Full Text of SB2864 97th General Assembly
SB2864eng 97TH GENERAL ASSEMBLY |
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| 1 | | AN ACT concerning insurance.
| 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 Section 173.1 as follows:
| 6 | | (215 ILCS 5/173.1) (from Ch. 73, par. 785.1)
| 7 | | Sec. 173.1. Credit allowed a domestic ceding insurer.
| 8 | | (1) Except as otherwise provided under Article VIII 1/2 of | 9 | | this Code and
related provisions of the Illinois Administrative | 10 | | Code, credit for
reinsurance shall be allowed a domestic ceding | 11 | | insurer as
either an admitted asset or a deduction from | 12 | | liability on account of
reinsurance ceded only when the | 13 | | reinsurer meets the requirements of subdivision
subsection | 14 | | (1)(A) or (B) or (B-5) or (C) or (C-5) or (D).
Credit shall be | 15 | | allowed under subdivision subsection (1)(A) or (B) or (B-5) | 16 | | only as respects
cessions of those kinds or classes of business | 17 | | in which the assuming insurer is
licensed or otherwise | 18 | | permitted to write or assume in its state of domicile, or
in | 19 | | the case of a U.S. branch of an alien assuming insurer, in the | 20 | | state through
which it is entered and licensed to transact | 21 | | insurance or reinsurance. Credit
shall be allowed under | 22 | | subdivision subsection (1) (B-5) or (C) of this Section only
if | 23 | | the applicable requirements of subdivision
subsection (1)(E) |
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| 1 | | have been
satisfied.
| 2 | | (A) Credit shall be allowed when the reinsurance is | 3 | | ceded to an assuming
insurer that is authorized in this | 4 | | State
to transact the types of insurance ceded and has at | 5 | | least $5,000,000 in
capital and surplus.
| 6 | | (B) Credit shall be allowed when the reinsurance is | 7 | | ceded to an assuming
insurer that is accredited as a | 8 | | reinsurer in this State. An accredited
reinsurer is one | 9 | | that:
| 10 | | (1) files with the Director evidence of its | 11 | | submission to this State's
jurisdiction;
| 12 | | (2) submits to this State's authority to examine | 13 | | its books and records;
| 14 | | (3) is licensed to transact insurance or | 15 | | reinsurance in at least one
state, or in the case of a | 16 | | U.S. branch of an alien assuming insurer is
entered | 17 | | through and licensed to transact insurance or | 18 | | reinsurance in at
least one state;
| 19 | | (4) files annually with the Director a copy of its | 20 | | annual statement
filed with the insurance department | 21 | | of its state of domicile and a copy of
its most recent | 22 | | audited financial statement; and
| 23 | | (5) maintains a surplus as regards policyholders | 24 | | in an amount that is
not less than $20,000,000 and | 25 | | whose accreditation has been approved by the
Director. | 26 | | No credit shall be allowed a domestic ceding insurer, |
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| 1 | | if the
assuming insurers' accreditation has been | 2 | | revoked by the Director after
notice and hearing.
| 3 | | (B-5)(1) Credit shall be allowed when the reinsurance | 4 | | is ceded to an assuming insurer that is domiciled in, | 5 | | or in the case of a U.S. branch of an alien assuming
| 6 | | insurer is entered through, a state that employs | 7 | | standards regarding credit for reinsurance | 8 | | substantially similar to those applicable under this | 9 | | Code and the assuming insurer or U.S. branch of an | 10 | | alien assuming insurer
(a) maintains a surplus as | 11 | | regards policyholders in an amount not less than | 12 | | $20,000,000 and
(b) submits to the authority of this | 13 | | State to examine its books and records. | 14 | | (2) The requirement of subdivision (1)(B-5)(1)(a) | 15 | | of this Section does not apply to reinsurance ceded and | 16 | | assumed pursuant to pooling arrangements among | 17 | | insurers in the same holding company system.
| 18 | | (C)(1) Credit shall be allowed when the reinsurance is | 19 | | ceded to
an assuming insurer that maintains a trust | 20 | | fund in a qualified United
States financial | 21 | | institution, as defined in subsection 3(B), for the
| 22 | | payment of the valid claims of its United States | 23 | | policyholders and ceding
insurers, their assigns and | 24 | | successors in interest. The assuming insurer
shall | 25 | | report to the Director information substantially the | 26 | | same as
that required to be reported on the NAIC annual |
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| 1 | | and quarterly financial
statement by authorized
| 2 | | insurers and any other financial information that the
| 3 | | Director deems necessary to determine the financial | 4 | | condition of the
assuming insurer and the sufficiency | 5 | | of the trust
fund.
The assuming insurer shall submit to | 6 | | examination of its books and records by
the Director | 7 | | and bear the expense of examination.
| 8 | | (2)(a) Credit for reinsurance shall not be granted | 9 | | under this subsection
unless the form of the trust and | 10 | | any amendments to the trust have been approved
by:
| 11 | | (i) the regulatory official of the state where | 12 | | the trust is domiciled;
or
| 13 | | (ii) the regulatory official of another state | 14 | | who, pursuant to the
terms of the trust instrument, | 15 | | has accepted principal regulatory oversight of
the | 16 | | trust.
| 17 | | (b) The form of the trust and any trust amendments | 18 | | also shall be filed
with the regulatory official of | 19 | | every state in which the ceding insurer
beneficiaries | 20 | | of the trust are domiciled. The trust instrument shall | 21 | | provide
that contested claims shall be valid and | 22 | | enforceable upon the final order of
any court of | 23 | | competent jurisdiction in the United States. The trust | 24 | | shall vest
legal title to its assets in its trustees | 25 | | for the benefit of the assuming
insurer's United States | 26 | | policyholders and ceding insurees and their assigns
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| 1 | | and
successors in interest. The trust and the assuming | 2 | | insurer shall be subject to
examination as determined | 3 | | by the Director.
| 4 | | (c) The trust shall remain in effect for as long as | 5 | | the assuming insurer
has outstanding obligations due | 6 | | under the reinsurance agreements subject to the
trust. | 7 | | No later than February 28 of each year the trustee of | 8 | | the trust shall
report to the
Director in writing the | 9 | | balance of the trust and a list of the trust's
| 10 | | investments at the preceding year-end and shall | 11 | | certify the date of termination
of
the trust, if so | 12 | | planned, or certify that the trust will not expire | 13 | | prior to
the next following December 31.
| 14 | | (3) The following requirements apply to the | 15 | | following categories of
assuming insurer:
| 16 | | (a) The trust fund for a single assuming | 17 | | insurer shall consist of
funds
in trust in an | 18 | | amount not less than the assuming insurer's | 19 | | liabilities
attributable to reinsurance ceded by | 20 | | U.S. ceding insurers, and
in
addition, the | 21 | | assuming insurer shall maintain a trusteed surplus | 22 | | of not
less than $20,000,000 , except as provided in | 23 | | subdivision (3)(a-5) of this paragraph (D) . | 24 | | (a-5) At any time after the assuming insurer | 25 | | has permanently discontinued underwriting new | 26 | | business secured by the trust for at least 3 full |
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| 1 | | years, the Director with principal regulatory | 2 | | oversight of the trust may authorize a reduction in | 3 | | the required trusteed surplus, but only after a | 4 | | finding, based on an assessment of the risk, that | 5 | | the new required surplus level is adequate for the | 6 | | protection of U.S. ceding insurers, policyholders, | 7 | | and claimants in light of reasonably foreseeable | 8 | | adverse loss development. The risk
assessment may | 9 | | involve an actuarial review, including an | 10 | | independent analysis of reserves and cash flows, | 11 | | and shall consider all material risk factors, | 12 | | including, when applicable, the lines of business | 13 | | involved, the stability of the incurred loss | 14 | | estimates, and the effect of the surplus | 15 | | requirements on the assuming insurer's liquidity | 16 | | or solvency. The minimum required trusteed surplus | 17 | | may not be reduced to an amount less than 30% of | 18 | | the assuming insurer's liabilities attributable to | 19 | | reinsurance ceded by U.S. ceding
insurers covered | 20 | | by the trust.
| 21 | | (b)(i) In the case of a group including | 22 | | incorporated and
individual unincorporated
| 23 | | underwriters:
| 24 | | (I) for reinsurance ceded under | 25 | | reinsurance agreements with an
inception, | 26 | | amendment, or renewal date on or after January |
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| 1 | | 1, 1993 August 1, 1995 , the trust
shall consist | 2 | | of a trusteed account in an amount not less | 3 | | than the respective underwriters' group's
| 4 | | several liabilities attributable to business | 5 | | ceded by U.S. domiciled ceding
insurers to any | 6 | | member of the group;
| 7 | | (II) for reinsurance ceded under | 8 | | reinsurance agreements with an
inception date | 9 | | on or before December 31, 1992 July 31, 1995 | 10 | | and not amended or renewed after
that date, | 11 | | notwithstanding the other provisions of this | 12 | | Act, the trust shall
consist of a trusteed | 13 | | account in an amount not less than the group's | 14 | | several
insurance and reinsurance liabilities | 15 | | attributable to business written in the
United | 16 | | States; and
| 17 | | (III) in addition to these trusts, the | 18 | | group shall maintain in trust
a
trusteed | 19 | | surplus of which not less than $100,000,000 | 20 | | shall be held jointly for
the benefit of the | 21 | | U.S. domiciled ceding insurers of any member of | 22 | | the group
for all years of account.
| 23 | | (ii) The incorporated members of the
group | 24 | | shall not be engaged in any business other than | 25 | | underwriting as a member
of the group and shall be | 26 | | subject to the same level of solvency regulation |
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| 1 | | and
control by the group's domiciliary regulator | 2 | | as are the unincorporated
members.
| 3 | | (iii) Within 90 days after its financial | 4 | | statements are due to be
filed
with the group's | 5 | | domiciliary regulator, the group shall provide to | 6 | | the Director
an annual certification by the | 7 | | group's domiciliary regulator of the solvency of
| 8 | | each underwriter member, or if a certification is | 9 | | unavailable, financial
statements prepared by | 10 | | independent public accountants of each underwriter
| 11 | | member of the group.
| 12 | | (c) In the case of a group of incorporated | 13 | | insurers under
common
administration, the group | 14 | | shall:
| 15 | | (i) have continuously transacted an | 16 | | insurance business
outside the United States | 17 | | for at least 3 years immediately before making
| 18 | | application for accreditation;
| 19 | | (ii) maintain aggregate policyholders' | 20 | | surplus of
not less than $10,000,000,000;
| 21 | | (iii) maintain a trust in an amount not
| 22 | | less than
the group's
several liabilities | 23 | | attributable to business ceded by United | 24 | | States
domiciled ceding
insurers to any member | 25 | | of the group pursuant to reinsurance contracts | 26 | | issued in
the name of the group;
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| 1 | | (iv) in addition, maintain a joint | 2 | | trusteed
surplus
of which not less than | 3 | | $100,000,000 shall be held jointly for the | 4 | | benefit
of the United
States ceding insurers of | 5 | | any member of the group as additional security | 6 | | for
these liabilities; and
| 7 | | (v) within 90 days after its financial | 8 | | statements are due to be
filed
with the group's | 9 | | domiciliary regulator,
make available to the | 10 | | Director an annual certification of each | 11 | | underwriter
member's
solvency by the member's | 12 | | domiciliary regulator and financial statements | 13 | | of
each
underwriter member of the group | 14 | | prepared by its independent public
accountant.
| 15 | | (C-5) Credit shall be allowed when the reinsurance is | 16 | | ceded to an assuming insurer that has been certified by the | 17 | | Director as a reinsurer in this State and secures its | 18 | | obligations in accordance with the requirements of this | 19 | | subsection. | 20 | | (1) In order to be eligible for certification, the | 21 | | assuming insurer shall meet the following | 22 | | requirements: | 23 | | (a) the assuming insurer must be domiciled and | 24 | | licensed to transact insurance or reinsurance in a | 25 | | qualified jurisdiction, as determined by the | 26 | | Director pursuant to subparagraph (3) of this |
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| 1 | | paragraph; | 2 | | (b) the assuming insurer must maintain minimum | 3 | | capital and surplus, or its equivalent, in an | 4 | | amount to be determined by the Director pursuant to | 5 | | regulation; | 6 | | (c) the assuming insurer must maintain | 7 | | financial strength ratings from 2 or more rating | 8 | | agencies deemed acceptable by the Director | 9 | | pursuant to regulation; | 10 | | (d) the assuming insurer must agree to submit | 11 | | to the jurisdiction of this State, appoint the | 12 | | Director as its agent for service of process in | 13 | | this State, and agree to provide security for 100% | 14 | | of the assuming insurer's liabilities attributable | 15 | | to reinsurance ceded by U.S. ceding insurers if it | 16 | | resists enforcement of a final U.S. judgment; | 17 | | (e) the assuming insurer must agree to meet | 18 | | applicable information filing requirements as | 19 | | determined by the Director, both with respect to an | 20 | | initial application for certification and on an | 21 | | ongoing basis; and | 22 | | (f) the assuming insurer must satisfy any | 23 | | other requirements for certification deemed | 24 | | relevant by the Director. | 25 | | (2) An association, including incorporated and | 26 | | individual unincorporated underwriters, may be a |
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| 1 | | certified reinsurer. In order to be eligible for | 2 | | certification, in addition to satisfying the | 3 | | requirements of subparagraph (1) of this paragraph | 4 | | (C-5): | 5 | | (a) the association shall satisfy its minimum | 6 | | capital and surplus requirements through the | 7 | | capital and surplus equivalents (net of | 8 | | liabilities) of the association and its members, | 9 | | which shall include a joint central fund that may | 10 | | be applied to any unsatisfied obligation of the | 11 | | association or any of its members, in an amount | 12 | | determined by the Director to provide adequate | 13 | | protection; | 14 | | (b) the incorporated members of the | 15 | | association shall not be engaged in any business | 16 | | other than underwriting as a member of the | 17 | | association and shall be subject to the same level | 18 | | of regulation and solvency control by the | 19 | | association's domiciliary regulator as are the | 20 | | unincorporated members; and | 21 | | (c) within 90 days after its financial | 22 | | statements are due to be filed with the | 23 | | association's domiciliary regulator, the | 24 | | association shall provide to the Director an | 25 | | annual certification by the association's | 26 | | domiciliary regulator of the solvency of each |
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| 1 | | underwriter member; or if a certification is | 2 | | unavailable, financial statements, prepared by | 3 | | independent public accountants, of each | 4 | | underwriter member of the association. | 5 | | (3) The Director shall create and publish a list of | 6 | | qualified jurisdictions, under which an assuming | 7 | | insurer licensed and domiciled in such jurisdiction
is | 8 | | eligible to be considered for certification by the | 9 | | Director as a certified reinsurer. | 10 | | (a) In order to determine whether the | 11 | | domiciliary jurisdiction of a non-U.S. assuming | 12 | | insurer is eligible to be recognized as a qualified | 13 | | jurisdiction, the Director shall evaluate the | 14 | | appropriateness and effectiveness of the | 15 | | reinsurance supervisory system of the | 16 | | jurisdiction, both initially and on an ongoing | 17 | | basis, and consider the rights, benefits, and | 18 | | extent of reciprocal recognition afforded by
the | 19 | | non-U.S. jurisdiction to reinsurers licensed and | 20 | | domiciled in the U.S. A qualified jurisdiction | 21 | | must agree to share information and cooperate with | 22 | | the Director with respect to all certified | 23 | | reinsurers domiciled within that jurisdiction. A | 24 | | jurisdiction may not be recognized as a qualified | 25 | | jurisdiction if the Director has determined that | 26 | | the jurisdiction does not adequately and promptly |
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| 1 | | enforce final U.S. judgments and arbitration | 2 | | awards. Additional factors may be considered in | 3 | | the discretion of the Director. | 4 | | (b) A list of qualified jurisdictions shall be | 5 | | published through the NAIC Committee Process. The | 6 | | Director shall consider this list in determining | 7 | | qualified jurisdictions. If the Director approves | 8 | | a jurisdiction as qualified that does not appear on | 9 | | the list of qualified jurisdictions, then the | 10 | | Director shall provide thoroughly documented | 11 | | justification in accordance with criteria to be | 12 | | developed under regulations. | 13 | | (c) U.S. jurisdictions that meet the | 14 | | requirement for accreditation under the NAIC | 15 | | financial standards and accreditation program | 16 | | shall be recognized as qualified jurisdictions. | 17 | | (d) If a certified reinsurer's domiciliary | 18 | | jurisdiction ceases to be a qualified | 19 | | jurisdiction, then the Director has the discretion | 20 | | to suspend the reinsurer's certification | 21 | | indefinitely, in lieu of revocation. | 22 | | (4) The Director shall assign a rating to each | 23 | | certified reinsurer, giving due
consideration to the | 24 | | financial strength ratings that have been assigned by | 25 | | rating agencies deemed acceptable to the Director | 26 | | pursuant to regulation. The Director shall publish a |
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| 1 | | list of all certified reinsurers and their ratings. | 2 | | (5) A certified reinsurer shall secure obligations | 3 | | assumed from U.S. ceding insurers under this | 4 | | subsection at a level consistent with its rating, as | 5 | | specified in rules adopted by the Director. | 6 | | (a) In order for a domestic ceding insurer to | 7 | | qualify for full financial statement credit for | 8 | | reinsurance ceded to a certified reinsurer, the | 9 | | certified reinsurer shall maintain security in a | 10 | | form acceptable to the Director and consistent | 11 | | with the provisions of subparagraph (3) of this | 12 | | paragraph (C-5), or in a multibeneficiary trust in | 13 | | accordance with paragraph (C) of this
subsection | 14 | | (1), except as otherwise provided in this | 15 | | subparagraph (5). | 16 | | (b) If a certified reinsurer maintains a trust | 17 | | to fully secure its obligations subject to | 18 | | paragraph (C) of this subsection (1), and chooses | 19 | | to secure its obligations incurred as a certified | 20 | | reinsurer in the form of a multibeneficiary trust, | 21 | | then the certified reinsurer shall maintain | 22 | | separate trust accounts for its obligations | 23 | | incurred under reinsurance
agreements issued or | 24 | | renewed as a certified reinsurer with reduced | 25 | | security as permitted by this subsection or | 26 | | comparable laws of other U.S. jurisdictions and |
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| 1 | | for its obligations subject to paragraph (C) of | 2 | | this subsection (1). It shall be a condition to the | 3 | | grant of certification under paragraph (C-5) of | 4 | | this subsection (1) that the certified reinsurer | 5 | | shall have bound itself, by the language of the | 6 | | trust and agreement with the
Director with | 7 | | principal regulatory oversight of each such trust | 8 | | account, to fund, upon termination of any such | 9 | | trust account, out of the remaining surplus of such | 10 | | trust any deficiency of any other such trust | 11 | | account. | 12 | | (c) The minimum trusteed surplus requirements | 13 | | provided in paragraph (C) are not applicable with | 14 | | respect to a multibeneficiary trust maintained by | 15 | | a certified reinsurer for the purpose of securing | 16 | | obligations incurred under this subsection, except | 17 | | that such trust shall maintain a minimum trusteed | 18 | | surplus of $10,000,000. | 19 | | (d) With respect to obligations incurred by a | 20 | | certified reinsurer under this subsection, if the | 21 | | security is insufficient, then the Director shall | 22 | | reduce the allowable credit by an amount | 23 | | proportionate to the deficiency, and has the | 24 | | discretion to impose further reductions in | 25 | | allowable credit upon finding that there is a | 26 | | material risk that the certified reinsurer's |
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| 1 | | obligations will not be paid in full when due. | 2 | | (e) For purposes of this subsection, a | 3 | | certified reinsurer whose certification has been | 4 | | terminated for any reason shall be treated as a | 5 | | certified reinsurer required to secure 100% of its | 6 | | obligations. | 7 | | (i) As used in this subsection, the term | 8 | | "terminated" refers to revocation, suspension, | 9 | | voluntary surrender and inactive status. | 10 | | (ii) If the Director continues to assign a | 11 | | higher rating as permitted by other provisions | 12 | | of this Section, then this requirement does not | 13 | | apply to a certified reinsurer in inactive | 14 | | status or to a reinsurer whose certification | 15 | | has been suspended. | 16 | | (6) If an applicant for certification has been | 17 | | certified as a reinsurer in an NAIC accredited | 18 | | jurisdiction, then the Director has the discretion to | 19 | | defer to that jurisdiction's certification, and has | 20 | | the discretion to defer to the rating assigned by that | 21 | | jurisdiction, and such assuming insurer shall be | 22 | | considered to be a certified reinsurer in this State. | 23 | | (7) A certified reinsurer that ceases to assume new | 24 | | business in this State may request to maintain its | 25 | | certification in inactive status in order to continue | 26 | | to qualify for a reduction in security for its in-force |
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| 1 | | business. An inactive certified reinsurer shall | 2 | | continue to comply with all applicable requirements of | 3 | | this subsection, and the Director shall assign a rating | 4 | | that takes into account, if relevant, the reasons why | 5 | | the reinsurer is not assuming new business.
| 6 | | (D) Credit shall be allowed when the reinsurance is | 7 | | ceded to an assuming
insurer not meeting the requirements | 8 | | of subsection (1) (A), (B), or (C)
but only with respect to | 9 | | the insurance of risks located in jurisdictions
where that | 10 | | reinsurance is required by applicable law or regulation of | 11 | | that
jurisdiction.
| 12 | | (E) If the assuming insurer is not licensed to transact | 13 | | insurance in
this State or an accredited reinsurer in this | 14 | | State, the credit permitted
by subdivision subsection | 15 | | (1) (B-5) and (C) shall not be allowed unless the assuming | 16 | | insurer
agrees in the reinsurance agreements:
| 17 | | (1) that in the event of the failure of the | 18 | | assuming insurer to perform
its obligations under the | 19 | | terms of the reinsurance agreement, the assuming
| 20 | | insurer, at the request of the ceding insurer, shall | 21 | | submit to the
jurisdiction of any court of competent | 22 | | jurisdiction in any state of the
United States, will | 23 | | comply with all requirements necessary to give the
| 24 | | court jurisdiction, and will abide by the final | 25 | | decision of the court or of
any appellate court in the | 26 | | event of an appeal; and
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| 1 | | (2) to designate the Director or a designated | 2 | | attorney as its true and
lawful attorney upon whom may | 3 | | be served any lawful process in any action,
suit, or | 4 | | proceeding instituted by or on behalf of the ceding | 5 | | company.
| 6 | | This provision is not intended to conflict with or | 7 | | override the
obligation of the parties to a reinsurance | 8 | | agreement to arbitrate their
disputes, if an obligation to | 9 | | arbitrate is created in the agreement.
| 10 | | (F) If the assuming insurer does not meet the | 11 | | requirements of
subsection (1)(A) or (B), the credit | 12 | | permitted by subsection (1)(C) shall not
be allowed unless | 13 | | the assuming insurer agrees in the trust agreements to the
| 14 | | following conditions:
| 15 | | (1) Notwithstanding any other provisions in the | 16 | | trust instrument, if the
trust fund is inadequate | 17 | | because it contains an amount less than the amount
| 18 | | required by subsection (C)(3) of this Section or if the | 19 | | grantor of the trust
has been declared insolvent or | 20 | | placed into receivership, rehabilitation,
liquidation, | 21 | | or similar proceedings under the laws of its state or | 22 | | country of
domicile, the trustee shall comply with an | 23 | | order of the state official with
regulatory oversight | 24 | | over the trust or with an order of a court of competent
| 25 | | jurisdiction directing the trustee to transfer to the | 26 | | state official with
regulatory oversight all of the |
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| 1 | | assets of the trust fund.
| 2 | | (2) The assets shall be distributed by and claims | 3 | | shall be filed with
and valued by the state official | 4 | | with regulatory oversight in accordance with
the laws | 5 | | of the state in which the trust is domiciled that are | 6 | | applicable to
the liquidation of domestic insurance | 7 | | companies.
| 8 | | (3) If the state official with regulatory | 9 | | oversight determines that the
assets of the trust fund | 10 | | or any part thereof
are not necessary to satisfy the | 11 | | claims of the U.S. ceding insurers of the
grantor of | 12 | | the trust, the assets or part thereof shall be returned | 13 | | by the state
official with regulatory oversight to the | 14 | | trustee for distribution in
accordance with the trust | 15 | | agreement.
| 16 | | (4) The grantor shall waive any rights otherwise | 17 | | available to it under
U.S. law that are inconsistent | 18 | | with the provision.
| 19 | | (G) If an accredited or certified reinsurer ceases to | 20 | | meet the requirements for accreditation or certification, | 21 | | then the Director may suspend or revoke the reinsurer's | 22 | | accreditation or certification. | 23 | | (1) The Director must give the reinsurer notice and | 24 | | opportunity for hearing. The suspension or revocation | 25 | | may not take effect until after the Director's order on | 26 | | hearing, unless: |
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| 1 | | (a) the reinsurer waives its right to hearing; | 2 | | (b) the Director's order is based on | 3 | | regulatory action by the reinsurer's domiciliary | 4 | | jurisdiction or the voluntary surrender or | 5 | | termination of the reinsurer's eligibility to | 6 | | transact insurance or reinsurance business in its | 7 | | domiciliary jurisdiction or in the primary | 8 | | certifying state of the reinsurer under | 9 | | subdivision (C-5)(6) of this subsection; or | 10 | | (c) the Director finds that an emergency | 11 | | requires immediate action and a court of competent | 12 | | jurisdiction has not stayed the Director's action. | 13 | | (2) While a reinsurer's accreditation or | 14 | | certification is suspended, no reinsurance
contract | 15 | | issued or renewed after the effective date of the | 16 | | suspension qualifies for credit except to the extent | 17 | | that the reinsurer's obligations under the contract | 18 | | are secured in accordance with Section 32 of this Code. | 19 | | If a reinsurer's accreditation or certification is | 20 | | revoked, no credit for reinsurance may be granted after | 21 | | the effective date of the revocation except to the | 22 | | extent that the reinsurer's obligations under the | 23 | | contract are secured in accordance with subdivision | 24 | | (C-5)(5) of this subsection or Section 32 of this Code. | 25 | | (H) The following provisions shall apply concerning | 26 | | concentration of risk: |
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| 1 | | (1) A ceding insurer shall take steps to manage its | 2 | | reinsurance recoverable proportionate to its own book | 3 | | of business. A domestic ceding insurer shall notify the | 4 | | Director within 30 days after reinsurance recoverables | 5 | | from any single assuming insurer, or group of | 6 | | affiliated assuming insurers, exceeds 50% of the | 7 | | domestic ceding insurer's last reported surplus to | 8 | | policyholders, or after it is determined that | 9 | | reinsurance recoverables from any single assuming | 10 | | insurer, or group of affiliated assuming insurers, is | 11 | | likely to exceed this limit. The notification shall | 12 | | demonstrate that the exposure is safely managed by the | 13 | | domestic ceding insurer. | 14 | | (2) A ceding insurer shall take steps to diversify | 15 | | its reinsurance program. A domestic ceding insurer | 16 | | shall notify the Director within 30 days after ceding | 17 | | to any single assuming insurer, or group of affiliated | 18 | | assuming insurers, more than 20% of the ceding | 19 | | insurer's gross written premium in the prior calendar | 20 | | year, or after it has determined that the reinsurance | 21 | | ceded to any single assuming insurer, or group of | 22 | | affiliated assuming insurers, is likely to exceed this | 23 | | limit. The notification shall demonstrate that the | 24 | | exposure is safely managed by the domestic ceding | 25 | | insurer. | 26 | | (2) Credit for the reinsurance ceded by a
domestic
insurer |
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| 1 | | to an assuming insurer not meeting the requirements of | 2 | | subsection
(1) shall be allowed in an amount not exceeding the | 3 | | assets or liabilities
carried by
the ceding insurer. The credit | 4 | | shall not exceed the amount of funds held
by or held in trust | 5 | | for the ceding insurer under a reinsurance contract with the | 6 | | assuming insurer
as security for the payment of obligations | 7 | | thereunder, if the security is
held in the United States | 8 | | subject to withdrawal solely by, and under the
exclusive | 9 | | control of, the ceding insurer; or, in the case of a trust, | 10 | | held
in a qualified United States financial institution, as | 11 | | defined in
subsection (3)(B). This security may be in the form | 12 | | of:
| 13 | | (A) Cash.
| 14 | | (B) Securities listed by the Securities Valuation | 15 | | Office of the National
Association of Insurance , including | 16 | | those deemed exempt from filing as defined by the Purposes | 17 | | and Procedures Manual of the Securities Valuation Office | 18 | | Commissioners that conform to the requirements
of Article | 19 | | VIII of this Code that are not issued by an affiliate of | 20 | | either
the assuming or ceding company.
| 21 | | (C) Clean, irrevocable, unconditional, letters of | 22 | | credit issued or
confirmed by a qualified United States | 23 | | financial institution, as defined in
subsection (3)(A). | 24 | | The letters of credit shall be effective no
later than | 25 | | December 31 of the year for which filing is being
made, and | 26 | | in the possession of, or in trust for, the ceding company |
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| 1 | | on or
before the filing date of its annual statement. | 2 | | Letters of credit meeting
applicable standards of issuer | 3 | | acceptability as of the dates of their
issuance (or | 4 | | confirmation) shall, notwithstanding the issuing (or
| 5 | | confirming) institution's subsequent failure to meet | 6 | | applicable standards
of issuer acceptability, continue to | 7 | | be acceptable as security until their
expiration, | 8 | | extension, renewal, modification, or amendment, whichever | 9 | | first
occurs. | 10 | | (D) Any other form of security acceptable to the | 11 | | Director.
| 12 | | (3)(A) For purposes of subsection 2(C), a "qualified United | 13 | | States
financial institution" means an institution that:
| 14 | | (1) is organized or, in the case of a U.S. office | 15 | | of a foreign
banking organization, licensed under the | 16 | | laws of the United States or
any state thereof;
| 17 | | (2) is regulated, supervised, and examined by U.S. | 18 | | federal or state
authorities having regulatory | 19 | | authority over banks and trust companies;
| 20 | | (3) has been designated by either the Director or | 21 | | the Securities
Valuation Office of the
National | 22 | | Association of Insurance Commissioners as meeting such
| 23 | | standards of financial condition and standing as are | 24 | | considered necessary and
appropriate to regulate the | 25 | | quality of financial institutions whose letters of
| 26 | | credit will be acceptable to the Director; and
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| 1 | | (4) is not affiliated with the assuming company.
| 2 | | (B) A "qualified United States financial institution" | 3 | | means, for
purposes of those provisions of this law | 4 | | specifying those institutions that
are eligible to act as a | 5 | | fiduciary of a trust, an institution that:
| 6 | | (1) is organized or, in the case of the U.S. branch | 7 | | or agency office of
a foreign banking organization, | 8 | | licensed under the laws of the United States or
any | 9 | | state thereof and has been granted authority to operate | 10 | | with fiduciary
powers;
| 11 | | (2) is regulated, supervised, and examined by | 12 | | federal or state
authorities having regulatory | 13 | | authority over banks and trust companies; and
| 14 | | (3) is not affiliated with the assuming company, | 15 | | however, if the
subject of the reinsurance contract is | 16 | | insurance written pursuant to
Section 155.51 of this | 17 | | Code, the financial institution may be affiliated
with | 18 | | the assuming company with the prior approval of the | 19 | | Director. | 20 | | (C) The Director may adopt rules implementing the | 21 | | provisions of this law. | 22 | | (D) This amendatory Act of the 97th General Assembly | 23 | | shall apply to all cessions after the effective date of | 24 | | this amendatory Act of the 97th General Assembly under | 25 | | reinsurance agreements that have an inception, | 26 | | anniversary, or renewal date not less than 6 months after |
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| 1 | | the effective date of this amendatory Act of the 97th | 2 | | General Assembly.
| 3 | | (Source: P.A. 90-381, eff. 8-14-97.)
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