment policies and any contemplated |
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| 1 | | third-party claims management and administration | 2 | | arrangements; | 3 | | (13) a description of how the transferring and | 4 | | assuming insurers will be licensed for the following | 5 | | guaranty association coverage purposes: | 6 | | (A) guaranty association coverage; | 7 | | (B) the financial implications of the transaction | 8 | | including solvency, capital adequacy, cash flow, | 9 | | reserves, asset quality, and risk-based capital; | 10 | | (C) an analysis of the assuming insurer's | 11 | | corporate governance structure to ensure that there is | 12 | | proper board management oversight and expertise to | 13 | | manage the subject business; | 14 | | (D) the competency, experience, and integrity of | 15 | | the persons who would control the operation of an | 16 | | involved insurer; and | 17 | | (E) ensuring the transaction is not being made for | 18 | | improper purposes, including fraud; | 19 | | (14) evidence of approval or nonobjection of the | 20 | | transfer from the chief insurance regulator of the state | 21 | | of the transferring insurer's domicile; and | 22 | | (15) a report from an independent expert, selected by | 23 | | the Director from a list of at least 2 nominees submitted | 24 | | jointly by the transferring insurer and the assuming | 25 | | insurer, to assist the Director and a court in connection | 26 | | with their review of the proposed transaction. If the |
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| 1 | | Director, in his or her sole discretion, rejects the | 2 | | nominees, he or she may appoint the independent expert. | 3 | | The report shall provide the following: | 4 | | (A) a statement of the independent expert's | 5 | | professional qualifications and descriptions of the | 6 | | experience that qualifies him or her as an expert | 7 | | suitable for the engagement; | 8 | | (B) whether the independent expert has, or has | 9 | | had, direct or indirect interest in the transferring | 10 | | or assuming insurer or any of their respective | 11 | | affiliates; | 12 | | (C) the scope of the report; | 13 | | (D) a summary of the terms of the insurance | 14 | | business transfer plan to the extent relevant to the | 15 | | report; | 16 | | (E) a listing and summaries of documents, reports, | 17 | | and other material information the independent expert | 18 | | has considered in preparing the report and whether any | 19 | | information requested was not provided; | 20 | | (F) the extent to which the independent expert has | 21 | | relied on information provided by and judgment of | 22 | | others; | 23 | | (G) the people on whom the independent expert has | 24 | | relied and why, in his or her opinion, such reliance is | 25 | | reasonable; | 26 | | (H) the independent expert's opinion of the likely |
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| 1 | | effects of the insurance business transfer plan on | 2 | | policyholders, reinsurers, and claimants, | 3 | | distinguishing between: | 4 | | (i) transferring policyholders, reinsurers, | 5 | | and claimants; | 6 | | (ii) policyholders, reinsurers, and claimants | 7 | | of the transferring insurer whose policies will | 8 | | not be transferred; and | 9 | | (iii) policyholders, reinsurers, and claimants | 10 | | of the assuming insurer; | 11 | | (I) the facts and circumstances supporting each | 12 | | opinion that the independent expert expresses in the | 13 | | report; and | 14 | | (J) consideration as to whether the security | 15 | | position of policyholders that are affected by the | 16 | | insurance business transfer are materially adversely | 17 | | affected by the transfer. | 18 | | (b) The independent expert's report as required by | 19 | | paragraph (15) of subsection (a) shall include, but not be | 20 | | limited to, a review of the following: | 21 | | (1) analysis of the transferring insurer's actuarial | 22 | | review of resources for the subject business to determine | 23 | | the reserve adequacy; | 24 | | (2) analysis of the financial condition of the | 25 | | transferring and assuming insurers and the effect the | 26 | | transfer will have on the financial condition of each |
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| 1 | | company; | 2 | | (3) review of the plans or proposals the assuming | 3 | | insurer has with respect to the administration of the | 4 | | policies subject to the proposed transfer; | 5 | | (4) whether the proposed transfer has a material, | 6 | | adverse impact on the policyholders, reinsurers, and | 7 | | claimants of the transferring and the assuming insurers; | 8 | | (5) analysis of the assuming insurer's corporate | 9 | | governance structure to ensure that there is proper board | 10 | | and management oversight and expertise to manage the | 11 | | subject business; and | 12 | | (6) any other information that the Director requests | 13 | | in order to review the insurance business transfer. | 14 | | (c) The Director shall have 60 business days after the | 15 | | date of receipt of a complete insurance business transfer plan | 16 | | to review the plan to determine if the applicant is authorized | 17 | | to submit it to a court. The Director may extend the 60-day | 18 | | review period for an additional 30 business days. | 19 | | (d) The Director shall authorize the submission of the | 20 | | insurance business transfer plan to a court unless he or she | 21 | | finds that the insurance business transfer would have a | 22 | | material adverse impact on the interests of policyholders, | 23 | | reinsurers, or claimants that are part of the subject | 24 | | business. | 25 | | (e) If the Director determines that the insurance business | 26 | | transfer would have a material adverse impact on the interests |
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| 1 | | of policyholders, reinsurers, or claimants that are part of | 2 | | the subject business, he or she shall notify the applicant and | 3 | | specify any modifications, supplements, or amendments and any | 4 | | additional information or documentation with respect to the | 5 | | plan that must be provided to the Director before he or she | 6 | | shall allow the applicant to proceed with the court filing. | 7 | | (f) The applicant shall have 30 days following the date | 8 | | the Director notifies him or her of a determination under | 9 | | subsection (e) to file an amended insurance business transfer | 10 | | plan providing the modifications, supplements, or amendments | 11 | | and additional information or documentation as requested by | 12 | | the Director. If necessary, the applicant may request in | 13 | | writing an extension of time of 30 days. If the applicant does | 14 | | not make an amended filing within the time period provided in | 15 | | this subsection, including any extension of time granted by | 16 | | the Director, the insurance business transfer plan filing | 17 | | shall terminate and a subsequent filing by the applicant shall | 18 | | be considered a new filing which shall require compliance with | 19 | | all provisions of this Act as if the prior filing had never | 20 | | been made. | 21 | | (g) The Director's review period in subsection (c) shall | 22 | | recommence when the modification, supplement, amendment, or | 23 | | additional information requested in subsection (e) is | 24 | | received. | 25 | | (h) If the Director determines that the plan may proceed | 26 | | with the court filing, the Director shall confirm that fact in |
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| 1 | | writing to the applicant. | 2 | | Section 25. Application to the court for approval of a | 3 | | plan. | 4 | | (a) Within 30 days after notice from the Director that the | 5 | | applicant may proceed with the court filing, the applicant | 6 | | shall apply to the court for approval of the insurance | 7 | | business transfer plan. Upon written request by the applicant, | 8 | | the Director may extend the period for filing an application | 9 | | with the court for an additional 30 days. | 10 | | (b) The applicant shall inform the court of the reasons | 11 | | why he or she petitions the court to find no material adverse | 12 | | impact to policyholders, reinsurers, or claimants affected by | 13 | | the proposed transfer. | 14 | | (c) The application shall be in the form of a verified | 15 | | petition for implementation of the insurance business transfer | 16 | | plan in the court. The petition shall include the insurance | 17 | | business transfer plan and shall identify any documents and | 18 | | witnesses which the applicant intends to present at a hearing | 19 | | regarding the petition. | 20 | | (d) The Director shall be a party to the proceedings | 21 | | before the court concerning the petition and shall be served | 22 | | with copies of all filings. The Director's position in the | 23 | | proceeding shall not be limited by his or her initial review of | 24 | | the plan. | 25 | | (e) Following the filing of the petition, the applicant |
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| 1 | | shall file a motion for a scheduling order setting a hearing on | 2 | | the petition. | 3 | | (f) Within 15 days after receipt of the scheduling order, | 4 | | the applicant shall cause notice of the hearing to be provided | 5 | | in accordance with the notice provisions of Section 15 of this | 6 | | Act. Following the date of distribution of the notice, there | 7 | | shall be a 60-day comment period. | 8 | | (g) The notice to policyholders shall state or provide: | 9 | | (1) the date and time of the approval hearing; | 10 | | (2) the name, address, and telephone number of the | 11 | | assuming insurer and transferring insurer; | 12 | | (3) that a policyholder may comment on or object to | 13 | | the transfer and novation; | 14 | | (4) the procedures and deadline for submitting | 15 | | comments or objections on the plan; | 16 | | (5) a summary of any effect that the transfer and | 17 | | novation will have on the policyholder's rights; | 18 | | (6) a statement that the assuming insurer is | 19 | | authorized to assume the subject business and that court | 20 | | approval of the plan shall extinguish all rights of | 21 | | policyholders under policies that are part of the subject | 22 | | business against the transferring insurer; | 23 | | (7) that policyholders shall not have the opportunity | 24 | | to opt out of or otherwise reject the transfer and | 25 | | novation; | 26 | | (8) contact information for the Department where the |
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| 1 | | policyholder may obtain further information; and | 2 | | (9) information on how an electronic copy of the | 3 | | insurance business transfer plan may be accessed. If | 4 | | policyholders are unable to readily access electronic | 5 | | copies, the applicant shall provide hard copies by | 6 | | first-class mail. | 7 | | (h) Any person, including by their legal representative, | 8 | | who considers himself, herself, or itself to be adversely | 9 | | affected can present evidence or comments to the court at the | 10 | | approval hearing. However, such comment or evidence shall not | 11 | | confer standing on any person. Any person participating in the | 12 | | approval hearing must follow the process established by the | 13 | | court and shall bear his or her own costs and attorney's fees. | 14 | | Section 30. Approval; denial; insurance business transfer | 15 | | plans. | 16 | | (a) After the comment period pursuant to subsection (f) of | 17 | | Section 25 has ended the insurance business transfer plan | 18 | | shall be presented by the applicant for approval by the court. | 19 | | (b) At any time before the court issues an order approving | 20 | | the insurance business transfer plan, the applicant may | 21 | | withdraw the insurance business transfer plan without | 22 | | prejudice. | 23 | | (c) If the court finds that the implementation of the | 24 | | insurance business transfer plan would not materially | 25 | | adversely affect the interests of policyholders, reinsurers, |
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| 1 | | or claimants that are part of the subject business, the court | 2 | | shall enter a judgment and implementation order. The judgment | 3 | | and implementation order shall: | 4 | | (1) order implementation of the insurance business | 5 | | transfer plan; | 6 | | (2) order a statutory novation with respect to all | 7 | | policyholders or reinsureds and their respective policies | 8 | | and reinsurance agreements under the subject business, | 9 | | including the extinguishment of all rights of | 10 | | policyholders under policies that are part of the subject | 11 | | business against the transferring insurer, and providing | 12 | | that the transferring insurer shall have no further | 13 | | rights, obligations, or liabilities with respect to such | 14 | | policies, and that the assuming insurer shall have all | 15 | | such rights, obligations, and liabilities as if it were | 16 | | the original insurer of such policies; | 17 | | (3) release the transferring insurer from all | 18 | | obligations or liabilities under policies that are part of | 19 | | the subject business; | 20 | | (4) authorize and order the transfer of property or | 21 | | liabilities, including, but not limited to, the ceded | 22 | | reinsurance of transferred policies and contracts on the | 23 | | subject business, notwithstanding any non-assignment | 24 | | provisions in any such reinsurance contracts. The subject | 25 | | business shall vest in and become liabilities of the | 26 | | assuming insurer; |
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| 1 | | (5) order that the applicant provide notice of the | 2 | | transfer and novation in accordance with the notice | 3 | | provisions in Section 15; and | 4 | | (6) make such other provisions with respect to | 5 | | incidental, consequential, and supplementary matters as | 6 | | are necessary to assure the insurance business transfer | 7 | | plan is fully and effectively carried out. | 8 | | (d) If the court finds that the insurance business | 9 | | transfer plan should not be approved, the court by its order | 10 | | may: | 11 | | (1) deny the petition; or | 12 | | (2) provide the applicant leave to file an amended | 13 | | insurance business transfer plan and petition. | 14 | | (e) Nothing in this Section in any way effects the right of | 15 | | appeal of any party.
| 16 | | Section 35. Rules. The Department shall adopt rules that | 17 | | are consistent with the provisions of this Act. No insurance | 18 | | business transfer plan shall be approved in this State unless | 19 | | and until such rules are adopted. | 20 | | Section 40. Confidentiality. The portion of the | 21 | | application for an insurance business transfer that would | 22 | | otherwise be confidential, including any documents, materials, | 23 | | communications, or other information submitted to the Director | 24 | | in contemplation of such application, shall not lose such |
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| 1 | | confidentiality. | 2 | | Section 45. Ongoing oversight. Insurers subject to this | 3 | | Act consent to the jurisdiction of the Director with regard to | 4 | | ongoing oversight of operations, management, and solvency | 5 | | relating to the transferred business, including the authority | 6 | | of the Director to conduct financial analysis and | 7 | | examinations. | 8 | | Section 50. Fees and costs. | 9 | | (a) At the time of filing its application with the | 10 | | Director for review and approval of an insurance business | 11 | | transfer plan, an applicant shall pay a nonrefundable fee to | 12 | | the Department. | 13 | | (b) The Director may retain independent attorneys, | 14 | | appraisers, actuaries, certified public accountants, | 15 | | authorized consultants, or other professionals and specialists | 16 | | to assist Department personnel in connection with the review | 17 | | required by this Act. The cost of retaining professionals and | 18 | | specialists shall be borne by the applicant. | 19 | | (c) The transferring insurer and the assuming insurer | 20 | | shall jointly be obligated to pay any compensation, costs, and | 21 | | expenses of the independent expert and any consultants | 22 | | retained by the independent expert and approved by the | 23 | | Department incurred in fulfilling the obligations of the | 24 | | independent expert under this Act. Nothing in this Act shall |
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| 1 | | be construed to create any duty for the independent expert to | 2 | | any party other than the Department or a court. | 3 | | (d) Failure to pay any of the requisite fees or costs | 4 | | within 30 days after demand shall be grounds for the Director | 5 | | to request that a court dismiss the petition for approval of | 6 | | the insurance business transfer plan before the filing of an | 7 | | implementation order by the court or, if after the filing of an | 8 | | implementation order, the Director may suspend or revoke the | 9 | | assuming insurer's certificate of authority to transact | 10 | | insurance business in this State.
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