Bill Text: IL SB1286 | 2017-2018 | 100th General Assembly | Engrossed


Bill Title: 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.

Spectrum: Slight Partisan Bill (Democrat 6-2)

Status: (Engrossed) 2017-05-31 - Rule 19(a) / Re-referred to Rules Committee [SB1286 Detail]

Download: Illinois-2017-SB1286-Engrossed.html



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1 AN ACT concerning regulation.
2 Be it enacted by the People of the State of Illinois,
3represented in the General Assembly:
4 Section 5. The Illinois Insurance Code is amended by
5changing Sections 121-2.08, 123C-1, 123C-2, 123C-3, 123C-9,
6123C-11, 123C-12, 123C-13, 123C-16, 123C-17, and 123C-19 and by
7adding Sections 123C-23, 123C-24, 123C-25, 123C-26, 123C-27,
8and 123C-28 as follows:
9 (215 ILCS 5/121-2.08) (from Ch. 73, par. 733-2.08)
10 Sec. 121-2.08. Transactions in this State involving
11contracts of insurance independently procured directly from an
12unauthorized insurer by industrial insureds.
13 (a) As used in this Section:
14 "Exempt commercial purchaser" means exempt commercial
15purchaser as the term is defined in subsection (1) of Section
16445 of this Code.
17 "Home state" means home state as the term is defined in
18subsection (1) of Section 445 of this Code.
19 "Industrial insured" means an insured:
20 (i) that procures the insurance of any risk or risks of
21 the kinds specified in Classes 2 and 3 of Section 4 of this
22 Code by use of the services of a full-time employee who is
23 a qualified risk manager or the services of a regularly and

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1 continuously retained consultant who is a qualified risk
2 manager;
3 (ii) that procures the insurance directly from an
4 unauthorized insurer without the services of an
5 intermediary insurance producer; and
6 (iii) that is an exempt commercial purchaser whose home
7 state is Illinois.
8 "Insurance producer" means insurance producer as the term
9is defined in Section 500-10 of this Code.
10 "Qualified risk manager" means qualified risk manager as
11the term is defined in subsection (1) of Section 445 of this
12Code.
13 "Unauthorized insurer" means unauthorized insurer as the
14term is defined in subsection (1) of Section 445 of this Code.
15 (b) For contracts of insurance effective January 1, 2015 or
16later, within 90 days after the effective date of each contract
17of insurance issued under this Section, the insured shall file
18a report with the Director by submitting the report to the
19Surplus Line Association of Illinois in writing or in a
20computer readable format and provide information as designated
21by the Surplus Line Association of Illinois. The information in
22the report shall be substantially similar to that required for
23surplus line submissions as described in subsection (5) of
24Section 445 of this Code. Where applicable, the report shall
25satisfy, with respect to the subject insurance, the reporting
26requirement of Section 12 of the Fire Investigation Act.

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1 (c) For contracts of insurance effective January 1, 2015
2through December 31, 2017 or later, within 30 days after filing
3the report, the insured shall pay to the Director for the use
4and benefit of the State a sum equal to the gross premium of
5the contract of insurance multiplied by the surplus line tax
6rate, as described in paragraph (3) of subsection (a) of
7Section 445 of this Code, and shall pay the fire marshal tax
8that would otherwise be due annually in March for insurance
9subject to tax under Section 12 of the Fire Investigation Act.
10For contracts of insurance effective January 1, 2018 or later,
11within 30 days after filing the report, the insured shall pay
12to the Director for the use and benefit of the State a sum
13equal to 0.5% of the gross premium of the contract of
14insurance, and shall pay the fire marshal tax that would
15otherwise be due annually in March for insurance subject to tax
16under Section 12 of the Fire Investigation Act. For contracts
17of insurance effective January 1, 2015 or later, within 30 days
18after filing the report, the insured shall pay to the Surplus
19Line Association of Illinois a countersigning fee that shall be
20assessed at the same rate charged to members pursuant to
21subsection (4) of Section 445.1 of this Code.
22 (d) For contracts of insurance effective January 1, 2015 or
23later, the insured shall withhold the amount of the taxes and
24countersignature fee from the amount of premium charged by and
25otherwise payable to the insurer for the insurance. If the
26insured fails to withhold the tax and countersignature fee from

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1the premium, then the insured shall be liable for the amounts
2thereof and shall pay the amounts as prescribed in subsection
3(c) of this Section.
4 (e) Contracts of insurance with an industrial insured that
5qualifies as a Safety-Net Hospital are not subject to
6subsections (b) through (d) of this Section.
7(Source: P.A. 98-978, eff. 1-1-15.)
8 (215 ILCS 5/123C-1) (from Ch. 73, par. 735C-1)
9 (Section scheduled to be repealed on January 1, 2027)
10 Sec. 123C-1. Definitions. As used in this Article:
11 A. "Affiliate" or "Affiliated company" includes a parent
12entity that controls a captive insurance company and:
13 (1) is an affiliate of another entity if the entity
14 directly or indirectly, through one or more
15 intermediaries, controls, is controlled by, or is under
16 common control with the other entity.
17 (2) is an affiliate of another entity if the entity is
18 an affiliate of and is controlled by the other entity
19 directly or indirectly through one or more intermediaries.
20A subsidiary or holding company of an entity is an affiliate of
21that entity. shall have the meaning set forth in subsection (a)
22of Section 131.1 (and, for purposes of such definition, the
23definitions of "control" and "person", as set forth in
24subsections (b) and (e) of Section 131.1, respectively, shall
25be applicable).

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1 B. "Association" means any entity meeting the requirements
2set forth in either of the following paragraphs (1), (2) or
3(3):
4 (1) any organized association of individuals, legal
5 representatives, corporations (whether for profit or not
6 for profit), partnerships, trusts, associations, units of
7 government or other organizations, or any combination of
8 the foregoing, that has been in continuous existence for at
9 least one year, the member organizations of which
10 collectively:
11 (a) own, control, or hold with power to vote
12 (directly or indirectly) all of the outstanding voting
13 securities of an association captive insurance company
14 incorporated as a stock insurer; or
15 (b) have complete voting control (directly or
16 indirectly) over an association captive insurance
17 company organized as a mutual insurer;
18 (2) any organized association of individuals, legal
19 representatives, corporations (whether for profit or not
20 for profit), partnerships, trusts, associations, units of
21 government or other organizations, or any combination of
22 the foregoing:
23 (a) whose member organizations are engaged in
24 businesses or activities similar or related with
25 respect to the liability of which such members are
26 exposed by virtue of any related, similar, or common

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1 business, trade, product, services, premises, or
2 operations; and
3 (b) whose member organizations:
4 (i) directly or indirectly own or control, and
5 hold with power to vote, at least 80% of all of the
6 outstanding voting securities of an association
7 captive insurance company incorporated as a stock
8 insurer; or
9 (ii) directly or indirectly have at least 80%
10 of the voting control over an association captive
11 insurance company organized as a mutual insurer;
12 or
13 (3) any risk retention group, as defined in subsection
14 (11) of Section 123B-2, domiciled in this State and
15 organized under this Article; however, beginning 6 months
16 after the effective date of this amendatory Act of 1995, a
17 risk retention group shall no longer qualify as an
18 association under this Article.
19 Provided, however, that with respect to each of the
20associations described in paragraphs (1), (2) and (3) above, no
21member organization may (i) own, control, or hold with power to
22vote in excess of 25% of the voting securities of an
23association captive insurance company incorporated as a stock
24insurer, or (ii) have more than 25% of the voting control of an
25association captive insurance company organized as a mutual
26insurer.

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1 C. "Association captive insurance company" means any
2company that insures risks of (i) the member organizations of
3an association, and (ii) their affiliated companies.
4 D. "Captive insurance company" means any pure captive
5insurance company, association captive insurance company or
6industrial insured captive insurance company organized under
7the provisions of this Article.
8 E. "Director" means the Director of the Department of
9Insurance.
10 F. "Industrial insured" means an insured which (together
11with its affiliates) at the time of its initial procurement of
12insurance from an industrial insured captive insurance
13company:
14 (1) has available to it advice with respect to the
15 purchase of insurance through the use of the services of a
16 full-time employee acting as an insurance manager or buyer
17 or the services of a regularly and continuously retained
18 qualified insurance consultant; and
19 (2) pays aggregate annual premiums in excess of
20 $100,000 for insurance on all risks except for life,
21 accident and health; and
22 (3) either (i) has at least 25 full-time employees, or
23 (ii) has gross assets in excess of $3,000,000, or (iii) has
24 annual gross revenues in excess of $5,000,000.
25 G. "Industrial insured captive insurance company" means
26any company that insures risks of industrial insureds that are

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1members of the industrial insured group, and their affiliated
2companies.
3 H. "Industrial insured group" means any group of industrial
4insureds that collectively:
5 (1) directly or indirectly (including ownership or
6 control through a company which is wholly owned by such
7 group of industrial insureds) own or control, and hold with
8 power to vote, all of the outstanding voting securities of
9 an industrial insured captive insurance company
10 incorporated as a stock insurer; or
11 (2) directly or indirectly (including control through
12 a company which is wholly owned by such group of industrial
13 insureds) have complete voting control over an industrial
14 insured captive insurance company organized as a mutual
15 insurer; provided, however, that no member organization
16 may (i) own, control, or hold with power to vote in excess
17 of 25% of the voting securities of an industrial insured
18 captive insurance company incorporated as a stock insurer,
19 or (ii) have more than 25% of the voting control of an
20 industrial insured captive insurance company organized as
21 a mutual insurer.
22 I. "Member organization" means any individual, legal
23representative, corporation (whether for profit or not for
24profit), partnership, association, unit of government, trust
25or other organization that belongs to an association or an
26industrial insured group.

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1 J. "Parent" means a corporation, partnership, individual
2or other legal entity that directly or indirectly owns,
3controls, or holds with power to vote more than 50% of the
4outstanding voting securities of a company.
5 K. "Personal risk liability" means liability to other
6persons for (i) damage because of injury to any person, (ii)
7damage to property, or (iii) other loss or damage, in each case
8resulting from any personal, familial, or household
9responsibilities or activities, but does not include legal
10liability for damages (including costs of defense, legal costs
11and fees, and other claims expenses) because of injuries to
12other persons, damage to their property, or other damage or
13loss to such other persons resulting from or arising out of:
14 (i) any business (whether for profit or not for
15 profit), trade, product, services (including professional
16 services), premises, or operations; or
17 (ii) any activity of any state or local government, or
18 any agency or political subdivision thereof.
19 L. "Pure captive insurance company" means any company that
20insures only risks of its parent or affiliated companies or
21both.
22 M. "Unit of government" includes any state, regional or
23local government, or any agency or political subdivision
24thereof, or any district, authority, public educational
25institution or school district, public corporation or other
26unit of government in this State or any similar unit of

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1government in any other state.
2 N. "Control" means the power to direct, or cause the
3direction of, the management and policies of an entity, other
4than the power that results from an official position with or
5corporate office held in the entity. The power may be possessed
6directly or indirectly by any means, including through the
7ownership of voting securities or by contract, other than a
8commercial contract for goods or non-management services.
9 O. "Qualified independent actuary" means a person that is
10either:
11 (1) a member in good standing with the Casualty
12 Actuarial Society; or
13 (2) a member in good standing with the American Academy
14 of Actuaries who has been approved as qualified for signing
15 casualty loss reserve opinions by the Casualty Practice
16 Council of the American Academy of Actuaries.
17 P. "Controlled unaffiliated business" means an entity:
18 (1) that is not an affiliate;
19 (2) that has an existing contractual relationship with
20 an affiliate under which the affiliate bears a potential
21 financial loss; and
22 (3) whose risks are managed by a captive insurance
23 company under Section 123C-24 of this Code.
24 Q. "Operational risk" means any potential financial loss of
25an affiliate, except for a loss arising from an insurance
26policy issued by a captive or insurance affiliate.

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1 R. "Captive management company" means an entity providing
2administrative services to a captive insurance company.
3 S. "Safety-Net Hospital" means an Illinois hospital that
4qualifies as a Safety-Net Hospital under Section 5-5e.1 of the
5Illinois Public Aid Code.
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
11company may write any type of insurance, but may only insure
12the operational risks of the company's affiliates and risks of
13a controlled unaffiliated business. Any captive insurance
14company, when permitted by its articles of association or
15charter, may apply to the Director for a certificate of
16authority to transact any and all insurance in classes 2 and 3
17of 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
8insurance, including automobile liability insurance, that is
9required under the laws of this State or a political
10subdivision of this State as a prerequisite for obtaining a
11license or permit if the law requires that the liability
12insurance be issued by an insurer authorized to engage in the
13business of insurance in this State.
14 A-15. A captive insurance company is authorized to issue a
15contractual 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
24business 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
6the same as, deceptively similar to, or likely to be confused
7with or mistaken for, any other existing business name
8registered in this State.
9 D. Each captive insurance company, or the organizations
10providing the principal administrative or management services
11to such captive insurance company, shall maintain a place of
12business 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
18to a captive insurance company unless the company possesses and
19maintains unencumbered capital and surplus in an amount
20determined 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
20Director under subsection A of this Section may not be less
21than $250,000 for a pure captive insurance company, $500,000
22for an industrial insured captive insurance company, and
23$750,000 for an association captive insurance company. Such
24capital may be in the form of (1) all cash or cash equivalents;
25or (2) cash or cash equivalents representing at least 20% of
26the requisite capital, together with an irrevocable letter of

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1credit for the remainder of the requisite capital, which letter
2of credit must (a) be approved by the Director, (b) be issued
3or unconditionally confirmed by (i) a bank chartered by this
4State, (ii) a member bank of the Federal Reserve System or
5(iii) a United States office of a foreign banking corporation
6that is: (A) licensed under the laws of the United States or
7any state thereof, (B) regulated, supervised and examined by
8United States federal or state authorities having regulatory
9authority over banks and trust companies, and (C) designated by
10the Securities Valuation Office of the National Association of
11Insurance Commissioners as meeting its credit standards for
12issuing or confirming letters of credit or, in the event that
13the Director elects to establish credit standards by rule, in
14compliance with rules promulgated by the Director establishing
15reasonable standards of safety and soundness substantially
16equivalent to those of the Securities Valuation Office of the
17National Association of Insurance Commissioners, and (c)
18satisfy the requirements of Section 123C-19; or (3) cash or
19cash equivalents representing at least 33% of the requisite
20capital, together with irrevocable contractual obligations of
21the member organizations of the captive insurance company for
22the payment of the remainder of the requisite capital in no
23more than 3 equal installments in each of the 3 calendar years
24following the date of the grant of the certificate of authority
25to the captive insurance company, which irrevocable
26contractual obligations shall by contract be subject to

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1acceleration (in a manner acceptable to the Director) by the
2Company at the direction of the Director and shall be secured
3by a letter of credit or other form of guarantee or security
4acceptable to the Director.
5 C. The capital and surplus required by subsection A of this
6Section 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
22make any annual report except as provided in this Article.
23 B. (1) On or before Prior to March 1 of each year, each
24captive insurance company shall submit to the Director a report
25of its financial condition, verified by oath of 2 of its

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1executive officers and including (i) a balance sheet reporting
2assets, liabilities, capital and surplus, (ii) a statement of
3gain or loss from operations, (iii) a statement of changes in
4financial position, (iv) a statement of changes in capital and
5surplus, and (v) in the case of industrial insured captive
6insurance companies, an analysis of loss reserve development,
7information on risks ceded and assumed under reinsurance
8agreements, on forms prescribed by the Director, and a schedule
9of its invested assets on forms prescribed by the Director, and
10(vi) a statement of actuarial opinion by a qualified
11independent actuary concerning the reasonableness of the
12captive insurance company's loss and loss adjustment expense
13reserves in such form and of such content as specified in the
14National Association of Insurance Commissioners Annual
15Statement Instructions: Property and Casualty.
16 (2) In addition, prior to March 1 of each year, each
17association captive insurance company shall submit to the
18Director such additional data or information, which the
19Director may from time to time require, on a form specified by
20the Director.
21 (3) On or before June 1 of each year, each captive
22insurance company shall submit to the Director a report of its
23financial condition at last year's end with an independent
24certified public accountant's opinion of the company's
25financial condition. Prior to June 1 of each year, each
26association and industrial insured captive insurance company

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1shall submit to the Director a report of its financial
2condition, certified by a recognized firm of independent public
3accountants acceptable to the Director and including the items
4referred to in items (i), (ii), (iii) and (iv) of paragraph (1)
5of this subsection B.
6 (4) Unless the Director permits otherwise, the reports of
7financial condition referred to in paragraphs (1) and (3) of
8this subsection B are to be prepared in accordance with the
9Accounting Practices and Procedures Manual adopted by the
10National Association of Insurance Commissioners. The Director
11shall have authority to extend the time for filing any report
12or statement by any company for reasons which he considers good
13and sufficient.
14 C. In addition, any captive insurance company may be
15required by the Director, when he considers such action to be
16necessary and appropriate for the protection of policyholders,
17creditors, shareholders or claimants, to file, within 60 days
18after mailing to the company of a notice that such is required,
19a supplemental summary statement as of the last day of any
20calendar month occurring during the 100 days next preceding the
21mailing of such notice designated by him on forms prescribed
22and furnished by the Director. No company shall be required to
23file more than 4 supplemental summary statements during any
24consecutive 12 month period.
25 D. Every captive insurance company shall, at all times,
26maintain reserves in an amount estimated in the aggregate to

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1provide for the payment of all losses and claims incurred,
2whether reported or unreported, which are unpaid and for which
3such company may be liable, and to provide for the expenses of
4adjustment or settlement of such losses and claims. The
5aggregate reserves shall be reduced by reinsurance ceded which
6meets the requirements of Section 123C-13. For the purpose of
7such reserves, the company shall keep a complete and itemized
8record showing all losses and claims on which it has received
9notice, including all notices received by it of the occurrence
10of any event which may result in a loss. Such record shall be
11opened in chronological receipt order, with each notice of loss
12or claim identified by appropriate number or coding.
13 E. Every captive insurance company shall maintain an
14unearned premium reserve on all policies in force which reserve
15shall be charged as a liability. The portions of the gross
16premiums in force, after deducting reinsurance qualifying
17under Section 123C-13, which shall be held as a premium
18reserve, shall never be less in the aggregate than the
19company's actual liability to all its insureds for the return
20of gross unearned premiums. In the calculation of the company's
21actual liability to all its insureds, the reserve shall be
22computed pursuant to the method commonly referred to as the
23monthly pro rata method; provided, however, that the Director
24may require that such reserve shall be equal to the unearned
25portions of the gross premiums in force, after deducting
26reinsurance qualifying under Section 123C-13, in which case the

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1reserve shall be computed on each respective risk from the date
2of the issuance of the policy.
3 E-5. A captive insurance company may make a written
4application to the Director for filing its annual report
5required under this Section on a fiscal year's end. If an
6alternative 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
24and filed on a calendar year basis.
25 G. Notwithstanding the requirements of this Section, a
26captive insurance company may prepare and issue financial

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1statements prepared in accordance with generally accepted
2accounting 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
7revocation of certificate of authority.
8 A. The certificate of authority of a captive insurance
9company to do an insurance business in this State may be
10suspended or revoked by the Director for any of the following
11reasons:
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
13other evidence, that any captive insurance company has
14committed any of the acts specified in subsection A, he may
15suspend or revoke such certificate of authority if he deems it
16in the best interest of the public and the policyholders of
17such captive insurance company, notwithstanding any other
18provision of this Article.
19 C. The provisions of Articles XIII and XIII 1/2 shall apply
20to and govern the conservation, rehabilitation, liquidation
21and 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
2131.3 shall apply to association captive insurance companies.
3 B. No pure captive insurance company or industrial insured
4captive insurance company shall be subject to any restrictions
5on allowable investments whatever, including those limitations
6contained in Articles VIII and VIII 1/2; provided, however,
7that the Director may prohibit or limit any investment or type
8of investment that threatens the solvency or liquidity of any
9such company; and provided further that an industrial insured
10captive insurance company must adhere to the investment policy
11set forth in its plan of operation as approved from time to
12time by the Director.
13 C. A captive insurance company may make loans to its
14affiliates with the prior approval of the Director. Each loan
15must be evidenced by a note approved by the Director. A captive
16insurance company may not make a loan of the minimum capital
17and surplus funds required by this Article.
18 D. The Director may prohibit or limit an investment that
19threatens the solvency or liquidity of a captive insurance
20company.
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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1risks ceded by any other insurer; provided, however, that the
2risks so assumed are the same as the captive insurance company
3could legally insure on a direct basis.
4 The provisions of Section 174.1 shall not apply to any
5captive insurance company providing reinsurance.
6 B. Subject to the provisions of Article XI, any captive
7insurance company may cede, and may take credit for in the
8establishment of reserves, all or any part of its risks.
9Furthermore, in addition to Section 173.1, any pure or
10industrial insured captive insurance company may take credit,
11as either an asset or a deduction from liability, for
12reinsurance 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
2Director of a reinsurance agreement to which the company
3becomes a party not later than the 30th day after the date of
4the execution of the agreement.
5 D. A captive insurance company shall provide notice of a
6termination of a previously filed reinsurance agreement to the
7Director not later than the 30th day after the date of
8termination.
9 E. Notwithstanding Section 123C-15 of this Code, a captive
10insurance company, with the Director's approval, may accept
11risks from and cede risks to or take credit for reserves on
12risks 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
25provisions of this Article and doing business in this State

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1shall, for the privilege of doing business in this State, pay
2to the Director for the State treasury the State tax imposed
3under Section 409 to the same extent and in the same manner as
4a domestic insurance company using a tax form prescribed by the
5Director on or before March 15 of each year.
6 B. Domestic captive insurance companies shall be insurance
7companies subject to the rules now provided for such companies
8under the Illinois Income Tax Act.
9 C. A domestic captive insurance company that has engaged
10one or more administrative or management service organizations
11in order to comply with subsection D of Section 123C-2 shall be
12deemed to meet the requirements of Section 409(4)(a) through
13(d) provided that the company and such organizations when
14viewed 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(Source: P.A. 86-632; 86-634.)
2 (215 ILCS 5/123C-17) (from Ch. 73, par. 735C-17)
3 (Section scheduled to be repealed on January 1, 2027)
4 Sec. 123C-17. Fees.
5 A. The Director shall charge, collect, and give proper
6acquittances for the payment of the following fees and charges
7with respect to a captive insurance company:
8 1. For filing all documents submitted for the
9 incorporation or organization or certification of a
10 captive insurance company, $2,000 $7,000.
11 2. For filing requests for approval of changes in the
12 elements of a plan of operations, $200.
13 B. Except as otherwise provided in subsection A of this
14Section and in Section 123C-10, the provisions of Section 408
15shall apply to captive insurance companies.
16 C. Any funds collected from captive insurance companies
17pursuant to this Section shall be treated in the manner
18provided in subsection (11) of Section 408.
19(Source: P.A. 93-32, eff. 7-1-03.)
20 (215 ILCS 5/123C-19) (from Ch. 73, par. 735C-19)
21 (Section scheduled to be repealed on January 1, 2027)
22 Sec. 123C-19. Letters of credit.
23 A. Any letter of credit used to meet the requirements set
24forth in Sections 123C-3 and 123C-4:

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1 (1) (blank); may not be used to provide more than 80%
2 of the amount required in Section 123C-3 and may not be
3 used to provide more than 80% of the amount required in
4 Section 123C-4;
5 (2) may not be allowed to expire without the prior
6 written approval of the Director and shall provide for 30
7 days' advance written notice to the Director of the
8 proposed expiration of the letter of credit; and
9 (3) must be provided pursuant to arrangements,
10 acceptable to the Director, wherein all funds obtained by
11 the company under the letter of credit are free of claims
12 of any party which may arise on account of the company's
13 resort to the letter of credit.
14 B. If letters of credit are used to provide surplus in
15excess of the amounts required in Section 123C-4:
16 (1) the aggregate amount of all such letters of credit
17 shall not exceed the policyholder surplus of the company;
18 (2) without the prior written approval of the Director,
19 no such letter of credit may be allowed to expire, in any
20 period of 12 consecutive months ending on the date of such
21 expiration, in an amount greater than the greater of (a)
22 10% of the company's surplus as regards policyholders as of
23 the 31st day of December next preceding, or (b) the net
24 income of the company for the 12 month period ending the
25 31st 3lst day of December next preceding. For purposes of
26 this Section, net income includes net realized capital

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1 gains in an amount not to exceed 20% of net unrealized
2 capital gains; and
3 (3) each such letter of credit shall provide for 30
4 days' advance written notice to the Director of the
5 proposed expiration of the letter of credit.
6 C. (Blank). The Director may require any company to draw
7upon its letters of credit, in amounts determined by the
8Director, if the Director determines that such action is
9necessary for the protection of the interests of policyholders.
10 D. (Blank). Any company including amounts supported by
11letters of credit in its capital or surplus shall, prior to the
12time any person becomes a policyholder, notify such person of
13the amounts supported by letters of credit and included in the
14company's capital or surplus.
15(Source: P.A. 85-131.)
16 (215 ILCS 5/123C-23 new)
17 Sec. 123C-23. Approval of captive reinsurance pools.
18Before determining whether to approve a captive insurance
19company's participation in a captive reinsurance pool under
20Section 123C-13 of this Code, the Director may:
21 (1) require the captive insurance company provide to
22 the Director evidence that the captive reinsurance pool:
23 (a) is composed only of other captive insurance
24 companies holding a certificate of authority under
25 this Article or a similar law of another jurisdiction;

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1 and
2 (b) will be able to meet the pool's financial
3 obligations; and
4 (2) impose any other limitation or requirement on the
5 captive insurance company that is necessary and proper to
6 provide adequate security for the captive insurance
7 company.
8 (215 ILCS 5/123C-24 new)
9 Sec. 123C-24. Standards for risk management of controlled
10unaffiliated business. The Director may adopt rules
11establishing standards to ensure that an affiliated company is
12able to exercise control of the risk management function of any
13controlled unaffiliated business to be insured by the captive
14insurance company.
15 (215 ILCS 5/123C-25 new)
16 Sec. 123C-25. Captive managers. Before providing captive
17management services to a licensed captive insurance company, a
18captive management company shall register with the Director by
19providing the information required on a form adopted by the
20Director.
21 (215 ILCS 5/123C-26 new)
22 Sec. 123C-26. Dividends.
23 A. A captive insurance company shall notify the Director in

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1writing when issuing policyholder dividends.
2 B. A captive insurance company, with the Director's
3approval, may issue dividends or distributions to the holders
4of an equity interest in the captive insurance company. The
5Director shall adopt rules to implement this subsection B.
6 (215 ILCS 5/123C-27 new)
7 Sec. 123C-27. Rulemaking authority. The Director may adopt
8reasonable rules as necessary to implement the purposes and
9provisions of this Article.
10 (215 ILCS 5/123C-28 new)
11 Sec. 123C-28. Confidentiality.
12 A. Any information filed by an applicant or captive
13insurance company under this Article is confidential and
14privileged for all purposes, including for purposes of the
15Freedom of Information Act, a response to a subpoena, or
16evidence in a civil action. Except as provided by subsections B
17and C of this Section, the information may not be disclosed
18without the prior written consent of the applicant or captive
19insurance company to which the information pertains.
20 B. If the recipient of the information described by
21subsection A of this Section has the legal authority to
22maintain the confidential or privileged status of the
23information and verifies that authority in writing, the
24Director or his or her designee may disclose the information to

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1any of the following entities functioning in an official
2capacity:
3 (1) a director of insurance or an insurance department
4 of another state;
5 (2) an authorized law enforcement official;
6 (3) a State's Attorney of this State;
7 (4) the Attorney General;
8 (5) a grand jury;
9 (6) the National Association of Insurance
10 Commissioners if the captive insurance company is
11 affiliated with an insurance company that is part of an
12 insurance holding company system as described in Article
13 VIII 1/2 of this Code;
14 (7) another state or federal regulator if the applicant
15 or captive insurance company to which the information
16 relates operates in the entity's jurisdiction;
17 (8) an international insurance regulator or analogous
18 financial agency if the captive insurance company is
19 affiliated with an insurance company that is part of an
20 insurance holding company system as described in Article
21 VIII 1/2 of this Code and the holding company system
22 operates in the entity's jurisdiction; or
23 (9) members of a supervisory college described by
24 Section 131.20c of this Code, if the captive insurance
25 company is affiliated with an insurance company that is
26 part of an insurance holding company system as described in

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1 Article VIII 1/2 of this Code.
2 C. The Director may use information described by subsection
3A of this Section in the furtherance of a legal or regulatory
4action relating to the administration of this Code.
5 (215 ILCS 5/123C-4 rep.)
6 Section 10. The Illinois Insurance Code is amended by
7repealing Section 123C-4.
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