Full Text of SB1286 100th General Assembly
SB1286 100TH GENERAL ASSEMBLY |
| | 100TH GENERAL ASSEMBLY
State of Illinois
2017 and 2018 SB1286 Introduced 2/9/2017, by Sen. John G. Mulroe SYNOPSIS AS INTRODUCED: |
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Amends the Domestic Captive Insurance Companies Article of the Illinois Insurance Code. Makes changes to provisions concerning definitions. Prohibits captive insurance companies from issuing certain types of insurance. Provides that the Department of Insurance may not issue a certificate of authority to a captive insurance company unless the company possesses and maintains unencumbered capital and surplus in an amounted determined by the Director of Insurance after considering specified factors. Provides that the amount of capital and surplus may not be less than specified for classes of captive insurance companies. Makes changes to the reports a captive insurance company must submit to the Director. Allows, upon written application to the Director, the annual report to be filed at a fiscal year's end, rather than on or prior to March 1. Allows a captive insurance company to make loans to its affiliates with the prior approval of the Director. Adds additional requirements for a captive insurance company to provide reinsurance. Provides that annually, 10% of the premium tax revenues collected under certain provisions of the Code to be transferred to the Department for the regulation of captive insurance companies. Reduces fees for the filing of certain documents from $7,000 to $2,000. Removes certain requirements to issue letters of credit. Allows the Director to approve captive reinsurance pools under certain circumstances. Makes provisions concerning standards for risk management of controlled unaffiliated businesses, captive managers, dividends, and confidentiality. Allows the Director to adopt rules to enforce the provisions. Repeals a provision concerning minimum surplus. Makes other changes.
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| | A BILL FOR |
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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 5. The Illinois Insurance Code is amended by | 5 | | changing Sections 123C-1, 123C-2, 123C-3, 123C-9, 123C-11, | 6 | | 123C-12, 123C-13, 123C-16, 123C-17, and 123C-19 and by adding | 7 | | Sections 123C-23, 123C-24, 123C-25, 123C-26, 123C-27, and | 8 | | 123C-28 as follows:
| 9 | | (215 ILCS 5/123C-1) (from Ch. 73, par. 735C-1)
| 10 | | (Section scheduled to be repealed on January 1, 2027)
| 11 | | Sec. 123C-1. Definitions. As used in this Article:
| 12 | | A. "Affiliate" or "Affiliated company" includes a parent | 13 | | entity that controls a captive insurance company and: | 14 | | (1) is an affiliate of another entity if the entity | 15 | | directly or indirectly, through one or more | 16 | | intermediaries, controls, is controlled by, or is under | 17 | | common control with the other entity. | 18 | | (2) is an affiliate of another entity if the entity is | 19 | | an affiliate of and is controlled by the other entity | 20 | | directly or indirectly through one or more intermediaries. | 21 | | A subsidiary or holding company of an entity is an affiliate of | 22 | | that entity. shall have
the meaning set forth in subsection (a) | 23 | | of Section 131.1 (and, for
purposes of such definition, the |
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| 1 | | definitions of "control"
and "person", as set forth in | 2 | | subsections (b) and (e) of Section
131.1, respectively, shall | 3 | | be applicable).
| 4 | | B. "Association" means any entity meeting the requirements
| 5 | | set forth in either of the following paragraphs (1), (2) or | 6 | | (3):
| 7 | | (1) any organized association of individuals, legal
| 8 | | representatives, corporations (whether for profit or
not | 9 | | for profit), partnerships, trusts, associations, units of | 10 | | government
or other organizations, or any combination of | 11 | | the foregoing,
that has been in continuous existence for at | 12 | | least one
year, the member organizations of which | 13 | | collectively:
| 14 | | (a) own, control, or hold with power to vote | 15 | | (directly
or indirectly) all of the outstanding voting | 16 | | securities
of an association captive insurance company | 17 | | incorporated
as a stock insurer; or
| 18 | | (b) have complete voting control (directly or | 19 | | indirectly)
over an association captive insurance | 20 | | company organized
as a mutual insurer;
| 21 | | (2) any organized association of individuals, legal
| 22 | | representatives, corporations (whether for profit or
not | 23 | | for profit), partnerships, trusts, associations, units of | 24 | | government
or other organizations, or any combination of | 25 | | the foregoing:
| 26 | | (a) whose member organizations are engaged in |
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| 1 | | businesses
or activities similar or related with | 2 | | respect to the
liability of which such members are | 3 | | exposed by virtue
of any related, similar, or common | 4 | | business, trade, product,
services, premises, or | 5 | | operations; and
| 6 | | (b) whose member organizations:
| 7 | | (i) directly or indirectly own or control, and
| 8 | | hold with power to vote, at least 80% of all of the
| 9 | | outstanding voting securities of an association | 10 | | captive
insurance company incorporated as a stock | 11 | | insurer; or
| 12 | | (ii) directly or indirectly have at least 80% | 13 | | of
the voting control over an association captive | 14 | | insurance
company organized as a mutual insurer; | 15 | | or
| 16 | | (3) any risk retention group, as defined in subsection | 17 | | (11) of Section
123B-2,
domiciled in this State and | 18 | | organized under this Article; however, beginning
6 months | 19 | | after the effective date of this amendatory Act of 1995, a | 20 | | risk
retention group shall no longer qualify as an | 21 | | association under this Article.
| 22 | | Provided, however, that with respect to each of
the | 23 | | associations described in paragraphs (1),
(2) and (3) above, no | 24 | | member organization may (i)
own, control, or hold with power to | 25 | | vote in excess of
25% of the voting securities of an | 26 | | association captive
insurance company incorporated as a stock |
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| 1 | | insurer, or
(ii) have more than 25% of the voting control of an | 2 | | association
captive insurance company organized as a mutual | 3 | | insurer.
| 4 | | C. "Association captive insurance company" means any
| 5 | | company that insures risks of (i) the member organizations
of | 6 | | an association, and (ii) their affiliated companies.
| 7 | | D. "Captive insurance company" means any pure captive
| 8 | | insurance company, association captive insurance company
or | 9 | | industrial insured captive insurance company organized
under | 10 | | the provisions of this Article.
| 11 | | E. "Director" means the Director of the Department of | 12 | | Insurance.
| 13 | | F. "Industrial insured" means an insured which (together
| 14 | | with its affiliates) at the time of its initial procurement
of | 15 | | insurance from an industrial insured captive insurance
| 16 | | company:
| 17 | | (1) has available to it advice with respect to the
| 18 | | purchase of insurance through the use of the services
of a | 19 | | full-time employee acting as an insurance manager
or buyer | 20 | | or the services of a regularly and continuously retained | 21 | | qualified
insurance consultant;
and
| 22 | | (2) pays aggregate annual premiums in excess of | 23 | | $100,000
for insurance on all risks except for life, | 24 | | accident
and health; and
| 25 | | (3) either (i) has at least 25 full-time employees,
or | 26 | | (ii) has gross assets in excess of $3,000,000, or
(iii) has |
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| 1 | | annual gross revenues in excess of $5,000,000.
| 2 | | G. "Industrial insured captive insurance company"
means | 3 | | any company that insures risks of industrial insureds
that are | 4 | | members of the industrial insured group, and
their affiliated | 5 | | companies.
| 6 | | H. "Industrial insured group" means any group of industrial
| 7 | | insureds that collectively:
| 8 | | (1) directly or indirectly (including ownership or | 9 | | control through a
company which is wholly owned by such | 10 | | group of industrial insureds) own or
control, and hold
with | 11 | | power to vote, all of the outstanding voting securities
of | 12 | | an industrial insured captive insurance company | 13 | | incorporated
as a stock insurer; or
| 14 | | (2) directly or indirectly (including control through | 15 | | a company which is
wholly owned by such group of industrial | 16 | | insureds) have complete voting control
over an industrial | 17 | | insured captive insurance company
organized as a mutual | 18 | | insurer;
provided, however, that no member organization | 19 | | may
(i) own, control, or hold with power to vote in excess
| 20 | | of 25% of the voting securities of an industrial insured
| 21 | | captive insurance company incorporated as a stock insurer,
| 22 | | or (ii) have more than 25% of the voting control of an
| 23 | | industrial insured captive insurance company organized
as | 24 | | a mutual insurer.
| 25 | | I. "Member organization" means any individual, legal
| 26 | | representative, corporation (whether for profit or not
for |
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| 1 | | profit), partnership, association, unit of government, trust | 2 | | or other
organization that belongs to an association or an | 3 | | industrial
insured group.
| 4 | | J. "Parent" means a corporation, partnership, individual | 5 | | or other legal entity
that directly or indirectly owns, | 6 | | controls, or holds
with power to vote more than 50% of the | 7 | | outstanding
voting securities of a company.
| 8 | | K. "Personal risk liability" means liability to other
| 9 | | persons for (i) damage because of injury to any person,
(ii) | 10 | | damage to property, or (iii) other loss or damage,
in each case | 11 | | resulting from any personal, familial, or household
| 12 | | responsibilities
or activities, but does not include legal | 13 | | liability
for damages (including costs of defense, legal costs
| 14 | | and fees, and other claims expenses) because of injuries
to | 15 | | other persons, damage to their property, or other
damage or | 16 | | loss to such other persons resulting from
or arising out of:
| 17 | | (i) any business (whether for profit or not for | 18 | | profit), trade,
product, services (including professional | 19 | | services),
premises, or operations; or
| 20 | | (ii) any activity of any state or local government,
or | 21 | | any agency or political subdivision thereof.
| 22 | | L. "Pure captive insurance company" means any company
that | 23 | | insures only risks of its parent or affiliated companies
or | 24 | | both.
| 25 | | M. "Unit of government" includes any state, regional or | 26 | | local
government, or any agency or political subdivision |
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| 1 | | thereof, or any
district, authority, public educational | 2 | | institution or school district,
public corporation or other | 3 | | unit of government in this State or any similar
unit of | 4 | | government in any other state.
| 5 | | N. "Control" means the power to direct, or cause the | 6 | | direction of, the management and policies of an entity, other | 7 | | than the power that results from an official position with or | 8 | | corporate office held in the entity. The power may be possessed | 9 | | directly or indirectly by any means, including through the | 10 | | ownership of voting securities or by contract, other than a | 11 | | commercial contract for goods or non-management services. | 12 | | O. "Qualified independent actuary" means a person that is | 13 | | either: | 14 | | (1) a member in good standing with the Casualty | 15 | | Actuarial Society; or | 16 | | (2) a member in good standing with the American Academy | 17 | | of Actuaries who has been approved as qualified for signing | 18 | | casualty loss reserve opinions by the Casualty Practice | 19 | | Council of the American Academy of Actuaries. | 20 | | P. "Controlled unaffiliated business" means an entity: | 21 | | (1) that is not an affiliate; | 22 | | (2) that has an existing contractual relationship with | 23 | | an affiliate under which the affiliate bears a potential | 24 | | financial loss; and | 25 | | (3) whose risks are managed by a captive insurance | 26 | | company under Section 123C-24 of this Code. |
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| 1 | | Q. "Operational risk" means any potential financial loss of | 2 | | an affiliate, except for a loss arising from an insurance | 3 | | policy issued by a captive or insurance affiliate. | 4 | | R. "Captive management company" means an entity providing | 5 | | administrative services to a captive insurance company. | 6 | | (Source: P.A. 89-97, eff. 7-7-95; 90-794, eff. 8-14-98 .)
| 7 | | (215 ILCS 5/123C-2) (from Ch. 73, par. 735C-2)
| 8 | | (Section scheduled to be repealed on January 1, 2027)
| 9 | | Sec. 123C-2. Authority of captives; restrictions.
| 10 | | A. Except as provided by this Section, a captive insurance | 11 | | company may write any type of insurance, but may only insure | 12 | | the operational risks of the company's affiliates and risks of | 13 | | a controlled unaffiliated business. Any captive insurance | 14 | | company, when permitted by
its articles of association or | 15 | | charter, may apply to
the Director for a certificate of | 16 | | authority to transact
any and all insurance in classes 2 and 3 | 17 | | of Section 4
of this Code, except that:
| 18 | | (1) no pure captive insurance company may insure
any | 19 | | risks other than those of its parent and affiliated
| 20 | | companies;
| 21 | | (2) no association captive insurance company may
| 22 | | insure any risks other than those of the member | 23 | | organizations
of its association, and their affiliated | 24 | | companies;
| 25 | | (3) no industrial insured captive insurance company
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| 1 | | may insure any risks other than those of the members
of the | 2 | | industrial insured group, and their affiliated
companies; | 3 | | and
| 4 | | (4) no captive insurance company may provide:
| 5 | | (i) personal motor vehicle coverage or homeowner's
| 6 | | insurance coverage or any component thereof, or
| 7 | | (ii) personal coverage for personal risk | 8 | | liability, or
| 9 | | (iii) coverage for an employer's liability to its | 10 | | employees other than
legal liability under the federal | 11 | | Employers' Liability Act
(45 U.S.C. 51 et seq.), | 12 | | provided, however, this exclusion does not
preclude | 13 | | reinsurance of such employer's liability, or
| 14 | | (iv) accident and health insurance as provided in | 15 | | clause (a) of Class
2 of Section 4, provided, however, | 16 | | this exclusion does not preclude stop-loss
insurance | 17 | | or reinsurance of a single employer self-funded | 18 | | employee disability
benefit plan or an employee | 19 | | welfare plan as described in 29 U.S.C. 1001 et seq.
| 20 | | A-5. A captive insurance company may not issue: | 21 | | (1) life insurance; | 22 | | (2) annuities; | 23 | | (3) accident and health insurance for the company's | 24 | | parent and affiliates, except to insure employee benefits | 25 | | that are subject to the federal Employee Retirement Income | 26 | | Security Act of 1974; |
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| 1 | | (4) title insurance; | 2 | | (5) mortgage guaranty insurance; | 3 | | (6) financial guaranty insurance; | 4 | | (7) residential property insurance; | 5 | | (8) personal automobile insurance; or | 6 | | (9) workers' compensation insurance. | 7 | | A-10. A captive insurance company may not issue a type of | 8 | | insurance, including automobile liability insurance, that is | 9 | | required under the laws of this State or a political | 10 | | subdivision of this State as a prerequisite for obtaining a | 11 | | license or permit if the law requires that the liability | 12 | | insurance be issued by an insurer authorized to engage in the | 13 | | business of insurance in this State. | 14 | | A-15. A captive insurance company is authorized to issue a | 15 | | contractual reimbursement policy to: | 16 | | (1) an affiliated certified self-insurer authorized | 17 | | under the Workers' Compensation Act or a similar affiliated | 18 | | entity expressly authorized by analogous laws of another | 19 | | state; or | 20 | | (2) an affiliate that is insured by a workers' | 21 | | compensation insurance policy with a negotiated deductible | 22 | | endorsement. | 23 | | B. No captive insurance company shall do any insurance
| 24 | | business in this State unless:
| 25 | | (1) it first obtains from the Director a certificate
of | 26 | | authority authorizing it to do such insurance business
in |
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| 1 | | this State; and
| 2 | | (2) it appoints a resident registered agent to accept
| 3 | | service of process and to otherwise act on its behalf
in | 4 | | this State.
| 5 | | C. No captive insurance company shall adopt a name
that is | 6 | | the same as, deceptively similar to, or likely
to be confused | 7 | | with or mistaken for, any other existing
business name | 8 | | registered in this State.
| 9 | | D. Each captive insurance company, or the organizations
| 10 | | providing the principal administrative or management
services | 11 | | to such captive insurance company, shall maintain
a place of | 12 | | business in this State.
| 13 | | (Source: P.A. 91-357, eff. 7-29-99 .)
| 14 | | (215 ILCS 5/123C-3) (from Ch. 73, par. 735C-3)
| 15 | | (Section scheduled to be repealed on January 1, 2027)
| 16 | | Sec. 123C-3. Minimum capital and surplus . | 17 | | A. The Department may not issue a certificate of authority | 18 | | to a captive insurance company unless the company possesses and | 19 | | maintains unencumbered capital and surplus in an amount | 20 | | determined by the Director after considering: | 21 | | (1) the amount of premium written by the captive | 22 | | insurance company; | 23 | | (2) the characteristics of the assets held by the | 24 | | captive insurance company; | 25 | | (3) the terms of reinsurance arrangements entered into |
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| 1 | | by the captive insurance company; | 2 | | (4) the type of business covered in policies issued by | 3 | | the captive insurance company; | 4 | | (5) the underwriting practices and procedures of the | 5 | | captive insurance company; and | 6 | | (6) any other criteria that has an impact on the | 7 | | operations of the captive insurance company determined to | 8 | | be significant by the Director. No pure captive insurance | 9 | | company, association
captive insurance company | 10 | | incorporated as a stock insurer,
or industrial insured | 11 | | captive insurance company incorporated
as a stock insurer | 12 | | shall be issued a certificate of
authority unless it shall | 13 | | possess and thereafter maintain
unimpaired paid-in capital | 14 | | of not less than the minimum
capital requirement applicable | 15 | | to the class or classes
and clause or clauses of Section 4 | 16 | | describing the kind
or kinds of insurance which such | 17 | | captive insurance company
is authorized to write, as set | 18 | | forth in subsection (1) of Section 13.
| 19 | | B. The amount of capital and surplus determined by the | 20 | | Director under subsection A of this Section may not be less | 21 | | than $250,000 for a pure captive insurance company, $500,000 | 22 | | for an industrial insured captive insurance company, and | 23 | | $750,000 for an association captive insurance company. Such | 24 | | capital may be in the form of (1) all cash
or cash equivalents; | 25 | | or (2) cash or cash equivalents
representing at least 20% of | 26 | | the requisite capital,
together with an irrevocable letter of |
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| 1 | | credit for the
remainder of the requisite capital, which letter | 2 | | of
credit must (a) be approved by the Director, (b) be issued | 3 | | or
unconditionally confirmed by (i) a
bank chartered by this | 4 | | State, (ii) a member bank of the
Federal Reserve System or | 5 | | (iii) a United States office of a foreign
banking corporation | 6 | | that is: (A) licensed under the laws of the United
States or | 7 | | any state thereof, (B) regulated, supervised and examined by
| 8 | | United States federal or state authorities having regulatory | 9 | | authority over
banks and trust companies, and (C) designated by | 10 | | the Securities Valuation
Office of the National Association of | 11 | | Insurance Commissioners as meeting
its credit standards for | 12 | | issuing or confirming letters of credit or, in the
event that | 13 | | the Director elects to establish credit standards by rule, in
| 14 | | compliance with rules promulgated by the Director establishing | 15 | | reasonable
standards of safety and soundness substantially | 16 | | equivalent to those of the
Securities Valuation Office of the | 17 | | National Association of Insurance
Commissioners, and (c) | 18 | | satisfy the requirements of Section 123C-19; or (3)
cash or | 19 | | cash equivalents representing at least 33% of the requisite
| 20 | | capital, together with irrevocable contractual obligations of
| 21 | | the member organizations of the captive insurance
company for | 22 | | the payment of the remainder of the requisite
capital in no | 23 | | more than 3 equal installments in each of the
3 calendar years | 24 | | following the date of the grant of
the certificate of authority | 25 | | to the captive insurance
company, which irrevocable | 26 | | contractual obligations shall
by contract be subject to |
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| 1 | | acceleration (in a manner
acceptable to the Director) by the | 2 | | Company at the direction
of the Director and shall be secured | 3 | | by a letter of
credit or other form of guarantee or security | 4 | | acceptable
to the Director.
| 5 | | C. The capital and surplus required by subsection A of this | 6 | | Section must be in the form of: | 7 | | (1) United States currency; | 8 | | (2) an irrevocable letter of credit, in a form approved | 9 | | by the Director and not secured by a guarantee from an | 10 | | affiliate, naming the Director as beneficiary for the | 11 | | security of the captive insurance company's policyholders | 12 | | and issued by a bank approved by the Director; | 13 | | (3) bonds of this State; or | 14 | | (4) bonds or other evidences of indebtedness of the | 15 | | United States, the principal and interest of which are | 16 | | guaranteed by the United States. | 17 | | (Source: P.A. 86-632 .)
| 18 | | (215 ILCS 5/123C-9) (from Ch. 73, par. 735C-9)
| 19 | | (Section scheduled to be repealed on January 1, 2027)
| 20 | | Sec. 123C-9. Reports, statements and mandatory reserves.
| 21 | | A. Captive insurance companies shall not be required
to | 22 | | make any annual report except as provided in this
Article.
| 23 | | B. (1) On or before Prior to March 1 of each year, each | 24 | | captive
insurance company shall submit to the Director a report
| 25 | | of its financial condition, verified by oath of 2
of its |
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| 1 | | executive officers and including (i) a balance
sheet reporting | 2 | | assets, liabilities, capital and surplus,
(ii) a statement of | 3 | | gain or loss from operations, (iii)
a statement of changes in | 4 | | financial position, (iv) a
statement of changes in capital and | 5 | | surplus, and (v)
in the case of industrial insured captive | 6 | | insurance
companies, an analysis of loss reserve development,
| 7 | | information on risks ceded and assumed under reinsurance
| 8 | | agreements, on forms prescribed by the Director, and
a schedule | 9 | | of its invested assets on forms prescribed
by the Director , and | 10 | | (vi) a statement of actuarial opinion by a qualified | 11 | | independent actuary concerning the reasonableness of the | 12 | | captive insurance company's loss and loss adjustment expense | 13 | | reserves in such form and of such content as specified in the | 14 | | National Association of Insurance Commissioners Annual | 15 | | Statement Instructions: Property and Casualty .
| 16 | | (2) In addition, prior to March 1 of each year, each
| 17 | | association captive insurance company shall submit to
the | 18 | | Director such additional data or information, which
the | 19 | | Director may from time to time require, on a form
specified by | 20 | | the Director.
| 21 | | (3) On or before June 1 of each year, each captive | 22 | | insurance company shall submit to the Director a report of its | 23 | | financial condition at last year's end with an independent | 24 | | certified public accountant's opinion of the company's | 25 | | financial condition. Prior to June 1 of each year, each | 26 | | association and industrial
insured captive insurance
company |
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| 1 | | shall submit to the Director a report of its
financial | 2 | | condition, certified by a recognized firm
of independent public | 3 | | accountants acceptable to the
Director and including the items | 4 | | referred to in items
(i), (ii), (iii) and (iv) of paragraph (1) | 5 | | of this subsection B.
| 6 | | (4) Unless the Director permits otherwise, the reports
of | 7 | | financial condition referred to in paragraphs (1)
and (3) of | 8 | | this subsection B are to be prepared in accordance with the | 9 | | Accounting
Practices and Procedures Manual adopted by the | 10 | | National
Association of Insurance Commissioners. The Director
| 11 | | shall have authority to extend the time for filing any
report | 12 | | or statement by any company for reasons which
he considers good | 13 | | and sufficient.
| 14 | | C. In addition, any captive insurance company may be
| 15 | | required by the Director, when he considers such action
to be | 16 | | necessary and appropriate for the protection of
policyholders, | 17 | | creditors, shareholders or claimants,
to file, within 60 days | 18 | | after mailing to the company
of a notice that such is required, | 19 | | a supplemental summary
statement as of the last day of any | 20 | | calendar month occurring
during the 100 days next preceding the | 21 | | mailing of such
notice designated by him on forms prescribed | 22 | | and furnished
by the Director. No company shall be required to | 23 | | file
more than 4 supplemental summary statements during any
| 24 | | consecutive 12 month period.
| 25 | | D. Every captive insurance company shall, at all times,
| 26 | | maintain reserves in an amount estimated in the aggregate
to |
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| 1 | | provide for the payment of all losses and claims
incurred, | 2 | | whether reported or unreported, which are
unpaid and for which | 3 | | such company may be liable, and
to provide for the expenses of | 4 | | adjustment or settlement
of such losses and claims. The | 5 | | aggregate reserves shall
be reduced by reinsurance ceded which | 6 | | meets the requirements
of Section 123C-13.
For the purpose of | 7 | | such reserves, the company shall keep a complete and
itemized | 8 | | record showing all losses and claims on which it has received
| 9 | | notice, including all notices received by it of the occurrence | 10 | | of any event
which may result in a loss. Such record shall be | 11 | | opened in chronological
receipt order, with each notice of loss | 12 | | or claim identified by appropriate
number or coding.
| 13 | | E. Every captive insurance company shall maintain an
| 14 | | unearned premium reserve on all policies in force which
reserve | 15 | | shall be charged as a liability. The portions
of the gross | 16 | | premiums in force, after deducting reinsurance
qualifying | 17 | | under Section 123C-13, which shall be held
as a premium | 18 | | reserve, shall never be less in the aggregate
than the | 19 | | company's actual liability to all its insureds
for the return | 20 | | of gross unearned premiums. In the calculation
of the company's | 21 | | actual liability to all its insureds,
the reserve shall be | 22 | | computed pursuant to the method
commonly referred to as the | 23 | | monthly pro rata method;
provided, however, that the Director | 24 | | may require that
such reserve shall be equal to the unearned | 25 | | portions
of the gross premiums in force, after deducting | 26 | | reinsurance
qualifying under Section 123C-13, in which case the |
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| 1 | | reserve shall
be computed on each respective risk from the date | 2 | | of
the issuance of the policy.
| 3 | | E-5. A captive insurance company may make a written | 4 | | application to the Director for filing its annual report | 5 | | required under this Section on a fiscal year's end. If an | 6 | | alternative filing date is granted, the company shall file: | 7 | | (1) the annual report, including a statement of | 8 | | actuarial opinion by a qualified independent actuary | 9 | | concerning the reasonableness of the captive insurance | 10 | | company's loss and loss adjustment expense reserves in such | 11 | | form and of such content as specified in the National | 12 | | Association of Insurance Commissioners Annual Statement | 13 | | Instructions: Property and Casualty, no later than the 60th | 14 | | day after the date of the company's fiscal year's end; | 15 | | (2) the report of its financial condition at last | 16 | | year's end with an independent certified public | 17 | | accountant's opinion of the company's financial condition; | 18 | | and | 19 | | (3) its balance sheet, income statement, and statement | 20 | | of cash flows, verified by 2 of its executive officers, | 21 | | before March 1 of each year to provide sufficient detail to | 22 | | support a premium tax return. | 23 | | F. The reports required by this Section shall be prepared
| 24 | | and filed on a calendar year basis.
| 25 | | G. Notwithstanding the requirements of this Section,
a | 26 | | captive insurance company may prepare and issue financial
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| 1 | | statements prepared in accordance with generally accepted
| 2 | | accounting principles.
| 3 | | (Source: P.A. 85-131; 86-1155; 86-1156 .)
| 4 | | (215 ILCS 5/123C-11) (from Ch. 73, par. 735C-11)
| 5 | | (Section scheduled to be repealed on January 1, 2027)
| 6 | | Sec. 123C-11. Grounds and procedures for suspension
or | 7 | | revocation of certificate of authority. | 8 | | A. The certificate of authority of a captive insurance
| 9 | | company to do an insurance business in this State may
be | 10 | | suspended or revoked by the Director for any of the
following | 11 | | reasons:
| 12 | | (1) insolvency or impairment of required capital or | 13 | | surplus to policy holders ;
| 14 | | (2) failure to meet the requirements of Sections 123C-3 | 15 | | or
123C-4;
| 16 | | (3) refusal or failure to submit an annual report,
as | 17 | | required by Section 123C-9, or any other report or
| 18 | | statement required by law or by lawful order of the
| 19 | | Director;
| 20 | | (4) failure to comply with the provisions of its own
| 21 | | charter or bylaws (or, in the case of an industrial
insured | 22 | | captive, with the provisions of the investment
policy set | 23 | | forth in its plan of operation as approved
from time to | 24 | | time by the Director);
| 25 | | (5) failure to submit to examination or any legal
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| 1 | | obligation relative thereto, as required by Section | 2 | | 123C-10;
| 3 | | (6) refusal or failure to pay expenses , and charges , | 4 | | and taxes
as required by Sections 408 , 409 , 123C-10 , and | 5 | | 123C-17;
| 6 | | (7) use of methods that, although not otherwise | 7 | | specifically
prohibited by law, nevertheless render its | 8 | | operation
detrimental or its condition unsound with | 9 | | respect to
the public or to its policyholders; or
| 10 | | (8) failure otherwise to comply with the laws of this
| 11 | | State.
| 12 | | B. If the Director finds, upon examination, hearing,
or | 13 | | other evidence, that any captive insurance company
has | 14 | | committed any of the acts specified in subsection A,
he may | 15 | | suspend or revoke such certificate of authority
if he deems it | 16 | | in the best interest of the public and
the policyholders of | 17 | | such captive insurance company,
notwithstanding any other | 18 | | provision of this Article.
| 19 | | C. The provisions of Articles XIII and XIII 1/2 shall
apply | 20 | | to and govern the conservation, rehabilitation,
liquidation | 21 | | and dissolution of captive insurance companies.
| 22 | | (Source: P.A. 85-131 .)
| 23 | | (215 ILCS 5/123C-12) (from Ch. 73, par. 735C-12)
| 24 | | (Section scheduled to be repealed on January 1, 2027)
| 25 | | Sec. 123C-12. Legal investments. |
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| 1 | | A. The provisions of Article VIII and of Sections 131.2
and | 2 | | 131.3 shall apply to association captive insurance
companies.
| 3 | | B. No pure captive insurance company or industrial
insured | 4 | | captive insurance company shall be subject to
any restrictions | 5 | | on allowable investments whatever,
including those limitations | 6 | | contained in Articles VIII
and VIII 1/2; provided, however, | 7 | | that the Director
may prohibit or limit any investment or type | 8 | | of investment
that threatens the solvency or liquidity of any | 9 | | such
company; and provided further that an industrial insured
| 10 | | captive insurance company must adhere to the investment
policy | 11 | | set forth in its plan of operation as approved
from time to | 12 | | time by the Director.
| 13 | | C. A captive insurance company may make loans to its | 14 | | affiliates with the prior approval of the Director. Each loan | 15 | | must be evidenced by a note approved by the Director. A captive | 16 | | insurance company may not make a loan of the minimum capital | 17 | | and surplus funds required by this Article. | 18 | | D. The Director may prohibit or limit an investment that | 19 | | threatens the solvency or liquidity of a captive insurance | 20 | | company. | 21 | | (Source: P.A. 85-131 .)
| 22 | | (215 ILCS 5/123C-13) (from Ch. 73, par. 735C-13)
| 23 | | (Section scheduled to be repealed on January 1, 2027)
| 24 | | Sec. 123C-13. Reinsurance.
| 25 | | A. Any captive insurance company may provide reinsurance
on |
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| 1 | | risks ceded by any other insurer; provided, however,
that the | 2 | | risks so assumed are the same as the captive
insurance company | 3 | | could legally insure on a direct basis. | 4 | | The provisions of Section 174.1 shall not apply to
any | 5 | | captive insurance company providing reinsurance.
| 6 | | B. Subject to the provisions of Article XI, any captive
| 7 | | insurance company may cede, and may take credit for
in the | 8 | | establishment of reserves, all or any part of
its risks.
| 9 | | Furthermore, in addition to Section 173.1, any pure or | 10 | | industrial insured
captive insurance company may take credit, | 11 | | as either an
asset or a deduction from liability, for | 12 | | reinsurance so ceded to the extent:
| 13 | | (1) The reinsurer satisfies all of the following (a) | 14 | | through (g):
| 15 | | (a) the principal business of the reinsurer (other | 16 | | than investments
in subsidiaries and other investment | 17 | | activities) is to accept reinsurance from
captive | 18 | | insurance companies
organized under Article VIIC, of | 19 | | which the company accepting the
reinsurance directly | 20 | | or indirectly owns, controls, or holds with power to
| 21 | | vote more than 80% of the outstanding voting securities | 22 | | if organized as a
stock company or more than 80% of the | 23 | | voting control if organized as a
mutual company and to | 24 | | provide insurance related services;
| 25 | | (b) is licensed to transact insurance or | 26 | | reinsurance in its jurisdiction of domicile;
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| 1 | | (c) submits to this State's authority to examine | 2 | | its books and
records and agrees to pay the cost | 3 | | thereof;
| 4 | | (d) files annually with the Director a copy of its | 5 | | most recent
audited financial statements;
| 6 | | (e) maintains a surplus as regards policyholders | 7 | | in an amount that
is not less than $20,000,000;
| 8 | | (f) files with the Department the following:
| 9 | | (i) evidence of its submission to the | 10 | | jurisdiction of any court of competent
| 11 | | jurisdiction in any state of the United States and | 12 | | its agreement to comply with all
requirements | 13 | | necessary to give the court jurisdiction and to | 14 | | abide by
the final decision of the court or of any | 15 | | appellate court in the event of an appeal; and
| 16 | | (ii) an instrument designating the Director or | 17 | | a designated attorney as its
true and lawful | 18 | | attorney upon whom may be served any lawful process | 19 | | in any
action, suit, or proceeding instituted by or | 20 | | on behalf of the ceding company;
| 21 | | (g) has not been the subject of an order of the | 22 | | Director entered
after notice and hearing prohibiting | 23 | | the reinsurer from utilizing this
paragraph (1); or
| 24 | | (2) the taking of credit by the captive insurance | 25 | | company has
otherwise received the prior approval of the | 26 | | Director.
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| 1 | | C. A captive insurance company shall provide notice to the | 2 | | Director of a reinsurance agreement to which the company | 3 | | becomes a party not later than the 30th day after the date of | 4 | | the execution of the agreement. | 5 | | D. A captive insurance company shall provide notice of a | 6 | | termination of a previously filed reinsurance agreement to the | 7 | | Director not later than the 30th day after the date of | 8 | | termination. | 9 | | E. Notwithstanding Section 123C-15 of this Code, a captive | 10 | | insurance company, with the Director's approval, may accept | 11 | | risks from and cede risks to or take credit for reserves on | 12 | | risks ceded to: | 13 | | (1) a captive reinsurance pool composed only of other | 14 | | captive insurance companies holding a certificate of | 15 | | authority under this Article or a similar law of another | 16 | | jurisdiction; or | 17 | | (2) an affiliated captive insurance company holding a | 18 | | certificate of authority under this Article or a similar | 19 | | law of another jurisdiction. | 20 | | (Source: P.A. 87-108 .)
| 21 | | (215 ILCS 5/123C-16) (from Ch. 73, par. 735C-16)
| 22 | | (Section scheduled to be repealed on January 1, 2027)
| 23 | | Sec. 123C-16. Tax.
| 24 | | A. Every captive insurance company organized under
the | 25 | | provisions of this Article and doing business in
this State |
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| 1 | | shall, for the privilege of doing business
in this State, pay | 2 | | to the Director for the State treasury
the State tax imposed | 3 | | under Section 409 to the same
extent and in the same manner as | 4 | | a domestic insurance company using a tax form prescribed by the | 5 | | Director on or before March 15 of each year .
| 6 | | B. Domestic captive insurance companies shall be insurance | 7 | | companies
subject to the rules now provided for such companies | 8 | | under the Illinois
Income Tax Act.
| 9 | | C. A domestic captive insurance company that has engaged | 10 | | one or more
administrative or management service organizations | 11 | | in order to comply with
subsection D of Section 123C-2 shall be | 12 | | deemed to meet the requirements of
Section 409(4)(a) through | 13 | | (d) provided that the company and such
organizations when | 14 | | viewed collectively as a group:
| 15 | | (a) maintain a place of business in this State; and
| 16 | | (b) maintain in this State personnel knowledgeable of | 17 | | and responsible
for the company's operations, books, | 18 | | records, administration and annual
statement; and
| 19 | | (c) conduct in this State substantially all of the | 20 | | company's
underwriting, policy issuing and servicing | 21 | | operations relating to the
company's policyholders and | 22 | | certificate holders; and
| 23 | | (d) comply with the provisions of Section 133(2) with | 24 | | respect to such
domestic captive insurance company's | 25 | | books, records, documents, accounts,
vouchers and | 26 | | securities.
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| 1 | | D. Annually, 10% of the premium tax revenues collected | 2 | | pursuant to this Section shall be transferred to the Department | 3 | | for the regulation of captive insurance companies under this | 4 | | Article. | 5 | | (Source: P.A. 86-632; 86-634 .)
| 6 | | (215 ILCS 5/123C-17) (from Ch. 73, par. 735C-17)
| 7 | | (Section scheduled to be repealed on January 1, 2027)
| 8 | | Sec. 123C-17. Fees.
| 9 | | A. The Director shall charge, collect, and give proper
| 10 | | acquittances for the payment of the following fees and
charges | 11 | | with respect to a captive insurance company:
| 12 | | 1. For filing all documents submitted for the | 13 | | incorporation
or organization or certification of a | 14 | | captive insurance
company, $2,000 $7,000 .
| 15 | | 2. For filing requests for approval of changes in
the | 16 | | elements of a plan of operations, $200.
| 17 | | B. Except as otherwise provided in subsection A of this | 18 | | Section and in
Section 123C-10, the provisions of Section 408 | 19 | | shall
apply to captive insurance companies.
| 20 | | C. Any funds collected from captive insurance companies
| 21 | | pursuant to this Section shall be treated in the manner
| 22 | | provided in subsection (11) of Section 408.
| 23 | | (Source: P.A. 93-32, eff. 7-1-03 .)
| 24 | | (215 ILCS 5/123C-19) (from Ch. 73, par. 735C-19)
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| 1 | | (Section scheduled to be repealed on January 1, 2027)
| 2 | | Sec. 123C-19. Letters of credit. | 3 | | A. Any letter of credit used to meet the requirements
set | 4 | | forth in Sections 123C-3 and 123C-4:
| 5 | | (1) (blank); may not be used to provide more than 80% | 6 | | of the
amount required in Section 123C-3 and may not be | 7 | | used
to provide more than 80% of the amount required in | 8 | | Section
123C-4;
| 9 | | (2) may not be allowed to expire without the prior
| 10 | | written approval of the Director and shall provide for
30 | 11 | | days' advance written notice to the Director of the
| 12 | | proposed expiration of the letter of credit; and
| 13 | | (3) must be provided pursuant to arrangements,
| 14 | | acceptable to the Director, wherein all funds obtained
by | 15 | | the company under the letter of credit are free of
claims | 16 | | of any party which may arise on account of the
company's | 17 | | resort to the letter of credit.
| 18 | | B. If letters of credit are used to provide surplus
in | 19 | | excess of the amounts required in Section 123C-4:
| 20 | | (1) the aggregate amount of all such letters of credit
| 21 | | shall not exceed the policyholder surplus of the company;
| 22 | | (2) without the prior written approval of the Director,
| 23 | | no such letter of credit may be allowed to expire, in
any | 24 | | period of 12 consecutive months ending on the date
of such | 25 | | expiration, in an amount greater than the greater
of (a) | 26 | | 10% of the company's surplus as regards policyholders
as of |
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| 1 | | the 31st day of December next preceding, or (b)
the net | 2 | | income of the company for the 12 month period
ending the | 3 | | 31st 3lst day of December next preceding. For
purposes of | 4 | | this Section, net income includes net realized
capital | 5 | | gains in an amount not to exceed 20% of net
unrealized | 6 | | capital gains; and
| 7 | | (3) each such letter of credit shall provide for
30 | 8 | | days' advance written notice to the Director of the
| 9 | | proposed expiration of the letter of credit.
| 10 | | C. (Blank). The Director may require any company to draw | 11 | | upon
its letters of credit, in amounts determined by the
| 12 | | Director, if the Director determines that such action
is | 13 | | necessary for the protection of the interests of
policyholders.
| 14 | | D. (Blank). Any company including amounts supported by | 15 | | letters
of credit in its capital or surplus shall, prior to
the | 16 | | time any person becomes a policyholder, notify such
person of | 17 | | the amounts supported by letters of credit
and included in the | 18 | | company's capital or surplus.
| 19 | | (Source: P.A. 85-131 .)
| 20 | | (215 ILCS 5/123C-23 new) | 21 | | Sec. 123C-23. Approval of captive reinsurance pools. | 22 | | Before determining whether to approve a captive insurance | 23 | | company's participation in a captive reinsurance pool under | 24 | | Section 123C-13 of this Code, the Director may: | 25 | | (1) require the captive insurance company provide to |
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| 1 | | the Director evidence that the captive reinsurance pool: | 2 | | (a) is composed only of other captive insurance | 3 | | companies holding a certificate of authority under | 4 | | this Article or a similar law of another jurisdiction; | 5 | | and | 6 | | (b) will be able to meet the pool's financial | 7 | | obligations; and | 8 | | (2) impose any other limitation or requirement on the | 9 | | captive insurance company that is necessary and proper to | 10 | | provide adequate security for the captive insurance | 11 | | company. | 12 | | (215 ILCS 5/123C-24 new) | 13 | | Sec. 123C-24. Standards for risk management of controlled | 14 | | unaffiliated business. The Director may adopt rules | 15 | | establishing standards to ensure that an affiliated company is | 16 | | able to exercise control of the risk management function of any | 17 | | controlled unaffiliated business to be insured by the captive | 18 | | insurance company. | 19 | | (215 ILCS 5/123C-25 new) | 20 | | Sec. 123C-25. Captive managers. Before providing captive | 21 | | management services to a licensed captive insurance company, a | 22 | | captive management company shall register with the Director by | 23 | | providing the information required on a form adopted by the | 24 | | Director. |
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| 1 | | (215 ILCS 5/123C-26 new) | 2 | | Sec. 123C-26. Dividends. | 3 | | A. A captive insurance company shall notify the Director in | 4 | | writing when issuing policyholder dividends. | 5 | | B. A captive insurance company, with the Director's | 6 | | approval, may issue dividends or distributions to the holders | 7 | | of an equity interest in the captive insurance company. The | 8 | | Director shall adopt rules to implement this subsection B. | 9 | | (215 ILCS 5/123C-27 new) | 10 | | Sec. 123C-27. Rulemaking authority. The Director may adopt | 11 | | reasonable rules as necessary to implement the purposes and | 12 | | provisions of this Article. | 13 | | (215 ILCS 5/123C-28 new) | 14 | | Sec. 123C-28. Confidentiality. | 15 | | A. Any information filed by an applicant or captive | 16 | | insurance company under this Article is confidential and | 17 | | privileged for all purposes, including for purposes of the | 18 | | Freedom of Information Act, a response to a subpoena, or | 19 | | evidence in a civil action. Except as provided by subsections B | 20 | | and C of this Section, the information may not be disclosed | 21 | | without the prior written consent of the applicant or captive | 22 | | insurance company to which the information pertains. | 23 | | B. If the recipient of the information described by |
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| 1 | | subsection A of this Section has the legal authority to | 2 | | maintain the confidential or privileged status of the | 3 | | information and verifies that authority in writing, the | 4 | | Director or his or her designee may disclose the information to | 5 | | any of the following entities functioning in an official | 6 | | capacity: | 7 | | (1) a director of insurance or an insurance department | 8 | | of another state; | 9 | | (2) an authorized law enforcement official; | 10 | | (3) a State's Attorney of this State; | 11 | | (4) the Attorney General; | 12 | | (5) a grand jury; | 13 | | (6) the National Association of Insurance | 14 | | Commissioners if the captive insurance company is | 15 | | affiliated with an insurance company that is part of an | 16 | | insurance holding company system as described in Article | 17 | | VIII 1/2 of this Code; | 18 | | (7) another state or federal regulator if the applicant | 19 | | or captive insurance company to which the information | 20 | | relates operates in the entity's jurisdiction; | 21 | | (8) an international insurance regulator or analogous | 22 | | financial agency if the captive insurance company is | 23 | | affiliated with an insurance company that is part of an | 24 | | insurance holding company system as described in Article | 25 | | VIII 1/2 of this Code and the holding company system | 26 | | operates in the entity's jurisdiction; or |
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| 1 | | (9) members of a supervisory college described by | 2 | | Section 131.20c of this Code, if the captive insurance | 3 | | company is affiliated with an insurance company that is | 4 | | part of an insurance holding company system as described in | 5 | | Article VIII 1/2 of this Code. | 6 | | C. The Director may use information described by subsection | 7 | | A of this Section in the furtherance of a legal or regulatory | 8 | | action relating to the administration of this Code.
| 9 | | (215 ILCS 5/123C-4 rep.)
| 10 | | Section 10. The Illinois Insurance Code is amended by | 11 | | repealing Section 123C-4.
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| 1 | |
INDEX
| 2 | |
Statutes amended in order of appearance
| | 3 | | 215 ILCS 5/123C-1 | from Ch. 73, par. 735C-1 | | 4 | | 215 ILCS 5/123C-2 | from Ch. 73, par. 735C-2 | | 5 | | 215 ILCS 5/123C-3 | from Ch. 73, par. 735C-3 | | 6 | | 215 ILCS 5/123C-9 | from Ch. 73, par. 735C-9 | | 7 | | 215 ILCS 5/123C-11 | from Ch. 73, par. 735C-11 | | 8 | | 215 ILCS 5/123C-12 | from Ch. 73, par. 735C-12 | | 9 | | 215 ILCS 5/123C-13 | from Ch. 73, par. 735C-13 | | 10 | | 215 ILCS 5/123C-16 | from Ch. 73, par. 735C-16 | | 11 | | 215 ILCS 5/123C-17 | from Ch. 73, par. 735C-17 | | 12 | | 215 ILCS 5/123C-19 | from Ch. 73, par. 735C-19 | | 13 | | 215 ILCS 5/123C-23 new | | | 14 | | 215 ILCS 5/123C-24 new | | | 15 | | 215 ILCS 5/123C-25 new | | | 16 | | 215 ILCS 5/123C-26 new | | | 17 | | 215 ILCS 5/123C-27 new | | | 18 | | 215 ILCS 5/123C-28 new | | | 19 | | 215 ILCS 5/123C-4 rep. | |
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