Bill Text: IL SB1737 | 2017-2018 | 100th General Assembly | Chaptered

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Bill Title: Amends the Illinois Insurance Code in provisions concerning credit allowed a domestic ceding insurer. Provides that the assuming insurer shall provide or make certain information to be reported to the Director of Insurance available to the ceding insurer and that the assuming insurer may decline to release trade secrets or commercially sensitive information that would qualify as exempt from disclosure under the Freedom of Information Act. With regard to an assuming insurer's trust fund, provides that not later than February 28 of each year, the assuming insurer's chief executive officer or chief financial officer shall certify to the Director that the trust fund contains funds in an amount not less than the assuming insurer's liabilities attributable to reinsurance ceded by U.S. ceding insurers, and in addition, a trusteed surplus of not less than $20,000,000. Permits a reduction in the required trusteed surplus in specified circumstances. Provides that in the event that the provision concerning the reduction in the required trusteed surplus applies to the trust, the assuming insurer's chief executive officer or chief financial officer shall then certify to the Director that the trust fund contains funds in an amount not less than the assuming insurer's liabilities attributable to reinsurance ceded by U.S. ceding insurers, and in addition, a reduced trusteed surplus of not less than the amount that has been authorized by the regulatory authority having principal regulatory oversight of the trust. Makes changes to provisions concerning financial strength ratings. Sets forth provisions concerning downgrades by rating agencies, the Director's authority, upgrading the rating of a certified reinsurer, and the revocation of the certification of a certified reinsurer. Makes other changes.

Spectrum: Slight Partisan Bill (Democrat 6-3)

Status: (Passed) 2018-11-29 - Public Act . . . . . . . . . 100-1118 [SB1737 Detail]

Download: Illinois-2017-SB1737-Chaptered.html

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Public Act 100-1118
SB1737 Enrolled LRB100 06758 SMS 16799 b
AN ACT concerning regulation.
Be it enacted by the People of the State of Illinois,
represented in the General Assembly:
Section 1. Short title. This Act may be cited as the
Short-Term, Limited-Duration Health Insurance Coverage Act.
Section 5. Definitions. In this Act:
"Department" means the Department of Insurance.
"Health insurance coverage" has the meaning given to that
term in the Illinois Health Insurance Portability and
Accountability Act.
"Health insurance issuer" has the meaning given to that
term in the Illinois Health Insurance Portability and
Accountability Act.
"Fraud" means an intentional misrepresentation of a
material fact in connection with the coverage.
"Short-term, limited-duration health insurance coverage"
means health insurance coverage provided pursuant to a policy
with an issuer, regardless of the situs of the delivery of the
policy, that is less than 365 days after the effective date of
the policy.
Section 10. Application; scope; duration of coverage.
(a) This Act applies to health insurance issuers that offer

short-term, limited-duration health insurance coverage to
individuals in this State and to short-term, limited-duration
health insurance coverage that is delivered or issued for
delivery in this State, including coverage issued outside of
this State that covers individuals in this State.
(b) A short-term, limited-duration health insurance
coverage policy may not be issued or delivered to any person
residing in this State unless the policy, when delivered or
issued for delivery in this State, complies with the provisions
of this Act.
(c) Any short-term, limited-duration health insurance
coverage policy that is delivered or issued for delivery in
this State must have an expiration date in the policy that is
less than 181 days after the effective date and shall not be
renewable or extendable within a period of 365 days after the
individual's coverage under the policy ends, either at the
option of the issuer or the individual. Renewal of a
short-term, limited-duration health insurance coverage policy
includes the issuance of a new short-term, limited-duration
health insurance policy by an issuer to a policyholder within
60 days after the expiration of a policy previously issued by
the issuer to the policyholder.
(d) Any short-term, limited-duration health insurance
coverage policy that is delivered or issued for delivery in
this State may not be rescinded before the expiration date in
the policy, except in cases of nonpayment of premiums, fraud,

or as provided in subsection (e).
(e) Any short-term, limited-duration health insurance
coverage policy that is delivered or issued for delivery in
this State shall contain an option for an individual to cancel
coverage after any 30-day interval during the term of the plan.
Section 15. Disclosure requirements.
(a) A health insurance issuer that offers short-term,
limited-duration health insurance coverage to be delivered or
issued for delivery in this State shall, in addition to all
other documents required, including, but not limited to, the
policy, the certificate, the membership booklet, and a
description of appeal and external review rights, deliver an
outline of coverage to an applicant for or an enrollee in
short-term, limited-duration health insurance coverage
delivered or issued for delivery in this State.
(b) Any short-term, limited-duration health insurance
coverage policy that is delivered or issued for delivery in the
State shall display prominently in the policy, any application,
sales, and marketing materials provided in connection with
enrollment in such coverage, and the outline of coverage for
such coverage, in at least 14-point, bold type, the following:
"NOTICE: THE SHORT-TERM, LIMITED-DURATION INSURANCE BENEFITS
UNDER THIS COVERAGE DO NOT MEET ALL FEDERAL REQUIREMENTS TO
QUALIFY AS "MINIMUM ESSENTIAL COVERAGE" FOR HEALTH INSURANCE
UNDER THE AFFORDABLE CARE ACT. THIS PLAN OF COVERAGE DOES NOT

INCLUDE ALL ESSENTIAL HEALTH BENEFITS AS REQUIRED BY THE
AFFORDABLE CARE ACT. PREEXISTING CONDITIONS ARE NOT COVERED
UNDER THIS PLAN OF COVERAGE. BE SURE TO CHECK YOUR POLICY
CAREFULLY TO MAKE SURE YOU UNDERSTAND WHAT THE POLICY DOES AND
DOES NOT COVER. IF THIS COVERAGE EXPIRES OR YOU LOSE
ELIGIBILITY FOR THIS COVERAGE, YOU MIGHT HAVE TO WAIT UNTIL THE
NEXT OPEN ENROLLMENT PERIOD TO GET OTHER HEALTH INSURANCE
COVERAGE. YOU MAY BE ABLE TO GET LONGER TERM INSURANCE THAT
QUALIFIES AS "MINIMUM ESSENTIAL COVERAGE" FOR HEALTH INSURANCE
UNDER THE AFFORDABLE CARE ACT NOW AND HELP TO PAY FOR IT AT
WWW.HEALTHCARE.GOV.".
(c) Any individual selling a short-term, limited-duration
health insurance coverage policy in this State in face-to-face
or telephonic sales interactions must read out loud the
disclosure in subsection (b) to a prospective purchaser. An
entity selling a short-term, limited-duration health insurance
coverage policy in Illinois must display the disclosure in
subsection (b) on the webpage where a prospective purchaser
would purchase coverage.
(d) Nothing in this Section precludes an insurer from
providing disclosures in addition to those required in
subsections (b) and (c). Nothing in this Section precludes an
insurer from providing disclosures intended to clarify those
required in subsections (b) and (c) if approved by the
Department.

Section 20. Filing and approval.
(a) Coverage subject to this Act may not be delivered or
issued for delivery in this State unless the policy evidencing
such coverage has been filed with and been approved by the
Department.
(b) A health insurance issuer who intends to deliver or
issue for delivery a short-term, limited-duration health
insurance coverage policy in this State shall file with the
Department:
(1) all paperwork required for individual health
insurance coverage pursuant to 50 Ill. Adm. Code 916; and
(2) all sales and marketing materials provided in
connection with enrollment in such coverage for
informational purposes.
(c) The Department shall adopt any rules necessary to carry
out the provisions of this Act.
Section 90. The Illinois Insurance Code is amended by
adding Article IIB and Sections 123C-23, 123C-24, 123C-25,
123C-26, 123C-27, 123C-28, and 462a and by changing Sections
121-2.08, 123C-1, 123C-2, 123C-3, 123C-9, 123C-11, 123C-12,
123C-13, 123C-16, 123C-17, 123C-19, 156, 173.1, 456, 457, and
458 as follows:
(215 ILCS 5/Art. IIB heading new)
ARTICLE IIB. DOMESTIC STOCK COMPANY DIVISION

(215 ILCS 5/35B-1 new)
Sec. 35B-1. Short title. This Article may be cited as the
Domestic Stock Company Division Law.
(215 ILCS 5/35B-5 new)
Sec. 35B-5. Purpose. The purpose of this Article is to
stimulate economic development in the State of Illinois by
creating and sustaining employment opportunities and
increasing and sustaining taxable revenue, through improving
the competitive position of domestic stock companies,
maintaining the competitiveness of this State as a state of
domicile for domestic stock companies, and enhancing the
desirability of this State as a jurisdiction of domicile for
newly incorporating and existing foreign stock companies.
(215 ILCS 5/35B-10 new)
Sec. 35B-10. Definitions. As used in this Article:
"Assets" means all assets or property, whether real,
personal or mixed, tangible or intangible, and any right or
interest therein, including all rights under contracts and
other agreements.
"Capital" means the capital stock component of statutory
surplus, as defined in the National Association of Insurance
Commissioners Accounting Practices and Procedures Manual,
version effective January 1, 2001, and subsequent revisions.

"Divide" or "division" means the act by operation of law by
which a domestic stock company divides into 2 or more resulting
companies in accordance with a plan of division and this
Article;
"Dividing company" means a domestic stock company that
approves a plan of division pursuant to Section 35B-20;
"Domestic stock company" means a domestic stock company
transacting or being organized to transact any of the kinds of
insurance business enumerated in Section 4.
"Liability" means a liability or obligation of any kind,
character, or description, whether known or unknown, absolute
or contingent, accrued or unaccrued, disputed or undisputed,
liquidated or unliquidated, secured or unsecured, joint or
several, due or to become due, determined, determinable, or
otherwise.
"New company" means a domestic stock company that is
created by a division occurring on or after the effective date
of this amendatory Act of the 100th General Assembly.
"Plan of division" means a plan of division approved by a
dividing company in accordance Section 35B-20.
"Policy liability" means a liability as defined in this
Section arising out of or related to an insurance policy,
contract of insurance, or reinsurance agreement.
"Recorder" means the office of the recorder of the county
where the principal office of a domestic stock company is
located.

"Resulting company" means a domestic stock company created
by a division or a dividing company that survives a division.
"Shareholder" means the person in whose name shares are
registered in the records of a corporation or the beneficial
owner of shares to the extent of the rights granted by a
nominee certificate on file with a corporation.
"Sign" or "signature" includes a manual, facsimile, or
conformed or electronic signature.
"Surplus" means total statutory surplus less capital,
calculated in accordance with the National Association of
Insurance Commissioners Accounting Practices and Procedures
Manual, version effective January 1, 2001, and subsequent
revisions.
"Transfer" includes an assignment, assumption, conveyance,
sale, lease, encumbrance, including a mortgage or security
interest, gift, or transfer by operation of law.
(215 ILCS 5/35B-15 new)
Sec. 35B-15. Plan of division.
(a) A domestic stock company may, in accordance with the
requirements of this Article, divide into 2 or more resulting
companies pursuant to a plan of division.
(b) Each plan of division shall include:
(1) the name of the domestic stock company seeking to
divide;
(2) the name of each resulting company that will be

created by the proposed division;
(3) for each new company that will be created by the
proposed division, a copy of its:
(A) proposed articles of incorporation;
(B) proposed bylaws; and
(C) the kinds of insurance business enumerated in
Section 4 that the new company would be authorized to
conduct;
(4) the manner of allocating between or among the
resulting companies:
(A) the assets of the domestic stock company that
will not be owned by all of the resulting companies as
tenants in common pursuant to Section 35B-35; and
(B) the liabilities of the domestic stock company,
including policy liabilities, to which not all of the
resulting companies will become jointly and severally
liable pursuant to paragraph (3) of subsection (a) of
Section 35B-40;
(5) the manner of distributing shares in the new
companies to the dividing company or its shareholders;
(6) a reasonable description of the liabilities,
including policy liabilities, and items of capital,
surplus, or other assets, in each case, that the domestic
stock company proposes to allocate to each resulting
company, including specifying the reinsurance contract,
reinsurance coverage obligations, and related claims that

are applicable to those policies;
(7) all terms and conditions required by the laws of
this State or the articles of incorporation and bylaws of
the domestic stock company;
(8) evidence demonstrating that the interest of all
classes of policyholders of the dividing company will be
properly protected; and
(9) all other terms and conditions of the division.
Nothing in this subsection (b) shall expand or reduce the
allocation and assignment of reinsurance as stated in the
reinsurance contract.
(c) If the domestic stock company survives the division,
the plan of division shall include, in addition to the
information required by subsection (b):
(1) all proposed amendments to the dividing company's
articles of incorporation and bylaws, if any;
(2) if the dividing company desires to cancel some, but
less than all, shares in the dividing company, the manner
in which it will cancel such shares; and
(3) if the dividing company desires to convert some,
but less than all, shares in the dividing company into
shares, securities, obligations, money, other property,
rights to acquire shares or securities, or any combination
thereof, a statement disclosing the manner in which it will
convert the shares.
(d) If the domestic stock company does not survive the

proposed division, the plan of division shall contain, in
addition to the information required by subsection (b), the
manner in which the dividing company will cancel or convert
shares in the dividing company into shares, securities,
obligations, money, other property, rights to acquire shares or
securities, or any combination thereof.
(e) Terms of a plan of division may be made dependent on
facts objectively ascertainable outside of the plan of
division.
(f) A dividing company may amend a plan of division in
accordance with any procedures set forth in the plan of
division or, if no such procedures are set forth in the plan of
division, in any manner determined by the board of directors of
the dividing company, except that a shareholder that was
entitled to vote on or consent to approval of the plan of
division is entitled to vote on or consent to any amendment of
the plan of division that will change:
(1) the amount or kind of shares, securities,
obligations, money, other property, rights to acquire
shares or securities, or any combination thereof, to be
received by any of the shareholders of the dividing company
under the plan of division;
(2) the articles of incorporation or bylaws of any
resulting company that will be in effect when the division
becomes effective, except for changes that do not require
approval of the shareholders of the resulting company under

its articles of incorporation or bylaws; or
(3) any other terms or conditions of the plan of
division, if the change would adversely affect the
shareholders in any material respect.
(g) A dividing company may abandon a plan of division after
it has approved the plan of division without any action by the
shareholders and in accordance with any procedures set forth in
the plan of division or, if no such procedures are set forth in
the plan of division, in a manner determined by the board of
directors of the dividing company.
(h) A dividing company may abandon a plan of division after
it has filed a certificate of division with the recorder by
filing with the recorder, with concurrent copy to the director,
a certificate of abandonment signed by the dividing company.
The certificate of abandonment shall be effective on the date
it is filed with the recorder and the dividing company shall be
deemed to have abandoned its plan of division on such date.
(i) A dividing company may not abandon or amend its plan of
division once the division becomes effective.
(215 ILCS 5/35B-20 new)
Sec. 35B-20. Requirements of a plan of division.
(a) A domestic stock company shall not file a plan of
division with the Director unless the plan of division has been
approved in accordance with:
(1) any applicable provisions of its articles of

incorporation and bylaws; and
(2) all laws of this State governing the internal
affairs of a domestic stock company that provide for
approval of a merger.
(b) If any provision of the articles of incorporation or
bylaws of a domestic stock company requires that a specific
number or percentage of board of directors or shareholders
approve the proposal or adoption of a plan of merger, or
imposes other special procedures for the proposal or adoption
of a plan of merger, such domestic stock company shall adhere
to such provision in proposing or adopting a plan of division.
If any provision of the articles of incorporation or bylaws of
a domestic stock company is amended, such amendment shall
thereafter apply to a division only in accordance with its
express terms.
(215 ILCS 5/35B-25 new)
Sec. 35B-25. Plan of division approval.
(a) A division shall not become effective until it is
approved by the Director after reasonable notice and a public
hearing, if the notice and hearing are deemed by the Director
to be in the public interest. The Director shall hold a public
hearing if one is requested by the dividing company. A hearing
conducted under this Section shall be conducted in accordance
with Article 10 of the Illinois Administrative Procedure Act.
(b) The Director shall approve a plan of division unless

the Director finds that:
(1) the interest of any class of policyholder or
shareholder of the dividing company will not be properly
protected;
(2) each new company created by the proposed division,
except a new company that is a nonsurviving party to a
merger pursuant to subsection (b) of Section 156, would be
ineligible to receive a license to do insurance business in
this State pursuant to Section 5;
(3) the proposed division violates a provision of the
Uniform Fraudulent Transfer Act;
(4) the division is being made for purposes of
hindering, delaying, or defrauding any policyholders or
other creditors of the dividing company;
(5) one or more resulting companies will not be solvent
upon the consummation of the division; or
(6) the remaining assets of one or more resulting
companies will be, upon consummation of a division,
unreasonably small in relation to the business and
transactions in which the resulting company was engaged or
is about to engage.
(c) In determining whether the standards set forth in
paragraph (3) of subsection (b) have been satisfied, the
Director shall only apply the Uniform Fraudulent Transfer Act
to a dividing company in its capacity as a resulting company
and shall not apply the Uniform Fraudulent Transfer Act to any

dividing company that is not proposed to survive the division.
(d) In determining whether the standards set forth in
paragraphs (3), (4), (5), and (6) of subsection (b) have been
satisfied, the Director may consider all proposed assets of the
resulting company, including, without limitation, reinsurance
agreements, parental guarantees, support or keep well
agreements, or capital maintenance or contingent capital
agreements, in each case, regardless of whether the same would
qualify as an admitted asset as defined in Section 3.1.
(e) In determining whether the standards set forth in
paragraph (3) of subsection (b) have been satisfied, with
respect to each resulting company, the Director shall, in
applying the Uniform Fraudulent Transfer Act, treat:
(1) the resulting company as a debtor;
(2) liabilities allocated to the resulting company as
obligations incurred by a debtor;
(3) the resulting company as not having received
reasonably equivalent value in exchange for incurring the
obligations; and
(4) assets allocated to the resulting company as
remaining property.
(f) All information, documents, materials, and copies
thereof submitted to, obtained by, or disclosed to the Director
in connection with a plan of division or in contemplation
thereof, including any information, documents, materials, or
copies provided by or on behalf of a domestic stock company in

advance of its adoption or submission of a plan of division,
shall be confidential and shall be subject to the same
protection and treatment in accordance with Section 131.14d as
documents and reports disclosed to or filed with the Director
pursuant to Section 131.14b until such time, if any, as a
notice of the hearing contemplated by subsection (a) is issued.
(g) From and after the issuance of a notice of the hearing
contemplated by subsection (a), all business, financial, and
actuarial information that the domestic stock company requests
confidential treatment, other than the plan of division, shall
continue to be confidential and shall not be available for
public inspection and shall be subject to the same protection
and treatment in accordance with Section 131.14d as documents
and reports disclosed to or filed with the Director pursuant to
Section 131.14b.
(h) All expenses incurred by the Director in connection
with proceedings under this Section, including expenses for the
services of any attorneys, actuaries, accountants, and other
experts as may be reasonably necessary to assist the Director
in reviewing the proposed division, shall be paid by the
dividing company filing the plan of division. A dividing
company may allocate expenses described in this subsection in a
plan of division in the same manner as any other liability.
(i) If the Director approves a plan of division, the
Director shall issue an order that shall be accompanied by
findings of fact and conclusions of law.

(j) The conditions in this Section for freeing one or more
of the resulting companies from the liabilities of the dividing
company and for allocating some or all of the liabilities of
the dividing company shall be conclusively deemed to have been
satisfied if the plan of division has been approved by the
Director in a final order that is not subject to further
appeal.
(215 ILCS 5/35B-30 new)
Sec. 35B-30. Certificate of division.
(a) After a plan of division has been adopted and approved,
an officer or duly authorized representative of the dividing
company shall sign a certificate of division.
(b) The certificate of division shall set forth:
(1) the name of the dividing company;
(2) a statement disclosing whether the dividing
company will survive the division;
(3) the name of each new company that will be created
by the division;
(4) the kinds of insurance business enumerated in
Section 4 that the new company will be authorized to
conduct;
(5) the date that the division is to be effective,
which shall not be more than 90 days after the dividing
company has filed the certificate of division with the
recorder, with a concurrent copy to the Director;

(6) a statement that the division was approved by the
Director in accordance with Section 35B-25;
(6) a statement that the dividing company provided, no
later than 10 business days after the dividing company
filed the plan of division with the Director, reasonable
notice to each reinsurer that is party to a reinsurance
contract that is applicable to the policies included in the
plan of division;
(7) if the dividing company will survive the division,
an amendment to its articles of incorporation or bylaws
approved as part of the plan of division;
(8) for each new company created by the division, its
articles of incorporation and bylaws, provided that the
articles of incorporation and bylaws need not state the
name or address of an incorporator; and
(9) a reasonable description of the capital, surplus,
other assets and liabilities, including policy
liabilities, of the dividing company that are to be
allocated to each resulting company.
(c) The articles of incorporation and bylaws of each new
company must satisfy the requirements of the laws of this
State, provided that the documents need not be signed or
include a provision that need not be included in a restatement
of the document.
(d) A certificate of division is effective when filed with
the recorder, with a concurrent copy to the Director, as

provided in this Section or on another date specified in the
plan of division, whichever is later, provided that a
certificate of division shall become effective not more than 90
days after it is filed with the recorder. A division is
effective when the relevant certificate of division is
effective.
(215 ILCS 5/35B-35 new)
Sec. 35B-35. Effects of division.
(a) When a division becomes effective pursuant to Section
35B-30:
(1) if the dividing company has survived the division:
(A) it continues to exist;
(B) its articles of incorporation shall be
amended, if necessary, as provided in the plan of
division; and
(C) its bylaws shall be amended, if necessary, as
provided in the plan of division;
(2) if the dividing company has not survived the
division, its separate existence ceases to exist;
(3) each new company:
(A) comes into existence;
(B) shall hold any capital, surplus, and other
assets allocated to such new company by the plan of
division as a successor to the dividing company,
automatically, by operation of law and not by transfer,

whether directly or indirectly; and
(C) its articles of incorporation, if any, and
bylaws, if any, shall be effective;
(4) capital, surplus, and other assets of the dividing
company:
(A) that is allocated by the plan of division
either:
(i) vests in the applicable new company as
provided in the plan of division; or
(ii) remains vested in the dividing company as
provided in the plan of division;
(B) that is not allocated by the plan of division
either:
(i) remains vested in the dividing company, if
the dividing company survives the division; or
(ii) is allocated to and vests equally in the
resulting companies as tenants in common, if the
dividing company does not survive the division; or
(C) otherwise vests as provided in this subsection
without transfer, reversion, or impairment;
(5) a resulting company to which a cause of action is
allocated as provided in paragraph (4) of this subsection
(a) may be substituted or added in any pending action or
proceeding to which the dividing company is a party when
the division becomes effective;
(6) the liabilities, including policy liabilities, of

the dividing company are allocated between or among the
resulting companies as provided in Section 35B-40 and each
resulting company to which liabilities are allocated is
liable only for those liabilities, including policy
liabilities, so allocated as successors to the dividing
company, automatically, by operation of law, and not by
transfer (or, for the avoidance of doubt, assumption),
whether directly or indirectly; and
(7) the shares in the dividing company that are to be
converted or canceled in the division are converted or
canceled, and the shareholders of those shares are entitled
only to the rights provided to them under the plan of
division and any appraisal rights that they may have
pursuant to Section 35B-45.
(b) Except as provided in the articles of incorporation or
bylaws of the dividing company, the division does not give rise
to any rights that a shareholder, director of a domestic stock
company, or third party would have upon a dissolution,
liquidation, or winding up of the dividing company.
(c) The allocation to a new company of capital, surplus, or
other assets that is collateral covered by an effective
financing statement shall not be effective until a new
financing statement naming the new company as a debtor is
effective under the Uniform Commercial Code.
(d) Unless otherwise provided in the plan of division, the
shares in and any securities of each new company shall be

distributed to:
(1) the dividing company, if it survives the division;
or
(2) shareholders of the dividing company that do not
assert any appraisal rights that they may have pursuant to
Section 35B-45, pro rata.
(215 ILCS 5/35B-40 new)
Sec. 35B-40. Resulting company liabilities.
(a) Except as otherwise expressly provided in this Section,
when a division becomes effective, each resulting company is
responsible, automatically, by operation of law, for:
(1) individually, the liabilities, including policy
liabilities, that the resulting company issues,
undertakes, or incurs in its own name after the division;
(2) individually, the liabilities, including policy
liabilities, of the dividing company that are allocated to
or remain the liability of the resulting company to the
extent specified in the plan of division; and
(3) jointly and severally with the other resulting
companies, the liabilities, including policy liabilities,
of the dividing company that are not allocated by the plan
of division.
(b) Except as otherwise expressly provided in this Section,
when a division becomes effective, no resulting company is
responsible for or shall have any liability or obligation in

respect of:
(1) any liabilities, including policy liabilities,
that another resulting company issues, undertakes, or
incurs in its own name after the division; or
(2) any liabilities, including policy liabilities, of
the dividing company that are allocated to or remain the
liability of another resulting company in accordance with
the plan of division.
(c) If a provision of a debt security, note, or similar
evidence of indebtedness for money borrowed, whether secured or
unsecured, indenture or other contract relating to
indebtedness, or a provision of any other type of contract
other than an insurance policy, annuity, or reinsurance
agreement, that was issued, incurred, or executed by the
domestic stock company before requires the consent of the
obligee to a merger of the dividing company or treats the
merger as a default, that provision applies to a division of
the dividing company as if the division was a merger.
(d) If a division breaches a contractual obligation of the
dividing company at the time the division becomes effective,
all of the resulting companies are liable, jointly and
severally, for the contractual breach, but the validity and
effectiveness of the division, including, without limitation,
the allocation of liabilities in accordance with the plan of
division, shall not be affected by the contractual breach.
(e) A direct or indirect allocation of capital, surplus,

assets, or liabilities, including policy liabilities, in a
division shall occur automatically, by operation of law, and
shall not be treated as a distribution or transfer for any
purpose with respect to either the dividing company or any of
the resulting companies.
(f) Liens, security interests, and other charges on the
capital, surplus, or other assets of the dividing company are
not impaired by the division, notwithstanding any otherwise
enforceable allocation of liabilities, including policy
liabilities, of the dividing company.
(g) If the dividing company is bound by a security
agreement governed by Article 9 of the Uniform Commercial Code
as enacted in this State or in any other jurisdiction, and the
security agreement provides that the security interest
attaches to after-acquired collateral, each resulting company
is bound by the security agreement.
(h) An allocation of a policy or other liability does not:
(1) except as provided in the plan of division and
specifically approved by the Director, affect the rights
that a policyholder or creditor has under other law in
respect of the policy or other liability, except that those
rights are available only against a resulting company
responsible for the policy or liability under this Section;
or
(2) release or reduce the obligation of a reinsurer,
surety, or guarantor of the policy or liability.

(215 ILCS 5/35B-45 new)
Sec. 35B-45. Shareholder rights. If the dividing company
does not survive the division, an objecting shareholder of a
dividing company is entitled to appraisal rights and to obtain
payment of the fair value of that shareholder's shares, in the
same manner and to the extent provided for pursuant to Section
167.
(215 ILCS 5/35B-50 new)
Sec. 35B-50. Rules. The Director may adopt such rules as
are necessary or appropriate to carry out this Article.
(215 ILCS 5/121-2.08) (from Ch. 73, par. 733-2.08)
Sec. 121-2.08. Transactions in this State involving
contracts of insurance independently procured directly from an
unauthorized insurer by industrial insureds.
(a) As used in this Section:
"Exempt commercial purchaser" means exempt commercial
purchaser as the term is defined in subsection (1) of Section
445 of this Code.
"Home state" means home state as the term is defined in
subsection (1) of Section 445 of this Code.
"Industrial insured" means an insured:
(i) that procures the insurance of any risk or risks of
the kinds specified in Classes 2 and 3 of Section 4 of this

Code by use of the services of a full-time employee who is
a qualified risk manager or the services of a regularly and
continuously retained consultant who is a qualified risk
manager;
(ii) that procures the insurance directly from an
unauthorized insurer without the services of an
intermediary insurance producer; and
(iii) that is an exempt commercial purchaser whose home
state is Illinois.
"Insurance producer" means insurance producer as the term
is defined in Section 500-10 of this Code.
"Qualified risk manager" means qualified risk manager as
the term is defined in subsection (1) of Section 445 of this
Code.
"Safety-Net Hospital" means an Illinois hospital that
qualifies as a Safety-Net Hospital under Section 5-5e.1 of the
Illinois Public Aid Code.
"Unauthorized insurer" means unauthorized insurer as the
term is defined in subsection (1) of Section 445 of this Code.
(b) For contracts of insurance effective January 1, 2015 or
later, within 90 days after the effective date of each contract
of insurance issued under this Section, the insured shall file
a report with the Director by submitting the report to the
Surplus Line Association of Illinois in writing or in a
computer readable format and provide information as designated
by the Surplus Line Association of Illinois. The information in

the report shall be substantially similar to that required for
surplus line submissions as described in subsection (5) of
Section 445 of this Code. Where applicable, the report shall
satisfy, with respect to the subject insurance, the reporting
requirement of Section 12 of the Fire Investigation Act.
(c) For contracts of insurance effective January 1, 2015
through December 31, 2017 or later, within 30 days after filing
the report, the insured shall pay to the Director for the use
and benefit of the State a sum equal to the gross premium of
the contract of insurance multiplied by the surplus line tax
rate, as described in paragraph (3) of subsection (a) of
Section 445 of this Code, and shall pay the fire marshal tax
that would otherwise be due annually in March for insurance
subject to tax under Section 12 of the Fire Investigation Act.
For contracts of insurance effective January 1, 2018 or later,
within 30 days after filing the report, the insured shall pay
to the Director for the use and benefit of the State a sum
equal to 0.5% of the gross premium of the contract of
insurance, and shall pay the fire marshal tax that would
otherwise be due annually in March for insurance subject to tax
under Section 12 of the Fire Investigation Act. For contracts
of insurance effective January 1, 2015 or later, within 30 days
after filing the report, the insured shall pay to the Surplus
Line Association of Illinois a countersigning fee that shall be
assessed at the same rate charged to members pursuant to
subsection (4) of Section 445.1 of this Code.

(d) For contracts of insurance effective January 1, 2015 or
later, the insured shall withhold the amount of the taxes and
countersignature fee from the amount of premium charged by and
otherwise payable to the insurer for the insurance. If the
insured fails to withhold the tax and countersignature fee from
the premium, then the insured shall be liable for the amounts
thereof and shall pay the amounts as prescribed in subsection
(c) of this Section.
(e) Contracts of insurance with an industrial insured that
qualifies as a Safety-Net Hospital are not subject to
subsections (b) through (d) of this Section.
(Source: P.A. 100-535, eff. 9-22-17.)
(215 ILCS 5/123C-1) (from Ch. 73, par. 735C-1)
(Section scheduled to be repealed on January 1, 2027)
Sec. 123C-1. Definitions. As used in this Article:
A. "Affiliate" or "Affiliated company" includes a parent
entity that controls a captive insurance company and:
(1) is an affiliate of another entity if the entity
directly or indirectly, through one or more
intermediaries, controls, is controlled by, or is under
common control with the other entity.
(2) is an affiliate of another entity if the entity is
an affiliate of and is controlled by the other entity
directly or indirectly through one or more intermediaries.
A subsidiary or holding company of an entity is an affiliate of

that entity. shall have the meaning set forth in subsection (a)
of Section 131.1 (and, for purposes of such definition, the
definitions of "control" and "person", as set forth in
subsections (b) and (e) of Section 131.1, respectively, shall
be applicable).
B. "Association" means any entity meeting the requirements
set forth in either of the following paragraphs (1), (2) or
(3):
(1) any organized association of individuals, legal
representatives, corporations (whether for profit or not
for profit), partnerships, trusts, associations, units of
government or other organizations, or any combination of
the foregoing, that has been in continuous existence for at
least one year, the member organizations of which
collectively:
(a) own, control, or hold with power to vote
(directly or indirectly) all of the outstanding voting
securities of an association captive insurance company
incorporated as a stock insurer; or
(b) have complete voting control (directly or
indirectly) over an association captive insurance
company organized as a mutual insurer;
(2) any organized association of individuals, legal
representatives, corporations (whether for profit or not
for profit), partnerships, trusts, associations, units of
government or other organizations, or any combination of

the foregoing:
(a) whose member organizations are engaged in
businesses or activities similar or related with
respect to the liability of which such members are
exposed by virtue of any related, similar, or common
business, trade, product, services, premises, or
operations; and
(b) whose member organizations:
(i) directly or indirectly own or control, and
hold with power to vote, at least 80% of all of the
outstanding voting securities of an association
captive insurance company incorporated as a stock
insurer; or
(ii) directly or indirectly have at least 80%
of the voting control over an association captive
insurance company organized as a mutual insurer;
or
(3) any risk retention group, as defined in subsection
(11) of Section 123B-2, domiciled in this State and
organized under this Article; however, beginning 6 months
after the effective date of this amendatory Act of 1995, a
risk retention group shall no longer qualify as an
association under this Article.
Provided, however, that with respect to each of the
associations described in paragraphs (1), (2) and (3) above, no
member organization may (i) own, control, or hold with power to

vote in excess of 25% of the voting securities of an
association captive insurance company incorporated as a stock
insurer, or (ii) have more than 25% of the voting control of an
association captive insurance company organized as a mutual
insurer.
C. "Association captive insurance company" means any
company that insures risks of (i) the member organizations of
an association, and (ii) their affiliated companies.
D. "Captive insurance company" means any pure captive
insurance company, association captive insurance company or
industrial insured captive insurance company organized under
the provisions of this Article.
E. "Director" means the Director of the Department of
Insurance.
F. "Industrial insured" means an insured which (together
with its affiliates) at the time of its initial procurement of
insurance from an industrial insured captive insurance
company:
(1) has available to it advice with respect to the
purchase of insurance through the use of the services of a
full-time employee acting as an insurance manager or buyer
or the services of a regularly and continuously retained
qualified insurance consultant; and
(2) pays aggregate annual premiums in excess of
$100,000 for insurance on all risks except for life,
accident and health; and

(3) either (i) has at least 25 full-time employees, or
(ii) has gross assets in excess of $3,000,000, or (iii) has
annual gross revenues in excess of $5,000,000.
G. "Industrial insured captive insurance company" means
any company that insures risks of industrial insureds that are
members of the industrial insured group, and their affiliated
companies.
H. "Industrial insured group" means any group of industrial
insureds that collectively:
(1) directly or indirectly (including ownership or
control through a company which is wholly owned by such
group of industrial insureds) own or control, and hold with
power to vote, all of the outstanding voting securities of
an industrial insured captive insurance company
incorporated as a stock insurer; or
(2) directly or indirectly (including control through
a company which is wholly owned by such group of industrial
insureds) have complete voting control over an industrial
insured captive insurance company organized as a mutual
insurer; provided, however, that no member organization
may (i) own, control, or hold with power to vote in excess
of 25% of the voting securities of an industrial insured
captive insurance company incorporated as a stock insurer,
or (ii) have more than 25% of the voting control of an
industrial insured captive insurance company organized as
a mutual insurer.

I. "Member organization" means any individual, legal
representative, corporation (whether for profit or not for
profit), partnership, association, unit of government, trust
or other organization that belongs to an association or an
industrial insured group.
J. "Parent" means a corporation, partnership, individual
or other legal entity that directly or indirectly owns,
controls, or holds with power to vote more than 50% of the
outstanding voting securities of a company.
K. "Personal risk liability" means liability to other
persons for (i) damage because of injury to any person, (ii)
damage to property, or (iii) other loss or damage, in each case
resulting from any personal, familial, or household
responsibilities or activities, but does not include legal
liability for damages (including costs of defense, legal costs
and fees, and other claims expenses) because of injuries to
other persons, damage to their property, or other damage or
loss to such other persons resulting from or arising out of:
(i) any business (whether for profit or not for
profit), trade, product, services (including professional
services), premises, or operations; or
(ii) any activity of any state or local government, or
any agency or political subdivision thereof.
L. "Pure captive insurance company" means any company that
insures only risks of its parent or affiliated companies or
both.

M. "Unit of government" includes any state, regional or
local government, or any agency or political subdivision
thereof, or any district, authority, public educational
institution or school district, public corporation or other
unit of government in this State or any similar unit of
government in any other state.
N. "Control" means the power to direct, or cause the
direction of, the management and policies of an entity, other
than the power that results from an official position with or
corporate office held in the entity. The power may be possessed
directly or indirectly by any means, including through the
ownership of voting securities or by contract, other than a
commercial contract for goods or non-management services.
O. "Qualified independent actuary" means a person that is
either:
(1) a member in good standing with the Casualty
Actuarial Society; or
(2) a member in good standing with the American Academy
of Actuaries who has been approved as qualified for signing
casualty loss reserve opinions by the Casualty Practice
Council of the American Academy of Actuaries.
P. "Controlled unaffiliated business" means an entity:
(1) that is not an affiliate;
(2) that has an existing contractual relationship with
an affiliate under which the affiliate bears a potential
financial loss; and

(3) whose risks are managed by a captive insurance
company under Section 123C-24 of this Code.
Q. "Operational risk" means any potential financial loss of
an affiliate, except for a loss arising from an insurance
policy issued by a captive or insurance affiliate.
R. "Captive management company" means an entity providing
administrative services to a captive insurance company.
S. "Safety-Net Hospital" means an Illinois hospital that
qualifies as a Safety-Net Hospital under Section 5-5e.1 of the
Illinois Public Aid Code.
(Source: P.A. 89-97, eff. 7-7-95; 90-794, eff. 8-14-98.)
(215 ILCS 5/123C-2) (from Ch. 73, par. 735C-2)
(Section scheduled to be repealed on January 1, 2027)
Sec. 123C-2. Authority of captives; restrictions.
A. (Blank). Any captive insurance company, when permitted
by its articles of association or charter, may apply to the
Director for a certificate of authority to transact any and all
insurance in classes 2 and 3 of Section 4 of this Code, except
that:
(1) no pure captive insurance company may insure any
risks other than those of its parent and affiliated
companies;
(2) no association captive insurance company may
insure any risks other than those of the member
organizations of its association, and their affiliated

companies;
(3) no industrial insured captive insurance company
may insure any risks other than those of the members of the
industrial insured group, and their affiliated companies;
and
(4) no captive insurance company may provide:
(i) personal motor vehicle coverage or homeowner's
insurance coverage or any component thereof, or
(ii) personal coverage for personal risk
liability, or
(iii) coverage for an employer's liability to its
employees other than legal liability under the federal
Employers' Liability Act (45 U.S.C. 51 et seq.),
provided, however, this exclusion does not preclude
reinsurance of such employer's liability, or
(iv) accident and health insurance as provided in
clause (a) of Class 2 of Section 4, provided, however,
this exclusion does not preclude stop-loss insurance
or reinsurance of a single employer self-funded
employee disability benefit plan or an employee
welfare plan as described in 29 U.S.C. 1001 et seq.
A-5. A captive insurance company may not issue:
(1) life insurance;
(2) annuities;
(3) accident and health insurance for the company's
parent and affiliates, except to insure employee benefits

that are subject to the federal Employee Retirement Income
Security Act of 1974 or, to the extent the parent company
is a college or university, an accident or health plan
offered to enrolled students of the college or university;
(4) title insurance;
(5) mortgage guaranty insurance;
(6) financial guaranty insurance;
(7) homeowner's insurance coverage;
(8) personal automobile insurance; or
(9) workers' compensation insurance, except to the
extent allowed in subsection A-10.
A-10. A captive insurance company is authorized to issue a
contractual reimbursement policy to:
(1) the parent company or an affiliated certified
self-insurer authorized under the Workers' Compensation
Act or a similar affiliated entity expressly authorized by
analogous laws of another state; or
(2) the parent company or an affiliate that is insured
by a workers' compensation insurance policy with a
negotiated deductible endorsement.
B. No captive insurance company shall do any insurance
business in this State unless:
(1) it first obtains from the Director a certificate of
authority authorizing it to do such insurance business in
this State; and
(2) it appoints a resident registered agent to accept

service of process and to otherwise act on its behalf in
this State.
C. No captive insurance company shall adopt a name that is
the same as, deceptively similar to, or likely to be confused
with or mistaken for, any other existing business name
registered in this State.
D. Each captive insurance company, or the organizations
providing the principal administrative or management services
to such captive insurance company, shall maintain a place of
business in this State.
(Source: P.A. 91-357, eff. 7-29-99.)
(215 ILCS 5/123C-3) (from Ch. 73, par. 735C-3)
(Section scheduled to be repealed on January 1, 2027)
Sec. 123C-3. Minimum capital and surplus.
A. The Department may not issue a certificate of authority
to a captive insurance company unless the company possesses and
maintains unencumbered capital and surplus in an amount
determined by the Director after considering:
(1) the amount of premium written by the captive
insurance company;
(2) the characteristics of the assets held by the
captive insurance company;
(3) the terms of reinsurance arrangements entered into
by the captive insurance company;
(4) the type of business covered in policies issued by

the captive insurance company;
(5) the underwriting practices and procedures of the
captive insurance company; and
(6) any other criteria that has an impact on the
operations of the captive insurance company determined to
be significant by the Director. No pure captive insurance
company, association captive insurance company
incorporated as a stock insurer, or industrial insured
captive insurance company incorporated as a stock insurer
shall be issued a certificate of authority unless it shall
possess and thereafter maintain unimpaired paid-in capital
of not less than the minimum capital requirement applicable
to the class or classes and clause or clauses of Section 4
describing the kind or kinds of insurance which such
captive insurance company is authorized to write, as set
forth in subsection (1) of Section 13.
B. The amount of capital and surplus determined by the
Director under subsection A of this Section may not be less
than $250,000 for a pure captive insurance company, $500,000
for an industrial insured captive insurance company, and
$750,000 for an association captive insurance company. Such
capital may be in the form of (1) all cash or cash equivalents;
or (2) cash or cash equivalents representing at least 20% of
the requisite capital, together with an irrevocable letter of
credit for the remainder of the requisite capital, which letter
of credit must (a) be approved by the Director, (b) be issued

or unconditionally confirmed by (i) a bank chartered by this
State, (ii) a member bank of the Federal Reserve System or
(iii) a United States office of a foreign banking corporation
that is: (A) licensed under the laws of the United States or
any state thereof, (B) regulated, supervised and examined by
United States federal or state authorities having regulatory
authority over banks and trust companies, and (C) designated by
the Securities Valuation Office of the National Association of
Insurance Commissioners as meeting its credit standards for
issuing or confirming letters of credit or, in the event that
the Director elects to establish credit standards by rule, in
compliance with rules promulgated by the Director establishing
reasonable standards of safety and soundness substantially
equivalent to those of the Securities Valuation Office of the
National Association of Insurance Commissioners, and (c)
satisfy the requirements of Section 123C-19; or (3) cash or
cash equivalents representing at least 33% of the requisite
capital, together with irrevocable contractual obligations of
the member organizations of the captive insurance company for
the payment of the remainder of the requisite capital in no
more than 3 equal installments in each of the 3 calendar years
following the date of the grant of the certificate of authority
to the captive insurance company, which irrevocable
contractual obligations shall by contract be subject to
acceleration (in a manner acceptable to the Director) by the
Company at the direction of the Director and shall be secured

by a letter of credit or other form of guarantee or security
acceptable to the Director.
C. The capital and surplus required by subsection A of this
Section must be in the form of:
(1) United States currency;
(2) an irrevocable letter of credit, in a form approved
by the Director and not secured by a guarantee from an
affiliate, naming the Director as beneficiary for the
security of the captive insurance company's policyholders
and issued by a bank approved by the Director;
(3) bonds of this State; or
(4) bonds or other evidences of indebtedness of the
United States, the principal and interest of which are
guaranteed by the United States.
(Source: P.A. 86-632.)
(215 ILCS 5/123C-9) (from Ch. 73, par. 735C-9)
(Section scheduled to be repealed on January 1, 2027)
Sec. 123C-9. Reports, statements and mandatory reserves.
A. Captive insurance companies shall not be required to
make any annual report except as provided in this Article.
B. (1) On or before Prior to March 1 of each year, each
captive insurance company shall submit to the Director a report
of its financial condition, verified by oath of 2 of its
executive officers and including (i) a balance sheet reporting
assets, liabilities, capital and surplus, (ii) a statement of

gain or loss from operations, (iii) a statement of changes in
financial position, (iv) a statement of changes in capital and
surplus, and (v) in the case of industrial insured captive
insurance companies, an analysis of loss reserve development,
information on risks ceded and assumed under reinsurance
agreements, on forms prescribed by the Director, and a schedule
of its invested assets on forms prescribed by the Director, and
(vi) a statement of actuarial opinion by a qualified
independent actuary concerning the reasonableness of the
captive insurance company's loss and loss adjustment expense
reserves in such form and of such content as specified in the
National Association of Insurance Commissioners Annual
Statement Instructions: Property and Casualty.
(2) In addition, prior to March 1 of each year, each
association captive insurance company shall submit to the
Director such additional data or information, which the
Director may from time to time require, on a form specified by
the Director.
(3) On or before June 1 of each year, each captive
insurance company shall submit to the Director a report of its
financial condition at last year's end with an independent
certified public accountant's opinion of the company's
financial condition. Prior to June 1 of each year, each
association and industrial insured captive insurance company
shall submit to the Director a report of its financial
condition, certified by a recognized firm of independent public

accountants acceptable to the Director and including the items
referred to in items (i), (ii), (iii) and (iv) of paragraph (1)
of this subsection B.
(4) Unless the Director permits otherwise, the reports of
financial condition referred to in paragraphs (1) and (3) of
this subsection B are to be prepared in accordance with the
Accounting Practices and Procedures Manual adopted by the
National Association of Insurance Commissioners. The Director
shall have authority to extend the time for filing any report
or statement by any company for reasons which he considers good
and sufficient.
C. In addition, any captive insurance company may be
required by the Director, when he considers such action to be
necessary and appropriate for the protection of policyholders,
creditors, shareholders or claimants, to file, within 60 days
after mailing to the company of a notice that such is required,
a supplemental summary statement as of the last day of any
calendar month occurring during the 100 days next preceding the
mailing of such notice designated by him on forms prescribed
and furnished by the Director. No company shall be required to
file more than 4 supplemental summary statements during any
consecutive 12 month period.
D. Every captive insurance company shall, at all times,
maintain reserves in an amount estimated in the aggregate to
provide for the payment of all losses and claims incurred,
whether reported or unreported, which are unpaid and for which

such company may be liable, and to provide for the expenses of
adjustment or settlement of such losses and claims. The
aggregate reserves shall be reduced by reinsurance ceded which
meets the requirements of Section 123C-13. For the purpose of
such reserves, the company shall keep a complete and itemized
record showing all losses and claims on which it has received
notice, including all notices received by it of the occurrence
of any event which may result in a loss. Such record shall be
opened in chronological receipt order, with each notice of loss
or claim identified by appropriate number or coding.
E. Every captive insurance company shall maintain an
unearned premium reserve on all policies in force which reserve
shall be charged as a liability. The portions of the gross
premiums in force, after deducting reinsurance qualifying
under Section 123C-13, which shall be held as a premium
reserve, shall never be less in the aggregate than the
company's actual liability to all its insureds for the return
of gross unearned premiums. In the calculation of the company's
actual liability to all its insureds, the reserve shall be
computed pursuant to the method commonly referred to as the
monthly pro rata method; provided, however, that the Director
may require that such reserve shall be equal to the unearned
portions of the gross premiums in force, after deducting
reinsurance qualifying under Section 123C-13, in which case the
reserve shall be computed on each respective risk from the date
of the issuance of the policy.

E-5. A captive insurance company may make a written
application to the Director for filing its annual report
required under this Section on a fiscal year's end. If an
alternative filing date is granted, the company shall file:
(1) the annual report, including a statement of
actuarial opinion by a qualified independent actuary
concerning the reasonableness of the captive insurance
company's loss and loss adjustment expense reserves in such
form and of such content as specified in the National
Association of Insurance Commissioners Annual Statement
Instructions: Property and Casualty, no later than the 60th
day after the date of the company's fiscal year's end;
(2) the report of its financial condition at last
year's end with an independent certified public
accountant's opinion of the company's financial condition;
and
(3) its balance sheet, income statement, and statement
of cash flows, verified by 2 of its executive officers,
before March 1 of each year to provide sufficient detail to
support a premium tax return.
F. The reports required by this Section shall be prepared
and filed on a calendar year basis.
G. Notwithstanding the requirements of this Section, a
captive insurance company may prepare and issue financial
statements prepared in accordance with generally accepted
accounting principles.

(Source: P.A. 85-131; 86-1155; 86-1156.)
(215 ILCS 5/123C-11) (from Ch. 73, par. 735C-11)
(Section scheduled to be repealed on January 1, 2027)
Sec. 123C-11. Grounds and procedures for suspension or
revocation of certificate of authority.
A. The certificate of authority of a captive insurance
company to do an insurance business in this State may be
suspended or revoked by the Director for any of the following
reasons:
(1) insolvency or impairment of required capital or
surplus to policy holders;
(2) failure to meet the requirements of Sections 123C-3
or 123C-4;
(3) refusal or failure to submit an annual report, as
required by Section 123C-9, or any other report or
statement required by law or by lawful order of the
Director;
(4) failure to comply with the provisions of its own
charter or bylaws (or, in the case of an industrial insured
captive, with the provisions of the investment policy set
forth in its plan of operation as approved from time to
time by the Director);
(5) failure to submit to examination or any legal
obligation relative thereto, as required by Section
123C-10;

(6) refusal or failure to pay expenses, and charges,
and taxes as required by Sections 408, 409, 123C-10, and
123C-17;
(7) use of methods that, although not otherwise
specifically prohibited by law, nevertheless render its
operation detrimental or its condition unsound with
respect to the public or to its policyholders; or
(8) failure otherwise to comply with the laws of this
State.
B. If the Director finds, upon examination, hearing, or
other evidence, that any captive insurance company has
committed any of the acts specified in subsection A, he may
suspend or revoke such certificate of authority if he deems it
in the best interest of the public and the policyholders of
such captive insurance company, notwithstanding any other
provision of this Article.
C. The provisions of Articles XIII and XIII 1/2 shall apply
to and govern the conservation, rehabilitation, liquidation
and dissolution of captive insurance companies.
(Source: P.A. 85-131.)
(215 ILCS 5/123C-12) (from Ch. 73, par. 735C-12)
(Section scheduled to be repealed on January 1, 2027)
Sec. 123C-12. Legal investments.
A. The provisions of Article VIII and of Sections 131.2 and
131.3 shall apply to association captive insurance companies.

B. No pure captive insurance company or industrial insured
captive insurance company shall be subject to any restrictions
on allowable investments whatever, including those limitations
contained in Articles VIII and VIII 1/2; provided, however,
that the Director may prohibit or limit any investment or type
of investment that threatens the solvency or liquidity of any
such company; and provided further that an industrial insured
captive insurance company must adhere to the investment policy
set forth in its plan of operation as approved from time to
time by the Director.
C. A captive insurance company may make loans to its
affiliates with the prior approval of the Director. Each loan
must be evidenced by a note approved by the Director. A captive
insurance company may not make a loan of the minimum capital
and surplus funds required by this Article.
D. The Director may prohibit or limit an investment that
threatens the solvency or liquidity of a captive insurance
company.
(Source: P.A. 85-131.)
(215 ILCS 5/123C-13) (from Ch. 73, par. 735C-13)
(Section scheduled to be repealed on January 1, 2027)
Sec. 123C-13. Reinsurance.
A. Any captive insurance company may provide reinsurance on
risks ceded by any other insurer; provided, however, that the
risks so assumed are the same as the captive insurance company

could legally insure on a direct basis.
The provisions of Section 174.1 shall not apply to any
captive insurance company providing reinsurance.
B. Subject to the provisions of Article XI, any captive
insurance company may cede, and may take credit for in the
establishment of reserves, all or any part of its risks.
Furthermore, in addition to Section 173.1, any pure or
industrial insured captive insurance company may take credit,
as either an asset or a deduction from liability, for
reinsurance so ceded to the extent:
(1) The reinsurer satisfies all of the following (a)
through (g):
(a) the principal business of the reinsurer (other
than investments in subsidiaries and other investment
activities) is to accept reinsurance from captive
insurance companies organized under Article VIIC, of
which the company accepting the reinsurance directly
or indirectly owns, controls, or holds with power to
vote more than 80% of the outstanding voting securities
if organized as a stock company or more than 80% of the
voting control if organized as a mutual company and to
provide insurance related services;
(b) is licensed to transact insurance or
reinsurance in its jurisdiction of domicile;
(c) submits to this State's authority to examine
its books and records and agrees to pay the cost

thereof;
(d) files annually with the Director a copy of its
most recent audited financial statements;
(e) maintains a surplus as regards policyholders
in an amount that is not less than $20,000,000;
(f) files with the Department the following:
(i) evidence of its submission to the
jurisdiction of any court of competent
jurisdiction in any state of the United States and
its agreement to comply with all requirements
necessary to give the court jurisdiction and to
abide by the final decision of the court or of any
appellate court in the event of an appeal; and
(ii) an instrument designating 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;
(g) has not been the subject of an order of the
Director entered after notice and hearing prohibiting
the reinsurer from utilizing this paragraph (1); or
(2) the taking of credit by the captive insurance
company has otherwise received the prior approval of the
Director.
C. A captive insurance company shall provide notice to the
Director of a reinsurance agreement to which the company

becomes a party not later than the 30th day after the date of
the execution of the agreement.
D. A captive insurance company shall provide notice of a
termination of a previously filed reinsurance agreement to the
Director not later than the 30th day after the date of
termination.
E. Notwithstanding Section 123C-15 of this Code, a captive
insurance company, with the Director's approval, may accept
risks from and cede risks to or take credit for reserves on
risks ceded to:
(1) a captive reinsurance pool composed only of other
captive insurance companies holding a certificate of
authority under this Article or a similar law of another
jurisdiction; or
(2) an affiliated captive insurance company holding a
certificate of authority under this Article or a similar
law of another jurisdiction.
(Source: P.A. 87-108.)
(215 ILCS 5/123C-16) (from Ch. 73, par. 735C-16)
(Section scheduled to be repealed on January 1, 2027)
Sec. 123C-16. Tax.
A. Every captive insurance company organized under the
provisions of this Article and doing business in this State
shall, for the privilege of doing business in this State, pay
to the Director for the State treasury the State tax imposed

under Section 409 to the same extent and in the same manner as
a domestic insurance company using a tax form prescribed by the
Director on or before March 15 of each year.
B. Domestic captive insurance companies shall be insurance
companies subject to the rules now provided for such companies
under the Illinois Income Tax Act.
C. A domestic captive insurance company that has engaged
one or more administrative or management service organizations
in order to comply with subsection D of Section 123C-2 shall be
deemed to meet the requirements of Section 409(4)(a) through
(d) provided that the company and such organizations when
viewed collectively as a group:
(a) maintain a place of business in this State; and
(b) maintain in this State personnel knowledgeable of
and responsible for the company's operations, books,
records, administration and annual statement; and
(c) conduct in this State substantially all of the
company's underwriting, policy issuing and servicing
operations relating to the company's policyholders and
certificate holders; and
(d) comply with the provisions of Section 133(2) with
respect to such domestic captive insurance company's
books, records, documents, accounts, vouchers and
securities.
(Source: P.A. 86-632; 86-634.)

(215 ILCS 5/123C-17) (from Ch. 73, par. 735C-17)
(Section scheduled to be repealed on January 1, 2027)
Sec. 123C-17. Fees.
A. The Director shall charge, collect, and give proper
acquittances for the payment of the following fees and charges
with respect to a captive insurance company:
1. For filing all documents submitted for the
incorporation or organization or certification of a
captive insurance company, $2,000 $7,000.
2. For filing requests for approval of changes in the
elements of a plan of operations, $200.
B. Except as otherwise provided in subsection A of this
Section and in Section 123C-10, the provisions of Section 408
shall apply to captive insurance companies.
C. Any funds collected from captive insurance companies
pursuant to this Section shall be treated in the manner
provided in subsection (11) of Section 408.
(Source: P.A. 93-32, eff. 7-1-03.)
(215 ILCS 5/123C-19) (from Ch. 73, par. 735C-19)
(Section scheduled to be repealed on January 1, 2027)
Sec. 123C-19. Letters of credit.
A. Any letter of credit used to meet the requirements set
forth in Sections 123C-3 and 123C-4:
(1) (blank); may not be used to provide more than 80%
of the amount required in Section 123C-3 and may not be

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

(3) each such letter of credit shall provide for 30
days' advance written notice to the Director of the
proposed expiration of the letter of credit.
C. (Blank). The Director may require any company to draw
upon its letters of credit, in amounts determined by the
Director, if the Director determines that such action is
necessary for the protection of the interests of policyholders.
D. (Blank). Any company including amounts supported by
letters of credit in its capital or surplus shall, prior to the
time any person becomes a policyholder, notify such person of
the amounts supported by letters of credit and included in the
company's capital or surplus.
(Source: P.A. 85-131.)
(215 ILCS 5/123C-23 new)
Sec. 123C-23. Approval of captive reinsurance pools.
Before determining whether to approve a captive insurance
company's participation in a captive reinsurance pool under
Section 123C-13 of this Code, the Director may:
(1) require the captive insurance company provide to
the Director evidence that the captive reinsurance pool:
(a) is composed only of other captive insurance
companies holding a certificate of authority under
this Article or a similar law of another jurisdiction;
and
(b) will be able to meet the pool's financial

obligations; and
(2) impose any other limitation or requirement on the
captive insurance company that is necessary and proper to
provide adequate security for the captive insurance
company.
(215 ILCS 5/123C-24 new)
Sec. 123C-24. Standards for risk management of controlled
unaffiliated business. The Director may adopt rules
establishing standards to ensure that an affiliated company is
able to exercise control of the risk management function of any
controlled unaffiliated business to be insured by the captive
insurance company.
(215 ILCS 5/123C-25 new)
Sec. 123C-25. Captive managers. Before providing captive
management services to a licensed captive insurance company, a
captive management company shall register with the Director by
providing the information required on a form adopted by the
Director.
(215 ILCS 5/123C-26 new)
Sec. 123C-26. Dividends.
A. A captive insurance company shall notify the Director in
writing when issuing policyholder dividends.
B. A captive insurance company, with the Director's

approval, may issue dividends or distributions to the holders
of an equity interest in the captive insurance company. The
Director shall adopt rules to implement this subsection B.
(215 ILCS 5/123C-27 new)
Sec. 123C-27. Rulemaking authority. The Director may adopt
reasonable rules as necessary to implement the purposes and
provisions of this Article.
(215 ILCS 5/123C-28 new)
Sec. 123C-28. Confidentiality.
A. Any information filed by an applicant or captive
insurance company under this Article is confidential and
privileged for all purposes, including for purposes of the
Freedom of Information Act, a response to a subpoena, or
evidence in a civil action. Except as provided by subsections B
and C of this Section, the information may not be disclosed
without the prior written consent of the applicant or captive
insurance company to which the information pertains.
B. If the recipient of the information described by
subsection A of this Section has the legal authority to
maintain the confidential or privileged status of the
information and verifies that authority in writing, the
Director or his or her designee may disclose the information to
any of the following entities functioning in an official
capacity:

(1) a director of insurance or an insurance department
of another state;
(2) an authorized law enforcement official;
(3) a State's Attorney of this State;
(4) the Attorney General;
(5) a grand jury;
(6) the National Association of Insurance
Commissioners if the captive insurance company is
affiliated with an insurance company that is part of an
insurance holding company system as described in Article
VIII 1/2 of this Code;
(7) another state or federal regulator if the applicant
or captive insurance company to which the information
relates operates in the entity's jurisdiction;
(8) an international insurance regulator or analogous
financial agency if the captive insurance company is
affiliated with an insurance company that is part of an
insurance holding company system as described in Article
VIII 1/2 of this Code and the holding company system
operates in the entity's jurisdiction; or
(9) members of a supervisory college described by
Section 131.20c of this Code, if the captive insurance
company is affiliated with an insurance company that is
part of an insurance holding company system as described in
Article VIII 1/2 of this Code.
C. The Director may use information described by subsection

A of this Section in the furtherance of a legal or regulatory
action relating to the administration of this Code.
(215 ILCS 5/156) (from Ch. 73, par. 768)
Sec. 156. Merger and consolidation permitted.
(a) Upon complying with the provisions of this article, any
domestic company, except a Lloyds, is hereby authorized and
empowered to merge or consolidate with any domestic company or
with any foreign or alien company, except a Lloyds if the
surviving company meets the requirements for authorization to
engage in the insurance business in this state and, if such
merger or consolidation is authorized by the laws of the state
or country under which such foreign or alien company is
incorporated or organized.
(b) The Director may permit the formation of a domestic
stock company that is established for the sole purpose of
merging or consolidating with an existing stock company
simultaneously with the effectiveness of a division authorized
by this Code. Upon request of the dividing company, the
Director may waive the requirements of Section 131.8 of this
Code. Each domestic stock company formed under this subsection
shall be deemed to exist before a merger and division under
this Section becomes effective, but solely for the purpose of
being a party to such merger and division. The Director shall
not require that such domestic stock company be licensed to
transact insurance business in this state before such merger

and division. All insurance policies, annuities, or
reinsurance agreements allocated to such domestic stock
company shall become the obligation of the domestic stock
company that survives the merger simultaneously with the
effectiveness of the merger and division. The plan of merger or
consolidation shall be deemed to have been authorized and
approved by such domestic stock company if the dividing company
authorized and approved such plan. The certificate of merger
shall state that it was approved by the domestic stock company
formed under this subsection.
(Source: Laws 1967, p. 1760.)
(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 paragraph (A) subsection
(1)(A) or (B) or (B-5) or (C) or (C-5) or (D) of this
subsection (1). Credit shall be allowed under paragraph (A),
subsection (1)(A) or (B), or (B-5) of this subsection (1) only
as respects cessions of those kinds or classes of business in
which the assuming insurer is 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 paragraph (B-5) or
(C) of this subsection (1) (C) of this Section only if the
applicable requirements of paragraph (E) of this subsection (1)
subsection (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
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.
(B-5)(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 Code 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 (a) of subparagraph (1) of
paragraph (B-5) of this subsection (1) does not apply to
reinsurance ceded and assumed pursuant to pooling
arrangements among insurers in the same holding company
system.
(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

defined in paragraph (B) of subsection (3) of this Section
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 provide or make the information
available to the ceding insurer. The assuming insurer may
decline to release trade secrets or commercially sensitive
information that would qualify as exempt from disclosure
under the Freedom of Information Act. The Director shall
also make the information publicly available, subject only
to such reasonable objections as might be raised to a
request pursuant to the Freedom of Information Act, as
determined by the Director. 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 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.
No later than February 28 of each year, the assuming
insurer's chief executive officer or chief financial

officer shall certify to the Director that the trust fund
contains funds in an amount not less than the assuming
insurer's liabilities (as reported to the assuming insurer
by its cedent) attributable to reinsurance ceded by U.S.
ceding insurers, and in addition, a trusteed surplus of no
less than $20,000,000. In the event that item (a-5) of
subparagraph (3) of this paragraph (C) applies to the
trust, the assuming insurer's chief executive officer or
chief financial officer shall then certify to the Director
that the trust fund contains funds in an amount not less
than the assuming insurer's liabilities (as reported to the
assuming insurer by its cedent) attributable to
reinsurance ceded by U.S. ceding insurers and, in addition,
a reduced trusteed surplus of not less than the amount that
has been authorized by the regulatory authority having
principal regulatory oversight of the trust.
(d) No later than February 28 of each year, an assuming
insurer that maintains a trust fund in accordance with this
paragraph (C) shall provide or make available, if requested
by a beneficiary under the trust fund, the following
information to the assuming insurer's U.S. ceding insurers
or their assigns and successors in interest:
(i) a copy of the form of the trust agreement and
any trust amendments to the trust agreement pertaining
to the trust fund;
(ii) a copy of the annual and quarterly financial

information, and its most recent audited financial
statement provided to the Director by the assuming
insurer, including any exhibits and schedules thereto;
(iii) any financial information provided to the
Director by the assuming insurer that the Director has
deemed necessary to determine the financial condition
of the assuming insurer and the sufficiency of the
trust fund;
(iv) a copy of any annual and quarterly financial
information provided to the Director by the trustee of
the trust fund maintained by the assuming insurer,
including any exhibits and schedules thereto;
(v) a copy of the information required to be
reported by the trustee of the trust to the Director
under the provisions of this paragraph (C); and
(vi) a written certification that the trust fund
consists of funds in trust in an amount not less than
the assuming insurer's liabilities attributable to
reinsurance liabilities (as reported to the assuming
insurer by its cedent) attributable to reinsurance
ceded by U.S. ceding insurers and, in addition, a
trusteed surplus of not less than $20,000,000.
(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 of not less than $20,000,000, except
as provided in item (a-5) of this subparagraph (3).
(a-5) 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 covered by the trust.

(b)(i) In the case of a group including
incorporated and individual unincorporated
underwriters:
(I) for reinsurance ceded under reinsurance
agreements with an inception, amendment, or
renewal date on or after January 1, 1993 August 1,
1995, the trust shall consist of a trusteed account
in an amount not less than the respective
underwriters' 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
December 31, 1992 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 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.
(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 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.
(C-5) Credit shall be allowed when the reinsurance is
ceded to an assuming insurer that has been certified by the
Director as a reinsurer in this State and secures its
obligations in accordance with the requirements of this
paragraph (C-5).
(1) In order to be eligible for certification, the
assuming insurer shall meet the following
requirements:
(a) the assuming insurer must be domiciled and
licensed to transact insurance or reinsurance in a

qualified jurisdiction, as determined by the
Director pursuant to subparagraph (3) of this
paragraph (C-5);
(b) the assuming insurer must maintain minimum
capital and surplus, or its equivalent, in an
amount not less than $250,000,000 or such greater
amount as determined by the Director pursuant to
regulation; this requirement may also be satisfied
by an association, including incorporated and
individual unincorporated underwriters, having
minimum capital and surplus equivalents (net of
liabilities) of at least $250,000,000 and a
central fund containing a balance of at least
$250,000,000;
(c) the assuming insurer must maintain
financial strength ratings from 2 or more rating
agencies deemed acceptable by the Director; these
ratings shall be based on interactive
communication between the rating agency and the
assuming insurer and shall not be based solely on
publicly available information; each certified
reinsurer shall be rated on a legal entity basis,
with due consideration being given to the group
rating where appropriate, except that an
association, including incorporated and individual
unincorporated underwriters, that has been

approved to do business as a single certified
reinsurer may be evaluated on the basis of its
group rating; these financial strength ratings
shall be one factor used by the Director in
determining the rating that is assigned to the
assuming insurer; acceptable rating agencies
include the following:
(i) Standard & Poor's;
(ii) Moody's Investors Service;
(iii) Fitch Ratings;
(iv) A.M. Best Company; or
(v) any other nationally recognized
statistical rating organization;
(d) the assuming insurer must agree to submit
to the jurisdiction of this State, appoint the
Director as its agent for service of process in
this State, and agree to 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; and
(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.
(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 the
requirements of subparagraph (1) of this paragraph
(C-5):
(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 the amounts
specified in item (b) of subparagraph (1) of this
paragraph (C-5);
(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
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
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 in writing to share information and
cooperate with the Director with respect to all
certified reinsurers domiciled within that
jurisdiction. 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. The costs and
expenses associated with the Director's review and
evaluation of the domiciliary jurisdictions of
non-U.S. assuming insurers shall be borne by the
certified reinsurer or reinsurers domiciled in
such jurisdiction.
(b) Additional factors to be considered in
determining whether to recognize a qualified
jurisdiction include, but are not limited to, the
following:
(i) the framework under which the assuming
insurer is regulated;
(ii) the structure and authority of the
domiciliary regulator with regard to solvency
regulation requirements and financial
surveillance;
(iii) the substance of financial and
operating standards for assuming insurers in
the domiciliary jurisdiction;
(iv) the form and substance of financial
reports required to be filed or made publicly
available by reinsurers in the domiciliary
jurisdiction and the accounting principles
used;

(v) the domiciliary regulator's
willingness to cooperate with U.S. regulators
in general and the Director in particular;
(vi) the history of performance by
assuming insurers in the domiciliary
jurisdiction;
(vii) any documented evidence of
substantial problems with the enforcement of
final U.S. judgments in the domiciliary
jurisdiction; and
(viii) any relevant international
standards or guidance with respect to mutual
recognition of reinsurance supervision adopted
by the International Association of Insurance
Supervisors or its successor organization.
(c) If, upon conducting an evaluation under
this paragraph with respect to the reinsurance
supervisory system of any non-U.S. assuming
insurer, the Director determines that the
jurisdiction qualifies to be recognized as a
qualified jurisdiction, the Director shall publish
notice and evidence of such recognition in an
appropriate manner. The Director may establish a
procedure to withdraw recognition of those
jurisdictions that are no longer qualified.
(d) The Director shall consider the list of

qualified jurisdictions through the NAIC committee
process in determining qualified jurisdictions. If
the Director approves a jurisdiction as qualified
that does not appear on the list of qualified
jurisdictions, then the Director shall provide
thoroughly documented justification in accordance
with criteria to be developed under regulations.
(e) U.S. jurisdictions that meet the
requirement for accreditation under the NAIC
financial standards and accreditation program
shall be recognized as qualified jurisdictions.
(f) If a certified reinsurer's domiciliary
jurisdiction ceases to be a qualified
jurisdiction, then the Director may suspend the
reinsurer's certification indefinitely, in lieu of
revocation.
(4) If an applicant for certification has been
certified as a reinsurer in an NAIC accredited
jurisdiction, then the Director may defer to that
jurisdiction's certification and to the rating
assigned by that jurisdiction if the assuming insurer
submits a properly executed Form CR-1 and such
additional information as the Director requires. Such
assuming insurer shall be considered to be a certified
reinsurer in this State but only upon the Director's
assignment of an Illinois rating, which shall be made

based on the requirements of subparagraph (5) of this
paragraph (C-5). The following shall apply:
(a) Any change in the certified reinsurer's
status or rating in the other jurisdiction shall
apply automatically in Illinois as of the date it
takes effect in the other jurisdiction. The
certified reinsurer shall notify the Director of
any change in its status or rating within 10 days
after receiving notice of the change.
(b) The Director may withdraw recognition of
the other jurisdiction's rating at any time and
assign a new rating in accordance with
subparagraph (5) of this paragraph (C-5).
(c) The Director may withdraw recognition of
the other jurisdiction's certification at any time
with written notice to the certified reinsurer.
Unless the Director suspends or revokes the
certified reinsurer's certification in accordance
with item (c) of subparagraph (9) of this paragraph
(C-5), the certified reinsurer's certification
shall remain in good standing in Illinois for a
period of 3 months, which shall be extended if
additional time is necessary to consider the
assuming insurer's application for certification
in Illinois.
(5) The Director shall assign a rating to each

certified reinsurer pursuant to rules adopted by the
Department. Factors that shall be considered as part of
the evaluation process include the following:
(a) The certified reinsurer's financial
strength rating from an acceptable rating agency.
Financial strength ratings shall be classified
according to the following ratings categories:
(i) Ratings Category "Secure - 1"
corresponds to the highest level of rating
given by a rating agency, including, but not
limited to, A.M. Best Company rating A++;
Standard & Poor's rating AAA; Moody's
Investors Service rating Aaa; and Fitch
Ratings rating AAA.
(ii) Ratings Category "Secure - 2"
corresponds to the second-highest level of
rating or group of ratings given by a rating
agency, including, but not limited to, A.M.
Best Company rating A+; Standard & Poor's
rating AA+, AA, or AA-; Moody's Investors
Service ratings Aa1, Aa2, or Aa3; and Fitch
Ratings ratings AA+, AA, or AA-.
(iii) Ratings Category "Secure - 3"
corresponds to the third-highest level of
rating or group of ratings given by a rating
agency, including, but not limited to, A.M.

Best Company rating A; Standard & Poor's
ratings A+ or A; Moody's Investors Service
ratings A1 or A2; and Fitch Ratings ratings A+
or A.
(iv) Ratings Category "Secure - 4"
corresponds to the fourth-highest level of
rating or group of ratings given by a rating
agency, including, but not limited to, A.M.
Best Company rating A-; Standard & Poor's
rating A-; Moody's Investors Service rating
A3; and Fitch Ratings rating A-.
(v) Ratings Category "Secure - 5"
corresponds to the fifth-highest level of
rating or group of ratings given by a rating
agency, including, but not limited to, A.M.
Best Company ratings B++ or B+; Standard &
Poor's ratings BBB+, BBB, or BBB-; Moody's
Investors Service ratings Baa1, Baa2, or Baa3;
and Fitch Ratings ratings BBB+, BBB, or BBB-.
(vi) Ratings Category "Vulnerable - 6"
corresponds to a level of rating given by a
rating agency, other than those described in
subitems (i) through (v) of this item (a),
including, but not limited to, A.M. Best
Company rating B, B-, C++, C+, C, C-, D, E, or
F; Standard & Poor's ratings BB+, BB, BB-, B+,

B, B-, CCC, CC, C, D, or R; Moody's Investors
Service ratings Ba1, Ba2, Ba3, B1, B2, B3, Caa,
Ca, or C; and Fitch Ratings ratings BB+, BB,
BB-, B+, B, B-, CCC+, CCC, CCC-, or D.
A failure to obtain or maintain at least 2
financial strength ratings from acceptable rating
agencies shall result in loss of eligibility for
certification.
(b) The business practices of the certified
reinsurer in dealing with its ceding insurers,
including its record of compliance with
reinsurance contractual terms and obligations.
(c) For certified reinsurers domiciled in the
U.S., a review of the most recent applicable NAIC
Annual Statement Blank, either Schedule F (for
property and casualty reinsurers) or Schedule S
(for life and health reinsurers).
(d) For certified reinsurers not domiciled in
the U.S., a review annually of Form CR-F (for
property and casualty reinsurers) or Form CR-S
(for life and health reinsurers).
(e) The reputation of the certified reinsurer
for prompt payment of claims under reinsurance
agreements, based on an analysis of ceding
insurers' Schedule F reporting of overdue
reinsurance recoverables, including the proportion

of obligations that are more than 90 days past due
or are in dispute, with specific attention given to
obligations payable to companies that are in
administrative supervision or receivership.
(f) Regulatory actions against the certified
reinsurer.
(g) The report of the independent auditor on
the financial statements of the insurance
enterprise, on the basis described in item (h) of
this subparagraph (5).
(h) For certified reinsurers not domiciled in
the U.S., audited financial statements (audited
Generally Accepted Accounting Principles (U.S.
GAAP) basis statement if available, audited
International Financial Reporting Standards (IFRS)
basis statements are allowed but must include an
audited footnote reconciling equity and net income
to U.S. GAAP basis or, with the permission of the
Director, audited IFRS basis statements with
reconciliation to U.S. GAAP basis certified by an
officer of the company), regulatory filings, and
actuarial opinion (as filed with the non-U.S.
jurisdiction supervisor). Upon the initial
application for certification, the Director shall
consider the audited financial statements filed
with its non-U.S. jurisdiction supervisor for the

3 years immediately preceding the date of the
initial application for certification.
(i) The liquidation priority of obligations to
a ceding insurer in the certified reinsurer's
domiciliary jurisdiction in the context of an
insolvency proceeding.
(j) A certified reinsurer's participation in
any solvent scheme of arrangement, or similar
procedure, that involves U.S. ceding insurers. The
Director shall receive prior notice from a
certified reinsurer that proposes participation by
the certified reinsurer in a solvent scheme of
arrangement.
The maximum rating that a certified reinsurer may
be assigned shall correspond to its financial strength
rating, which shall be determined according to
subitems (i) through (vi) of item (a) of this
subparagraph (5). The Director shall use the lowest
financial strength rating received from an acceptable
rating agency in establishing the maximum rating of a
certified reinsurer.
(6) Based on the analysis conducted under item (e)
of subparagraph (5) of this paragraph (C-5) of a
certified reinsurer's reputation for prompt payment of
claims, the Director may make appropriate adjustments
in the security the certified reinsurer is required to

post to protect its liabilities to U.S. ceding
insurers, provided that the Director shall, at a
minimum, increase the security the certified reinsurer
is required to post by one rating level under item (a)
of subparagraph (8) of this paragraph (C-5) if the
Director finds that:
(a) more than 15% of the certified reinsurer's
ceding insurance clients have overdue reinsurance
recoverables on paid losses of 90 days or more that
are not in dispute and that exceed $100,000 for
each cedent; or
(b) the aggregate amount of reinsurance
recoverables on paid losses that are not in dispute
that are overdue by 90 days or more exceeds
$50,000,000.
(7) The Director shall post notice on the
Department's website promptly upon receipt of any
application for certification, including instructions
on how members of the public may respond to the
application. The Director may not take final action on
the application until at least 30 days after posting
the notice required by this subparagraph. The Director
shall publish a list of all certified reinsurers and
their ratings.
(8) A certified reinsurer shall secure obligations
assumed from U.S. ceding insurers under this

subsection (1) at a level consistent with its rating.
(a) The amount of security required in order
for full credit to be allowed shall correspond with
the applicable ratings category:
Secure - 1: 0%.
Secure - 2: 10%.
Secure - 3: 20%.
Secure - 4: 50%.
Secure - 5: 75%.
Vulnerable - 6: 100%.
(b) Nothing in this subparagraph (8) shall
prohibit the parties to a reinsurance agreement
from agreeing to provisions establishing security
requirements that exceed the minimum security
requirements established for certified reinsurers
under this Section.
(c) 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 subsection (2) of this
Section, or in a multibeneficiary trust in
accordance with paragraph (C) of this subsection
(1), except as otherwise provided in this
subparagraph (8).

(d) If a certified reinsurer maintains a trust
to fully secure its obligations subject to
paragraph (C) of this subsection (1), and chooses
to secure its obligations incurred as a certified
reinsurer in the form of a multibeneficiary trust,
then 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 paragraph (C) of
this subsection (1). It shall be a condition to the
grant of certification under this paragraph (C-5)
that the certified reinsurer shall have bound
itself, by the language of the trust and agreement
with the Director with principal regulatory
oversight of each such trust account, to fund, upon
termination of any such trust account, out of the
remaining surplus of such trust any deficiency of
any other such trust account. The certified
reinsurer shall also provide or make available, if
requested by a beneficiary under a trust, all the
information that is required to be provided under
the requirements of item (d) of subparagraph (2) of
paragraph (C) of this subsection (1) to the

certified reinsurer's U.S. ceding insurers or
their assigns and successors in interest. The
assuming insurer may decline to release trade
secrets or commercially sensitive information that
would qualify as exempt from disclosure under the
Freedom of Information Act.
(e) The minimum trusteed surplus requirements
provided in paragraph (C) of this subsection (1)
are not applicable with respect to a
multibeneficiary trust maintained by a certified
reinsurer for the purpose of securing obligations
incurred under this subsection, except that such
trust shall maintain a minimum trusteed surplus of
$10,000,000.
(f) With respect to obligations incurred by a
certified reinsurer under this subsection (1), if
the security is insufficient, then the Director
may reduce the allowable credit by an amount
proportionate to the deficiency and may impose
further reductions in allowable credit upon
finding that there is a material risk that the
certified reinsurer's obligations will not be paid
in full when due.
(9)(a) In the case of a downgrade by a rating
agency or other disqualifying circumstance, the
Director shall by written notice assign a new rating to

the certified reinsurer in accordance with the
requirements of subparagraph (5) of this paragraph
(C-5).
(b) If the rating of a certified reinsurer is
upgraded by the Director, then the certified reinsurer
may meet the security requirements applicable to its
new rating on a prospective basis, but the Director
shall require the certified reinsurer to post security
under the previously applicable security requirements
as to all contracts in force on or before the effective
date of the upgraded rating. If the rating of a
certified reinsurer is downgraded by the Director,
then the Director shall require the certified
reinsurer to meet the security requirements applicable
to its new rating for all business it has assumed as a
certified reinsurer.
(c) The Director may suspend, revoke, or otherwise
modify a certified reinsurer's certification at any
time if the certified reinsurer fails to meet its
obligations or security requirements under this
Section or if other financial or operating results of
the certified reinsurer, or documented significant
delays in payment by the certified reinsurer, lead the
Director to reconsider the certified reinsurer's
ability or willingness to meet its contractual
obligations. In seeking to suspend, revoke, or

otherwise modify a certified reinsurer's
certification, the Director shall follow the
procedures provided in paragraph (G) of this
subsection (1).
(d) For purposes of this subsection (1), 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.
(i) As used in this item (d), the term
"terminated" refers to revocation, suspension,
voluntary surrender and inactive status.
(ii) If the Director continues to assign a
higher rating as permitted by other provisions of
this Section, then this requirement does not apply
to a certified reinsurer in inactive status or to a
reinsurer whose certification has been suspended.
(e) Upon revocation of the certification of a
certified reinsurer by the Director, the assuming
insurer shall be required to post security in
accordance with subsection (2) of this Section in order
for the ceding insurer to continue to take credit for
reinsurance ceded to the assuming insurer. If funds
continue to be held in trust, then the Director may
allow additional credit equal to the ceding insurer's
pro rata share of the funds, discounted to reflect the

risk of uncollectibility and anticipated expenses of
trust administration.
(f) Notwithstanding the change of a certified
reinsurer's rating or revocation of its certification,
a domestic insurer that has ceded reinsurance to that
certified reinsurer may not be denied credit for
reinsurance for a period of 3 months for all
reinsurance ceded to that certified reinsurer, unless
the reinsurance is found by the Director to be at high
risk of uncollectibility.
(10) 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 (1), and the Director shall assign a
rating that takes into account, if relevant, the
reasons why the reinsurer is not assuming new business.
(11) Credit for reinsurance under this paragraph
(C-5) shall apply only to reinsurance contracts
entered into or renewed on or after the effective date
of the certification of the assuming insurer.
(12) The Director shall comply with all reporting
and notification requirements that may be established
by the NAIC with respect to certified reinsurers and

qualified jurisdictions.
(D) Credit shall be allowed when the reinsurance is
ceded to an assuming insurer not meeting the requirements
of paragraph subsection (1) (A), (B), or (C) of this
subsection (1) 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.
(E) If the assuming insurer is not licensed to transact
insurance in this State or an accredited or certified
reinsurer in this State, the credit permitted by paragraphs
(B-5) and subsection (1) (C) of this subsection (1) 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.
(F) If the assuming insurer does not meet the
requirements of paragraph (A) or (B) of this subsection (1)
(1)(A) or (B), the credit permitted by paragraph (C) of
this subsection (1) (1)(C) shall not be allowed unless the
assuming insurer agrees in the trust 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 subparagraph (3) of paragraph (C)
subsection (C)(3) of this subsection (1) 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
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.
(G) If an accredited or certified reinsurer ceases to
meet the requirements for accreditation or certification,
then the Director may suspend or revoke the reinsurer's
accreditation or certification.
(1) 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:

(a) the reinsurer waives its right to hearing;
(b) the Director's order is based on
regulatory action by the reinsurer's domiciliary
jurisdiction or the voluntary surrender or
termination of the reinsurer's eligibility to
transact insurance or reinsurance business in its
domiciliary jurisdiction or in the primary
certifying state of the reinsurer under
subparagraph (4) of paragraph (C-5) of this
subsection (1); or
(c) the Director finds that an emergency
requires immediate action and a court of competent
jurisdiction has not stayed the Director's action.
(2) While a reinsurer's accreditation or
certification is suspended, no reinsurance contract
issued or renewed after 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 subsection (2) of this
Section. 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 subsection (2) of this Section.
(H) The following provisions shall apply concerning

concentration of risk:
(1) A ceding insurer shall take steps to manage its
reinsurance recoverable proportionate to its own book
of business. A domestic ceding insurer shall notify the
Director within 30 days after reinsurance recoverables
from any single assuming insurer, or group of
affiliated assuming insurers, exceeds 50% of the
domestic ceding insurer's last reported surplus to
policyholders, or after it is determined that
reinsurance recoverables from any single assuming
insurer, or group of affiliated assuming insurers, is
likely to exceed this limit. The notification shall
demonstrate that the exposure is safely managed by the
domestic ceding insurer.
(2) A ceding insurer shall take steps to diversify
its reinsurance program. A domestic ceding insurer
shall notify the Director within 30 days after ceding
to any single assuming insurer, or group of affiliated
assuming insurers, more than 20% of the ceding
insurer's gross written premium in the prior calendar
year, or after it has determined that the reinsurance
ceded to any single assuming insurer, or group of
affiliated assuming insurers, is likely to exceed this
limit. The notification shall demonstrate that the
exposure is safely managed by the domestic ceding
insurer.

(2) Credit for the reinsurance ceded by a domestic insurer
to an assuming insurer not meeting the requirements of
subsection (1) of this Section 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 paragraph (B) of subsection (3) of this Section
(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, including those deemed exempt from filing
as defined by the Purposes and Procedures Manual of the
Securities Valuation Office that conform to the
requirements of Article 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 paragraph (A) of
subsection (3) of this Section (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 paragraph (C) of subsection (2) of
this Section 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 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 Director.
(C) Except as set forth in subparagraph (11) of paragraph
(C-5) of subsection (1) of this Section as to cessions by
certified reinsurers, this amendatory Act of the 100th General
Assembly shall apply to all cessions after the effective date
of this amendatory Act of the 100th General Assembly under

reinsurance agreements that have an inception, anniversary, or
renewal date not less than 6 months after the effective date of
this amendatory Act of the 100th General Assembly.
(D) The Department shall adopt rules implementing the
provisions of this Article.
(Source: P.A. 90-381, eff. 8-14-97.)
(215 ILCS 5/456) (from Ch. 73, par. 1065.3)
Sec. 456. Making of rates. (1) All rates shall be made in
accordance with the following provisions:
(a) Due consideration shall be given to past and
prospective loss experience within and outside this state, to
catastrophe hazards, if any, to a reasonable margin for profit
and contingencies, to dividends, savings or unabsorbed premium
deposits allowed or returned by companies to their
policyholders, members or subscribers, to past and prospective
expenses both countrywide and those specially applicable to
this state, to underwriting practice and judgment and to all
other relevant factors within and outside this state;
(b) The systems of expense provisions included in the rates
for use by any company or group of companies may differ from
those of other companies or groups of companies to reflect the
requirements of the operating methods of any such company or
group with respect to any kind of insurance, or with respect to
any subdivision or combination thereof for which subdivision or
combination separate expense provisions are applicable;

(c) Risks may be grouped by classifications for the
establishment of rates and minimum premiums. Classification
rates may be modified to produce rates for individual risks in
accordance with rating plans which measure variation in hazards
or expense provisions, or both. Such rating plans may measure
any differences among risks that have a probable effect upon
losses or expenses;
(d) Rates shall not be excessive, inadequate or unfairly
discriminatory.
A rate in a competitive market is not excessive. A rate in
a noncompetitive market is excessive if it is likely to produce
a long run profit that is unreasonably high for the insurance
provided or if expenses are unreasonably high in relation to
the services rendered.
A rate is not inadequate unless such rate is clearly
insufficient to sustain projected losses and expenses in the
class of business to which it applies and the use of such rate
has or, if continued, will have the effect of substantially
lessening competition or the tendency to create monopoly in any
market.
Unfair discrimination exists if, after allowing for
practical limitations, price differentials fail to reflect
equitably the differences in expected losses and expenses. A
rate is not unfairly discriminatory because different premiums
result for policyholders with like exposures but different
expenses, or like expenses but different loss exposures, so

long as the rate reflects the differences with reasonable
accuracy.
(e) The rating plan shall contain a mandatory offer of a
deductible applicable only to the medical benefit under the
Workers' Compensation Act. Such deductible offer shall be in a
minimum amount of at least $1,000 per accident.
(f) Any rating plan or program shall include a rule
permitting 2 or more employers with similar risk
characteristics, who participate in a loss prevention program
or safety group, to pool their premium and loss experience in
determining their rate or premium for such participation in the
program.
(2) Except to the extent necessary to meet the provisions
of subdivision (d) of subsection (1) of this Section,
uniformity among companies in any matters within the scope of
this Section is neither required nor prohibited.
(Source: P.A. 82-939.)
(215 ILCS 5/457) (from Ch. 73, par. 1065.4)
Sec. 457. Rate filings. (1) Every Beginning January 1,
1983, every company shall prefile file with the Director every
manual of classifications, every manual of rules and rates,
every rating plan and every modification of the foregoing which
it intends to use. Such filings shall be made at least not
later than 30 days before after they become effective. A
company may satisfy its obligation to make such filings by

adopting the filing of a licensed rating organization of which
it is a member or subscriber, filed pursuant to subsection (2)
of this Section, in total or, with the approval of the
Director, by notifying the Director in what respects it intends
to deviate from such filing. If a company intends to deviate
from the filing of a licensed rating organization of which it
is a member, the company shall provide the Director with
supporting information that specifies the basis for the
requested deviation and provides justification for the
deviation. Any company adopting a pure premium filed by a
rating organization pursuant to subsection (2) must file with
the Director the modification factor it is using for expenses
and profit so that the final rates in use by such company can
be determined.
(2) Each Beginning January 1, 1983, each licensed rating
organization must prefile file with the Director every manual
of classification, every manual of rules and advisory rates,
every pure premium which has been fully adjusted and fully
developed, every rating plan and every modification of any of
the foregoing which it intends to recommend for use to its
members and subscribers, at least not later than 30 days before
after such manual, premium, plan or modification thereof takes
effect. Every licensed rating organization shall also file with
the Director the rate classification system, all rating rules,
rating plans, policy forms, underwriting rules or similar
materials, and each modification of any of the foregoing which

it requires its members and subscribers to adhere to not later
than 30 days before such filings or modifications thereof are
to take effect. Every such filing shall state the proposed
effective date thereof and shall indicate the character and
extent of the coverage contemplated.
(3) A filing and any supporting information made pursuant
to this Section shall be open to public inspection as soon as
filed after the filing becomes effective.
(4) A filing shall not be effective nor used until approved
by the Director. A filing shall be deemed approved and legally
effective if the Director fails to disapprove within 30 days
after the filing.
(Source: P.A. 82-939.)
(215 ILCS 5/458) (from Ch. 73, par. 1065.5)
Sec. 458. Disapproval of filings. (1) If within 30 thirty
days of any filing the Director finds that such filing does not
meet the requirements of this Article, he shall send to the
company or rating organization which made such filing a written
notice of disapproval of such filing, specifying therein in
what respects he finds that such filing fails to meet the
requirements of this Article and stating when, within a
reasonable period thereafter, such filing shall be deemed no
longer effective. A company or rating organization whose filing
has been disapproved shall be given a hearing upon a written
request made within 30 days after the disapproval order. If the

company or rating organization making the filing shall, prior
to the expiration of the period prescribed in the notice,
request a hearing, such filings shall be effective until the
expiration of a reasonable period specified in any order
entered thereon. If the rate resulting from such filing be
unfairly discriminatory or materially inadequate, and the
difference between such rate and the approved rate equals or
exceeds the cost of making an adjustment, the Director shall in
such notice or order direct an adjustment of the premium to be
made with the policyholder either by refund or collection of
additional premium. If the policyholder does not accept the
increased rate, cancellation shall be made on a pro rata basis.
Any policy issued pursuant to this subsection shall contain a
provision that the premium thereon shall be subject to
adjustment upon the basis of the filing finally approved.
(2) If at any time subsequent to the applicable review
period provided for in subsection (1) of this Section, the
Director finds that a filing does not meet the requirements of
this Article, he shall, after a hearing held upon not less than
ten days written notice, specifying the matters to be
considered at such hearing, to every company and rating
organization which made such filing, issue an order specifying
in what respects he finds that such filing fails to meet the
requirements of this Article, and stating when, within a
reasonable period thereafter, such filings shall be deemed no
longer effective. Copies of said order shall be sent to every

such company and rating organization. Said order shall not
affect any contract or policy made or issued prior to the
expiration of the period set forth in said order.
(3) Any person or organization aggrieved with respect to
any filing which is in effect may make written application to
the Director for a hearing thereon, provided, however, that the
company or rating organization that made the filing shall not
be authorized to proceed under this subsection. Such
application shall specify the grounds to be relied upon by the
applicant. If the Director shall find that the application is
made in good faith, that the applicant would be so aggrieved if
his grounds are established, and that such grounds otherwise
justify holding such a hearing, he shall, within thirty days
after receipt of such application, hold a hearing upon not less
than ten days written notice to the applicant and to every
company and rating organization which made such filing.
If, after such hearing, the Director finds that the filing
does not meet the requirements of this Article, he shall issue
an order specifying in what respects he finds that such filing
fails to meet the requirements of this Article, and stating
when, within a reasonable period thereafter, such filing shall
be deemed no longer effective. Copies of said order shall be
sent to the applicant and to every such company and rating
organization. Said order shall not affect any contract or
policy made or issued prior to the expiration of the period set
forth in said order.

(4) Whenever an insurer has no legally effective rates as a
result of the Director's disapproval of rates or other act, the
Director shall on request of the insurer specify interim rates
for the insurer that are high enough to protect the interests
of all parties and may order that a specified portion of the
premiums be placed in an escrow account approved by him or her.
When new rates become legally effective, the Director shall
order the escrowed funds or any overcharge in the interim rates
to be distributed appropriately, except that refunds to
policyholders that are de minimis shall not be required.
(Source: P.A. 82-939.)
(215 ILCS 5/462a new)
Sec. 462a. Premium increase notice. A policy of workers'
compensation insurance issued, delivered, amended, or renewed
on or after January 1, 2019 shall remain in full force and
effect subject to the same terms and conditions, loss cost
multipliers, and classification of the employer with regard to
the payment of dividends, unless written notice is mailed or
delivered by the insurer to the employer, at the address shown
on the policy, and to the employer's authorized agent or
broker, indicating the insurer's intention to condition
renewal upon issuance of a policy that supersedes the policy
previously issued and that will result in a premium in excess
of 5% above the rate recommendation filed with the Department,
exclusive of any premium increase generated as a result of

increased loss costs or increased exposure units or as a result
of experience rating, contractor credit adjustment program,
large deductible, retrospective rating, or audit. The notice
shall be delivered at least 30 days in advance of the
expiration date of the policy, and shall set forth: (1) the
amount of the premium increase or, if the amount cannot
reasonably be determined as of the time the notice is provided,
a reasonable estimate of the premium increase based upon the
information available to the insurer at that time; and (2) the
reason for the increased premium in excess of the rate
recommendation filed with the Department. Nothing in this
Section requires the insurer to provide notice when the
employer, an agent or broker authorized by the employer, or
another insurer of the employer has delivered written notice
that the policy has been replaced or is no longer desired.
(215 ILCS 5/123C-4 rep.)
(215 ILCS 5/460 rep.)
Section 95. The Illinois Insurance Code is amended by
repealing Sections 123C-4 and 460.
Section 99. Effective date. This Act takes effect upon
becoming law, except that the provisions changing Sections 456,
457, and 458 of the Illinois Insurance Code and the provisions
repealing Section 460 of the Illinois Insurance Code take
effect February 1, 2019.