Bill Text: IL SB0668 | 2011-2012 | 97th General Assembly | Amended

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Bill Title: Amends the Abuse Prevention Review Team Act. Makes a technical change in a Section concerning the Act's relationship to other Acts.

Sponsorship: Slight Partisan Bill (Democrat 2-1)

Status: (Failed) 2013-01-08 - Session Sine Die [SB0668 Detail]

Download: Illinois-2011-SB0668-Amended.html

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Sen. Antonio Mu�oz

Filed: 4/11/2011

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AMENDMENT TO SENATE BILL 668
AMENDMENT NO. ______. Amend Senate Bill 668 by replacing
everything after the enacting clause with the following:
"Section 5. The Illinois Insurance Code is amended by
changing Section 173.1 as follows:
(215 ILCS 5/173.1) (from Ch. 73, par. 785.1)
Sec. 173.1. Credit allowed a domestic ceding insurer.
(1) Except as otherwise provided under Article VIII 1/2 of
this Code and related provisions of the Illinois Administrative
Code, credit for reinsurance shall be allowed a domestic ceding
insurer as either an admitted asset or a deduction from
liability on account of reinsurance ceded only when the
reinsurer meets the requirements of subsection (1)(A) or (B) or
(C) or (D) or (E) or (F). Credit shall be allowed under
subsection (1)(A) or (B) only as respects cessions of those
kinds or classes of business in which the assuming insurer is

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licensed or otherwise permitted to write or assume in its state
of domicile, or in the case of a U.S. branch of an alien
assuming insurer, in the state through which it is entered and
licensed to transact insurance or reinsurance. Credit shall be
allowed under subsection (1)(C) or (D) of this Section only if
the applicable requirements of subsection (1)(G) (1)(E) have
been satisfied.
(A) Credit shall be allowed when the reinsurance is
ceded to an assuming insurer that is authorized in this
State to transact the types of insurance ceded and has at
least $5,000,000 in capital and surplus.
(B) Credit shall be allowed when the reinsurance is
ceded to an assuming insurer that is accredited as a
reinsurer in this State. An accredited reinsurer is one
that:
(1) files with the Director evidence of its
submission to this State's jurisdiction;
(2) submits to this State's authority to examine
its books and records;
(3) is licensed to transact insurance or
reinsurance in at least one state, or in the case of a
U.S. branch of an alien assuming insurer is entered
through and licensed to transact insurance or
reinsurance in at least one state;
(4) files annually with the Director a copy of its
annual statement filed with the insurance department

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of its state of domicile and a copy of its most recent
audited financial statement; and
(5) maintains a surplus as regards policyholders
in an amount that is not less than $20,000,000 and
whose accreditation has been approved by the Director.
No credit shall be allowed a domestic ceding insurer,
if the assuming insurers' accreditation has been
revoked by the Director after notice and hearing.
(C)(1) Credit shall be allowed when the reinsurance is
ceded to an assuming insurer that is domiciled in, or in
the case of a U.S. branch of an alien assuming insurer is
entered through, a state that employs standards regarding
credit for reinsurance substantially similar to those
applicable under this Act and the assuming insurer or U.S.
branch of an alien assuming insurer:
(a) maintains a surplus as regards policyholders
in an amount not less than $20,000,000; and
(b) submits to the authority of this State to
examine its books and records.
(2) The requirement of item (1) of this paragraph (C)
does not apply to reinsurance ceded and assumed pursuant to
pooling arrangements among insurers in the same holding
company system.
(D) (C)(1) Credit shall be allowed when the reinsurance
is ceded to an assuming insurer that maintains a trust fund
in a qualified United States financial institution, as

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defined in subsection 3(B), for the payment of the valid
claims of its United States policyholders and ceding
insurers, their assigns and successors in interest. The
assuming insurer shall report to the Director information
substantially the same as that required to be reported on
the NAIC annual and quarterly financial statement by
authorized insurers and any other financial information
that the Director deems necessary to determine the
financial condition of the assuming insurer and the
sufficiency of the trust fund. The assuming insurer shall
submit to examination of its books and records by the
Director and bear the expense of examination.
(2)(a) Credit for reinsurance shall not be granted
under this subsection unless the form of the trust and
any amendments to the trust have been approved by:
(i) the regulatory official of the state where
the trust is domiciled; or
(ii) the regulatory official of another state
who, pursuant to the terms of the trust instrument,
has accepted principal regulatory oversight of the
trust.
(b) The form of the trust and any trust amendments
also shall be filed with the regulatory official of
every state in which the ceding insurer beneficiaries
of the trust are domiciled. The trust instrument shall
provide that contested claims shall be valid and

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enforceable upon the final order of any court of
competent jurisdiction in the United States. The trust
shall vest legal title to its assets in its trustees
for the benefit of the assuming insurer's United States
policyholders and ceding insurees and their assigns
and successors in interest. The trust and the assuming
insurer shall be subject to examination as determined
by the Director.
(c) The trust shall remain in effect for as long as
the assuming insurer has outstanding obligations due
under the reinsurance agreements subject to the trust.
No later than February 28 of each year the trustee of
the trust shall report to the Director in writing the
balance of the trust and a list of the trust's
investments at the preceding year-end and shall
certify the date of termination of the trust, if so
planned, or certify that the trust will not expire
prior to the next following December 31.
(3) The following requirements apply to the
following categories of assuming insurer:
(a) The trust fund for a single assuming
insurer shall consist of funds in trust in an
amount not less than the assuming insurer's
liabilities attributable to reinsurance ceded by
U.S. ceding insurers, and in addition, the
assuming insurer shall maintain a trusteed surplus

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of not less than $20,000,000, except as provided in
paragraph 3(b) of this subsection.
(b) At any time after the assuming insurer has
permanently discontinued underwriting new business
secured by the trust for at least 3 full years, the
Director with principal regulatory oversight of
the trust may authorize a reduction in the required
trusteed surplus, but only after a finding, based
on an assessment of the risk, that the new required
surplus level is adequate for the protection of
U.S. ceding insurers, policyholders, and claimants
in light of reasonably foreseeable adverse loss
development. The risk assessment may involve an
actuarial review, including an independent
analysis of reserves and cash flows, and shall
consider all material risk factors, including when
applicable, the lines of business involved, the
stability of the incurred loss estimates and the
effect of the surplus requirements on the assuming
insurer's liquidity or solvency. The minimum
required trusteed surplus may not be reduced to an
amount less than 30% of the assuming insurer's
liabilities attributable to reinsurance ceded by
U.S. ceding insurers.
(c) (b)(i) In the case of a group including
incorporated and individual unincorporated

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underwriters:
(I) for reinsurance ceded under
reinsurance agreements with an inception,
amendment, or renewal date on or after August
1, 1995, the trust shall consist of a trusteed
account in an amount not less than the group's
several liabilities attributable to business
ceded by U.S. domiciled ceding insurers to any
member of the group;
(II) for reinsurance ceded under
reinsurance agreements with an inception date
on or before July 31, 1995 and not amended or
renewed after that date, notwithstanding the
other provisions of this Act, the trust shall
consist of a trusteed account in an amount not
less than the group's several insurance and
reinsurance liabilities attributable to
business written in the United States; and
(III) in addition to these trusts, the
group shall maintain in trust a trusteed
surplus of which not less than $100,000,000
shall be held jointly for the benefit of the
U.S. domiciled ceding insurers of any member of
the group for all years of account.
(ii) The incorporated members of the group
shall not be engaged in any business other than

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underwriting as a member of the group and shall be
subject to the same level of solvency regulation
and control by the group's domiciliary regulator
as are the unincorporated members.
(iii) Within 90 days after its financial
statements are due to be filed with the group's
domiciliary regulator, the group shall provide to
the Director an annual certification by the
group's domiciliary regulator of the solvency of
each underwriter member, or if a certification is
unavailable, financial statements prepared by
independent public accountants of each underwriter
member of the group.
(d) (c) In the case of a group of incorporated
insurers under common administration, the group
shall:
(i) have continuously transacted an
insurance business outside the United States
for at least 3 years immediately before making
application for accreditation;
(ii) maintain aggregate policyholders'
surplus of not less than $10,000,000,000;
(iii) maintain a trust in an amount not
less than the group's several liabilities
attributable to business ceded by United
States domiciled ceding insurers to any member

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of the group pursuant to reinsurance contracts
issued in the name of the group;
(iv) in addition, maintain a joint
trusteed surplus of which not less than
$100,000,000 shall be held jointly for the
benefit of the United States ceding insurers of
any member of the group as additional security
for these liabilities; and
(v) within 90 days after its financial
statements are due to be filed with the group's
domiciliary regulator, make available to the
Director an annual certification of each
underwriter member's solvency by the member's
domiciliary regulator and financial statements
of each underwriter member of the group
prepared by its independent public accountant.
(E) Credit shall be allowed when the reinsurance is
ceded to an assuming insurer that is certified by the
Director as a reinsurer in this State and secures its
obligations in accordance with the requirements of this
subsection. This subsection shall apply only to
reinsurance contracts entered into or renewed on or after
the effective date of this Act.
(1) In order to be eligible for certification, the
assuming insurer shall meet the following
requirements:

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(a) the assuming insurer must be domiciled and
licensed to transact insurance or reinsurance in a
qualified jurisdiction, as determined by the
Director under paragraph (3) of this subsection;
(b) the assuming insurer must maintain minimum
capital and surplus in an amount to be determined
by the Director pursuant to regulation;
(c) the assuming insurer must maintain
financial strength ratings from 2 or more rating
agencies deemed acceptable by the Director
pursuant to regulation;
(d) the assuming insurer must agree to submit
to the jurisdiction of any court of competent
jurisdiction in any state of the United States,
appoint the Director as its agent for service of
process in this State, and provide security for
100% of the assuming insurer's liabilities
attributable to reinsurance ceded by U.S. ceding
insurers if it resists enforcement of a final U.S.
judgment;
(e) the assuming insurer must agree to meet
applicable information filing requirements as
determined by the Director, both with respect to an
initial application for certification and on an
ongoing basis; and
(f) the assuming insurer must satisfy any

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other requirements for certification deemed
relevant by the Director.
(2) An association including incorporated and
individual unincorporated underwriters may be a
certified reinsurer. In order to be eligible for
certification, in addition to satisfying requirements
of paragraph (1):
(a) the association shall satisfy its minimum
capital and surplus requirements through the
capital and surplus equivalents (net of
liabilities) of the association and its members,
which shall include a joint central fund that may
be applied to any unsatisfied obligation of the
association or any of its members, in an amount
determined by the Director to provide adequate
protection;
(b) the incorporated members of the
association shall not be engaged in any business
other than underwriting as a member of the
association and shall be subject to the same level
of regulation and solvency control by the
association's domiciliary regulator as are the
unincorporated members; and
(c) within 90 days after its financial
statements are due to be filed with the
association's domiciliary regulator, the

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association shall provide to the Director an
annual certification by the association's
domiciliary regulator of the solvency of each
underwriter member; or if a certification is
unavailable, financial statements, prepared by
independent public accountants, of each
underwriter member of the association.
(3) The Director shall create and publish a list of
qualified jurisdictions, under which an assuming
insurer licensed and domiciled in such jurisdiction is
eligible to be considered for certification by the
Director as a certified reinsurer.
(a) In order to determine whether the
domiciliary jurisdiction of a non-U.S. assuming
insurer is eligible to be recognized as a qualified
jurisdiction, the Director shall evaluate the
appropriateness and effectiveness of the
reinsurance supervisory system of the
jurisdiction, both initially and on an ongoing
basis, and consider the rights, benefits, and the
extent of reciprocal recognition afforded by the
non-U.S. jurisdiction to reinsurers licensed and
domiciled in the U.S. A qualified jurisdiction
must agree to share information and cooperate with
the Director with respect to all certified
reinsurers doing business within the jurisdiction.

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A jurisdiction may not be recognized as a qualified
jurisdiction if the Director has determined that
the jurisdiction does not adequately and promptly
enforce final U.S. judgments and arbitration
awards. Additional factors may be considered in
the discretion of the Director.
(b) If the NAIC publishes a list of qualified
jurisdictions, the Director may defer to this
list.
(c) U.S. jurisdictions that meet the
requirement for accreditation under the NAIC
financial standards and accreditation program
shall be recognized as qualified jurisdictions.
(d) If a certified reinsurer's domiciliary
jurisdiction ceases to be a qualified
jurisdiction, the Director has the discretion to
suspend the reinsurer's certification
indefinitely, in lieu of revocation.
(4) The Director shall assign a rating to each
certified reinsurer, giving due consideration to the
financial strength ratings that have been assigned by
rating agencies recognized by the Director pursuant to
regulation, provided that the Director shall consider
only financial strength ratings that are based on
interactive communication between the rating agency
and the assuming insurer and not solely on publicly

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available information. The Director shall publish a
list of all certified reinsurers and their ratings.
(5) A certified reinsurer shall secure obligations
assumed from U.S. ceding insurers under this
subsection at a level consistent with its rating, as
specified in regulations adopted by the Director.
(a) In order for a domestic ceding insurer to
qualify for full financial statement credit for
reinsurance ceded to a certified reinsurer, the
certified reinsurer shall maintain security in a
form acceptable to the Director and consistent
with the provisions of Section 3 of this Act, or in
a multibeneficiary trust in accordance with
subsection (D) of this Section, except as
otherwise provided in this subsection.
(b) If a certified reinsurer maintains a trust
to secure its obligations subject to subsection
(D) of this Section, the certified reinsurer shall
maintain separate trust accounts for its
obligations incurred under reinsurance agreements
issued or renewed as a certified reinsurer with
reduced security as permitted by this subsection
or comparable laws of other U.S. jurisdictions and
for its obligations subject to subsection (D) of
this Section. Each trust account shall be
secondarily obligated to secure all obligations

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secured by the other account, including the
assuming insurer's obligation to fund any
deficiency, but only after its own primary
obligations have been fully discharged.
(c) The minimum trusteed surplus requirements
provided in subsection (D) are not applicable with
respect to a multibeneficiary trust maintained by
a certified reinsurer for the purpose of securing
obligations incurred under this subsection.
(d) With respect to obligations incurred by a
certified reinsurer under this subsection, if the
security is insufficient, the Director shall
reduce the allowable credit by an amount
proportionate to the deficiency, and has the
discretion to impose further reductions in
allowable credit upon finding that there is a
material risk that the certified reinsurer's
obligations shall not be paid in full when due.
(e) For purposes of this subsection, a
certified reinsurer whose certification has been
terminated for any reason shall be treated as a
certified reinsurer required to secure 100% of its
obligations. This subparagraph does not apply to a
certified reinsurer in inactive status or to a
reinsurer whose certification has been suspended,
even if the Director assigns a higher rating to

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such reinsurer.
(6) If an applicant for certification has been
certified as a reinsurer in an NAIC accredited
jurisdiction, the Director has the discretion to defer
to that jurisdiction's certification, and has the
discretion to defer to the rating assigned by that
jurisdiction, and such assuming insurer shall be
considered to be a certified reinsurer in this State.
(7) A certified reinsurer that ceases to assume new
business in this State may request to maintain its
certification in inactive status in order to continue
to qualify for a reduction in security for its in-force
business. An inactive certified reinsurer shall
continue to comply with all applicable requirements of
this subsection, and the Director shall assign a rating
that takes into account, if relevant, the reasons why
the reinsurer is not assuming new business.
(F) (D) Credit shall be allowed when the reinsurance is
ceded to an assuming insurer not meeting the requirements
of subsection (1) (A), (B), or (C), (D), or (E) but only
with respect to the insurance of risks located in
jurisdictions where that reinsurance is required by
applicable law or regulation of that jurisdiction.
(G) (E) If the assuming insurer is not licensed,
accredited, or certified to transact insurance or
reinsurance in this State or an accredited reinsurer in

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this State, the credit permitted by subsections subsection
(1)(C) and (D) shall not be allowed unless the assuming
insurer agrees in the reinsurance agreements:
(1) that in the event of the failure of the
assuming insurer to perform its obligations under the
terms of the reinsurance agreement, the assuming
insurer, at the request of the ceding insurer, shall
submit to the jurisdiction of any court of competent
jurisdiction in any state of the United States, will
comply with all requirements necessary to give the
court jurisdiction, and will abide by the final
decision of the court or of any appellate court in the
event of an appeal; and
(2) to designate the Director or a designated
attorney as its true and lawful attorney upon whom may
be served any lawful process in any action, suit, or
proceeding instituted by or on behalf of the ceding
company.
This provision is not intended to conflict with or
override the obligation of the parties to a reinsurance
agreement to arbitrate their disputes, if an obligation to
arbitrate is created in the agreement.
(H) (F) If the assuming insurer does not meet the
requirements of subsection (1)(A), or (B), or (C), the
credit permitted by subsection (1)(D) or (E) (C) shall not
be allowed unless the assuming insurer agrees in the trust

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agreements to the following conditions:
(1) Notwithstanding any other provisions in the
trust instrument, if the trust fund is inadequate
because it contains an amount less than the amount
required by subsection (D) (C)(3) of this Section or if
the grantor of the trust has been declared insolvent or
placed into receivership, rehabilitation, liquidation,
or similar proceedings under the laws of its state or
country of domicile, the trustee shall comply with an
order of the state official with regulatory oversight
over the trust or with an order of a court of competent
jurisdiction directing the trustee to transfer to the
state official with regulatory oversight all of the
assets of the trust fund.
(2) The assets shall be distributed by and claims
shall be filed with and valued by the state official
with regulatory oversight in accordance with the laws
of the state in which the trust is domiciled that are
applicable to the liquidation of domestic insurance
companies.
(3) If the state official with regulatory
oversight determines that the assets of the trust fund
or any part thereof are not necessary to satisfy the
claims of the U.S. ceding insurers of the grantor of
the trust, the assets or part thereof shall be returned
by the state official with regulatory oversight to the

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trustee for distribution in accordance with the trust
agreement.
(4) The grantor shall waive any rights otherwise
available to it under U.S. law that are inconsistent
with the provision.
(I) If an accredited or certified reinsurer ceases to
meet the requirements for accreditation or certification,
the Director may suspend or revoke the reinsurer's
accreditation or certification.
The Director must give the reinsurer notice and
opportunity for hearing. The suspension or revocation may
not take effect until after the Director's order on
hearing, unless:
(1) the reinsurer waives its right to hearing;
(2) the Director's order is based on regulatory
action by the reinsurer's domiciliary jurisdiction or
United States port of entry, or the voluntary surrender
or termination of the reinsurer's eligibility to
transact insurance or reinsurance business in its
domiciliary jurisdiction or in its United States port
of entry; or
(3) the Director finds that an emergency requires
immediate action and a court of competent jurisdiction
has not stayed the Director's action.
While a reinsurer's accreditation or certification is
suspended, no reinsurance contract issued or renewed after

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the effective date of the suspension qualifies for credit
except to the extent that the reinsurer's obligations under
the contract are secured in accordance with Section 3 of
this Act. If a reinsurer's accreditation or certification
is revoked, no credit for reinsurance may be granted after
the effective date of the revocation except to the extent
that the reinsurer's obligations under the contract are
secured in accordance with paragraph (E)(5) or Section 3 of
this Act.
(2) Credit for the reinsurance ceded by a domestic insurer
to an assuming insurer not meeting the requirements of
subsection (1) shall be allowed in an amount not exceeding the
assets or liabilities carried by the ceding insurer. The credit
shall not exceed the amount of funds held by or held in trust
for the ceding insurer under a reinsurance contract with the
assuming insurer as security for the payment of obligations
thereunder, if the security is held in the United States
subject to withdrawal solely by, and under the exclusive
control of, the ceding insurer; or, in the case of a trust,
held in a qualified United States financial institution, as
defined in subsection (3)(B). This security may be in the form
of:
(A) Cash.
(B) Securities listed by the Securities Valuation
Office of the National Association of Insurance
Commissioners that conform to the requirements of Article

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VIII of this Code that are not issued by an affiliate of
either the assuming or ceding company.
(C) Clean, irrevocable, unconditional, letters of
credit issued or confirmed by a qualified United States
financial institution, as defined in subsection (3)(A).
The letters of credit shall be effective no later than
December 31 of the year for which filing is being made, and
in the possession of, or in trust for, the ceding company
on or before the filing date of its annual statement.
Letters of credit meeting applicable standards of issuer
acceptability as of the dates of their issuance (or
confirmation) shall, notwithstanding the issuing (or
confirming) institution's subsequent failure to meet
applicable standards of issuer acceptability, continue to
be acceptable as security until their expiration,
extension, renewal, modification, or amendment, whichever
first occurs.
(D) Any other form of security acceptable to the
Director.
(3)(A) For purposes of subsection 2(C), a "qualified United
States financial institution" means an institution that:
(1) is organized or, in the case of a U.S. office
of a foreign banking organization, licensed under the
laws of the United States or any state thereof;
(2) is regulated, supervised, and examined by U.S.
federal or state authorities having regulatory

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authority over banks and trust companies;
(3) has been designated by either the Director or
the Securities Valuation Office of the National
Association of Insurance Commissioners as meeting such
standards of financial condition and standing as are
considered necessary and appropriate to regulate the
quality of financial institutions whose letters of
credit will be acceptable to the Director; and
(4) is not affiliated with the assuming company.
(B) A "qualified United States financial institution"
means, for purposes of those provisions of this law
specifying those institutions that are eligible to act as a
fiduciary of a trust, an institution that:
(1) is organized or, in the case of the U.S. branch
or agency office of a foreign banking organization,
licensed under the laws of the United States or any
state thereof and has been granted authority to operate
with fiduciary powers;
(2) is regulated, supervised, and examined by
federal or state authorities having regulatory
authority over banks and trust companies; and
(3) is not affiliated with the assuming company,
however, if the subject of the reinsurance contract is
insurance written pursuant to Section 155.51 of this
Code, the financial institution may be affiliated with
the assuming company with the prior approval of the

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Director.
(Source: P.A. 90-381, eff. 8-14-97.)".