Bill Text: IL SB1760 | 2011-2012 | 97th General Assembly | Introduced

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Bill Title: Amends the Illinois Insurance Code in the provision concerning credit allowed a domestic ceding insurer. Provides that credit shall also be allowed when reinsurance is ceded to an assuming insurer that holds surplus, or its equivalent, in excess of $250 million and the Director of Insurance determines that it is an acceptable credit risk. Provides that in determining whether credit should be allowed, the Director shall consider certain factors. Effective immediately.

Spectrum: Slight Partisan Bill (Democrat 2-1)

Status: (Failed) 2013-01-08 - Session Sine Die [SB1760 Detail]

Download: Illinois-2011-SB1760-Introduced.html

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97TH GENERAL ASSEMBLY State of Illinois 2011 and 2012 SB1760 Introduced 2/9/2011, by Sen. Mike Jacobs SYNOPSIS AS INTRODUCED:
215 ILCS 5/173.1 from Ch. 73, par. 785.1
Amends the Illinois Insurance Code in the provision concerning credit allowed a domestic ceding insurer. Provides that credit shall also be allowed when reinsurance is ceded to an assuming insurer that holds surplus, or its equivalent, in excess of $250 million and the Director of Insurance determines that it is an acceptable credit risk. Provides that in determining whether credit should be allowed, the Director shall consider certain factors. Effective immediately.
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A BILL FOR
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AN ACT concerning insurance.
Be it enacted by the People of the State of Illinois,
represented in the General Assembly:
Section 5. The Illinois Insurance Code is amended by
changing Section 173.1 as follows:
(215 ILCS 5/173.1) (from Ch. 73, par. 785.1)
Sec. 173.1. Credit allowed a domestic ceding insurer.
(1) Except as otherwise provided under Article VIII 1/2 of
this Code and related provisions of the Illinois Administrative
Code, credit for reinsurance shall be allowed a domestic ceding
insurer as either an admitted asset or a deduction from
liability on account of reinsurance ceded only when the
reinsurer meets the requirements of subsection (1)(A) or (B) or
(C) or (D). Credit shall be allowed under subsection (1)(A) or
(B) only as respects cessions of those kinds or classes of
business in which the assuming insurer is licensed or otherwise
permitted to write or assume in its state of domicile, or in
the case of a U.S. branch of an alien assuming insurer, in the
state through which it is entered and licensed to transact
insurance or reinsurance. Credit shall be allowed under
subsection (1)(C) of this Section only if the applicable
requirements of subsection (1)(E) have been satisfied.
(A) Credit shall be allowed when the reinsurance is

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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.

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

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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.
(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

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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.
(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 August
1, 1995, the trust shall consist of a trusteed
account in an amount not less than the group's
several liabilities attributable to business
ceded by U.S. domiciled ceding insurers to any
member of the group;
(II) for reinsurance ceded under
reinsurance agreements with an inception date
on or before July 31, 1995 and not amended or
renewed after that date, notwithstanding the
other provisions of this Act, the trust shall
consist of a trusteed account in an amount not
less than the group's several insurance and
reinsurance liabilities attributable to
business written in the United States; and
(III) in addition to these trusts, the

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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

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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.
(D) Credit shall be allowed when the reinsurance is
ceded to an assuming insurer not meeting the requirements
of subsection (1) (A), (B), or (C) but only with respect to

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the insurance of risks located in jurisdictions where that
reinsurance is required by applicable law or regulation of
that jurisdiction.
(D-5) Credit shall also be allowed when the reinsurance
is ceded to an assuming insurer that holds surplus, or its
equivalent, in excess of $250 million and the Director, in
his or her discretion, determines that it is an acceptable
credit risk. In determining whether credit should be
allowed under this subsection (1)(D-5), the Director shall
consider the following:
(1) That the reinsurer has a secure financial
strength rating from at least 2 nationally recognized
statistical rating organizations deemed acceptable by
the Director. The Director shall give appropriate
consideration to insurer group ratings that have been
issued.
(2) The structure and authority of the domiciliary
regulator with regard to solvency regulation
requirements and the financial surveillance of the
reinsurer.
(3) The substance of financial and operating
standards for reinsurers in the domiciliary
jurisdiction.
(4) The form and substance of financial reports
required to be filed by the reinsurers in the
domiciliary jurisdiction or other public financial

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statements filed in accordance with generally accepted
accounting principles.
(5) The domiciliary regulator's willingness to
cooperate with United States regulators in general and
the Department of Insurance in particular.
(6) Whether the domiciliary jurisdiction of the
reinsurer allows United States reinsurers to reinsure
ceding insurers domiciled in that jurisdiction on
terms and conditions that are at least as favorable as
those provided by this State for non-United States
reinsurers reinsuring United States domiciled ceding
insurers.
(7) The history of performance by reinsurers in the
domiciliary jurisdiction.
(8) Any documented evidence of substantial
problems with enforcement of valid United States
judgments in the domiciliary jurisdiction.
(9) Any other matters deemed relevant by the
Director. The Director may, in lieu of granting full
credit under this Section, reduce the amount required
to be held in trust under subsection (1)(C)(1) or
reduce the amount of funds required to be held under
subsection (2)(A).
(E) If the assuming insurer is not licensed to transact
insurance in this State or an accredited reinsurer in this
State, the credit permitted by subsection (1)(C) shall not

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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 subsection (1)(A) or (B), the credit
permitted by subsection (1)(C) shall not be allowed unless
the assuming insurer agrees in the trust agreements to the
following conditions:

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

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agreement.
(4) The grantor shall waive any rights otherwise
available to it under U.S. law that are inconsistent
with the provision.
(2) Credit for the reinsurance ceded by a domestic insurer
to an assuming insurer not meeting the requirements of
subsection (1) shall be allowed in an amount not exceeding the
assets or liabilities carried by the ceding insurer. The credit
shall not exceed the amount of funds held by or held in trust
for the ceding insurer under a reinsurance contract with the
assuming insurer as security for the payment of obligations
thereunder, if the security is held in the United States
subject to withdrawal solely by, and under the exclusive
control of, the ceding insurer; or, in the case of a trust,
held in a qualified United States financial institution, as
defined in subsection (3)(B). This security may be in the form
of:
(A) Cash.
(B) Securities listed by the Securities Valuation
Office of the National Association of Insurance
Commissioners that conform to the requirements of Article
VIII of this Code that are not issued by an affiliate of
either the assuming or ceding company.
(C) Clean, irrevocable, unconditional, letters of
credit issued or confirmed by a qualified United States
financial institution, as defined in subsection (3)(A).

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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.
(3)(A) For purposes of subsection 2(C), a "qualified United
States financial institution" means an institution that:
(1) is organized or, in the case of a U.S. office
of a foreign banking organization, licensed under the
laws of the United States or any state thereof;
(2) is regulated, supervised, and examined by U.S.
federal or state authorities having regulatory
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

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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.
(Source: P.A. 90-381, eff. 8-14-97.)
Section 99. Effective date. This Act takes effect upon
becoming law.