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Domestic Captive Insurance Companies

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(215 ILCS 5/Art. VIIC heading)

ARTICLE VIIC. DOMESTIC CAPTIVE INSURANCE COMPANIES(Article scheduled to be repealed on January 1, 2027)

(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(Section scheduled to be repealed on January 1, 2027)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.

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. 100-1118, eff. 11-27-18.)

(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).

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. 100-1118, eff. 11-27-18.)

(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.

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.

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. 100-1118, eff. 11-27-18.)

(215 ILCS 5/123C-4)

Sec. 123C-4. (Repealed).

(Source: 86-632. Repealed by P.A. 100-1118, eff. 11-27-18.)

(215 ILCS 5/123C-5) (from Ch. 73, par. 735C-5)

(Section scheduled to be repealed on January 1, 2027)

Sec. 123C-5. Formation of captive insurance companies in this State; certificate of authority.

A. A pure captive insurance company shall be incorporated as a stock insurer with its capital divided into shares and held by the stockholders.

B. An association captive insurance company or an industrial insured captive insurance company may be incorporated:

(1) as a stock insurer with its capital divided into shares and held by the stockholders; or
(2) as a mutual insurer without capital stock, the governing body of which is elected by the member organizations of its association.

C. No stock captive insurance company shall issue any shares of stock having a par value of less than $1 per share. The capital stock of a captive insurance company incorporated as a stock insurer shall be issued at not less than par value.

D. The provisions of subsection (1) of Section 10, subsection (1) of Section 12, Sections 14, 14.1, 15 (excluding subsections (d) and (e) thereof), 18, 19, 20 and 21, subsections (3) and (4) of Section 23, and Section 25 shall apply to the organization of a stock captive insurance company.

E. The provisions of subsection (1) of Section 40, subsections (1) and (2) of Section 42, Section 44, subsection (a) and (b) of Section 45, and Sections 48, 49, 50 and 52 shall apply to the organization of a mutual captive insurance company.

F. (1) In order to receive a certificate of authority, at the same time as the documents referred to in subsections (a), (b) and (c) of Section 15 (in the case of a stock captive insurance company) or subsections (a) and (b) of Section 45 (in the case of a mutual captive insurance company) are delivered to the Director, the incorporators shall file with the Director any statements or documents required by the Director, including evidence of the following:

(a) the amount and liquidity of its assets relative to the risks to be assumed;
(b) the expertise, experience, character, financial responsibility, reputation and business qualifications of the officers, directors and persons who will manage it;
(c) the overall soundness of its plan of operation (which shall include (i) the lines of business to be written by the captive insurance company, (ii) the geographic areas in which the captive insurance company is to operate, (iii) the type of policy (occurrence or claims-made) to be offered by the captive insurance company, (iv) the net retention limits and reinsurance program, including whether the captive insurance company intends to assume reinsurance, and (v) in the case of an industrial insured captive insurance company, an investment policy specifying the type of investments to be made by such company and the diversity of such investments);
(d) whether major operations functions, such as underwriting, rating, claims administration, loss prevention programs, accounting and investment of funds, will be handled by the captive insurance company's employees or through contractual arrangements with other parties;
(e) the scope of the loss prevention programs of its parent, member organizations, or industrial insureds, as applicable; and
(f) such other factors deemed relevant by the Director in ascertaining whether the proposed captive insurance company will be able to meet its policy obligations.

The Director may deny the incorporators' application for a certificate of authority if he determines, in the exercise of his discretion, either that the foregoing standards have not been satisfied or that the proposed captive insurance company is being organized for purposes inimical to the interests of policyholders.

(2) If the Director is satisfied, on the basis of the documents and statements referred to in paragraph (1) of subsection F, that the captive insurance company meets the criteria set forth in paragraph (1) of subsection F, and that the captive insurance company meets all other requirements imposed by this Article (other than those set forth in Sections 123C-3 and 123C-4), he shall, at the same time as he effects the filing referred to in Section 18 (or, in the case of a mutual insurance company, Section 48) and issues the permit referred to in Section 20 (or, in the case of a mutual insurance company, Section 50), notify the captive insurance company in writing of his determination, which notification shall state that the Director will issue a certificate of authority upon receipt of evidence satisfactory to the Director that the company has fully collected the capital and surplus required by Sections 123C-3 and 123C-4. Upon receipt of evidence satisfactory to the Director that the required capital and surplus have been fully collected by the company, the Director shall grant a certificate of authority authorizing the captive insurance company to transact the kind or kinds of business specified therein.

(Source: P.A. 86-632.)

(215 ILCS 5/123C-6) (from Ch. 73, par. 735C-6)

(Section scheduled to be repealed on January 1, 2027)

Sec. 123C-6. Change in plan of operation; violations. Any material change in items (i) through (v) of the captive insurance company's plan of operations described in subparagraph (c) of paragraph (1) of subsection F of Section 123C-5 requires prior approval of the Director. Any material change which is not disapproved by the Director within 30 days after its submission shall be deemed approved. The provisions of Sections 401.1 and 403A shall apply to a captive insurance company's material failure to adhere to items (i) through (v) of its plan of operations described in subparagraph (c) of paragraph (1) of subsection F of Section 123C-5 (to the same extent and in the same manner as if such failure were a violation of this Code).

(Source: P.A. 85-131.)

(215 ILCS 5/123C-7) (from Ch. 73, par. 735C-7)

(Section scheduled to be repealed on January 1, 2027)

Sec. 123C-7. Directors - conflicts of interest.

A. The provisions of Section 10 shall apply to stock captive insurance companies and all those having dealings therewith and the provisions of Section 40 shall apply to mutual captive insurance companies and all those having dealings therewith; provided that no residents or citizens of this State need be directors. No director may serve who has been convicted of fraud involving any financial institution or of a felony. The Director may waive the prohibition regarding a felony if he determines that the particular felony does not jeopardize the person's ability to act as a director.

B. Every captive insurance company shall report to the Director within 30 days after any change in its executive officers or directors, including in its report a statement of the business and professional affiliations of any new executive officer or director. For purposes of this subsection B, the term "executive officer" includes only the following: chairman of the board of directors; president; executive or senior vice-president; secretary; and treasurer.

C. No director, officer, or employee having any authority in the investment or disposition of the funds of a captive insurance company shall accept, except on behalf of the company, or be the beneficiary of, any fee, brokerage, gift, or other emolument because of any investment, loan, deposit, purchase, sale, payment, or exchange made by or for the company; but a director who is not otherwise an officer or employee of the company may receive reasonable compensation for services performed for sales or purchases made to or for the company in the ordinary course of its business and in the usual private professional or business capacity of such director.

D. Any profit or gain received by or on behalf of any person in violation of subsection C of this Section shall inure to and be recoverable by the company. A suit to recover such profit may be instituted in any court of competent jurisdiction by the company, or by any stockholder of the company in its name and on its behalf if the company fails or refuses to bring such suit within 60 days after request in writing or if the company fails diligently to prosecute the same thereafter. No such suit shall be brought more than 2 years after the date such profit or gain was discovered.

(Source: P.A. 85-131.)

(215 ILCS 5/123C-8) (from Ch. 73, par. 735C-8)

(Section scheduled to be repealed on January 1, 2027)

Sec. 123C-8. Merger, consolidation, plans of exchange and reorganization.

A. The provisions of Article X shall apply to captive insurance companies; provided, however, that:

(1) if the surviving or new company is to be a domestic captive insurance company,

(a) the Director shall, in determining whether such company meets the requirements set forth in paragraph (b) of subsection (2) of Section 162, refer only to the provisions of this Article VIIC and the other provisions of Article X;
(b) the Director shall, in determining whether such company meets the requirements of Sections 123C-3 and 123C-4, take into account the capital and surplus of the company to be merged into the domestic captive insurance company or the companies to be consolidated into the domestic captive insurance company (but any approval by the Director of such merger or consolidation shall be contingent upon the receipt of such capital and surplus by the domestic captive insurance company and satisfactory evidence thereof being presented to the Director);
(c) notwithstanding the provisions of paragraph (c) of subsection (1) of Section 166, such surviving or new company shall have all of the rights, privileges, immunities and powers and shall be subject to all of the duties and liabilities granted or imposed by this Article VIIC (and not by the entire Code); and

(2) in the event that such merger or consolidation is to be effected in conjunction with the formation and licensing of a new domestic captive insurance company in this State, the Director shall follow procedures for the contemporaneous and expeditious review of the materials presented to the Director for his approval of such formation, licensing and merger or consolidation.

B. (1) Any domestic, foreign or alien stock company, mutual company, or reciprocal company, authorized or which may be authorized to do business in this State, may reorganize as a domestic captive insurance company under the laws of this State, by complying with the provisions of Article XII. Domestic companies are hereby authorized to reorganize as domestic captive insurance companies.

(2) In the event that such reorganization is to be effected in conjunction with the formation and licensing of a new captive insurance company in this State, the Director shall follow procedures for the contemporaneous and expeditious review of the materials presented to the Director for his approval of such formation, licensing and reorganization.

(Source: P.A. 85-131.)

(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 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, (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.

(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. 100-1118, eff. 11-27-18.)

(215 ILCS 5/123C-10) (from Ch. 73, par. 735C-10)

(Section scheduled to be repealed on January 1, 2027)

Sec. 123C-10. Examinations and investigations; fees.

A. The provisions of Sections 132 through 132.7 shall apply to captive insurance companies. The expenses and charges of any examination conducted pursuant to those Sections shall be paid by the company examined.

B. When necessary to supplement its evaluation or examination procedures, the Department may retain independent actuaries deemed competent by the Director, qualified loss reserve consultants, independent risk managers, independent certified public accountants, or qualified examiners of insurance companies deemed competent by the Director, or any combination of the foregoing. The Director may also accept as a part of the Department's examination of any company or person (a) a report by an independent actuary deemed competent by the Director or (b) a report of an audit made by an independent certified public accountant. Neither those persons so designated nor any members of their immediate families shall be officers of, connected with, or financially interested in any company other than as policyholders, nor shall they be financially interested in any other corporation or person affected by the examination, investigation or hearing. The reasonable expenses and charges of persons so retained or designated shall be paid directly by the company.

(Source: P.A. 89-97, eff. 7-7-95.)

(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, 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. 100-1118, eff. 11-27-18.)

(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. 100-1118, eff. 11-27-18.)

(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. 100-1118, eff. 11-27-18.)

(215 ILCS 5/123C-14) (from Ch. 73, par. 735C-14)

(Section scheduled to be repealed on January 1, 2027)

Sec. 123C-14. Rating organizations; memberships; rate or policy filing. No captive insurance company shall be required to join a rating organization. No captive insurance company shall be required to file its premium rates or policy forms with, or to seek approval of such rates or forms from, the Director or any other authority of this State.

(Source: P.A. 85-131.)

(215 ILCS 5/123C-15) (from Ch. 73, par. 735C-15)

(Section scheduled to be repealed on January 1, 2027)

Sec. 123C-15. Exemption from compulsory associations. No captive insurance company shall be permitted or required to join or contribute financially to any plan, pool, association, or guaranty or insolvency fund in this State, nor shall any captive insurance company, nor its insureds nor any claimants against the insureds, nor its parent nor any affiliated company, nor any member organization of its association, receive any benefit from any such plan, pool, association, or guaranty or insolvency fund for claims arising out of the operations of such captive insurance company. Each association captive insurance company and each industrial insured captive insurance company shall inform each insured, in both the application for insurance and in the policy issued to such insured, that (i) the captive insurance company is not subject to all of the insurance laws and regulations of this State, and (ii) state insurance insolvency guaranty funds are not available to such insured for claims arising out of the operations of such captive insurance company.

(Source: P.A. 85-131.)

(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. 100-1118, eff. 11-27-18.)

(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.
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. 100-1118, eff. 11-27-18.)

(215 ILCS 5/123C-18) (from Ch. 73, par. 735C-18)

(Section scheduled to be repealed on January 1, 2027)

Sec. 123C-18. Additional powers, rights, and obligations. In addition to the powers and duties set forth in the other provisions of this Article VIIC and to the extent not inconsistent with the provisions of this Article VIIC:

A. The provisions of Article XXVI, subsection E of Section 123B-3, subsection A of Section 123B-4, subsection A of Section 123B-8, and Sections 2.1, 131.4 through 131.12, 131.20, 131.20a(2)(except as otherwise provided by subsection B of Section 123C-12), 131.22, 133, 141.1, 141.2, 144.1, 144.2, 147, 148, 149, 154.5, 154.6, 154.7, 154.8, 155, 186.1, 186.2, 401, 401.1, 402, 403, 403A, 407, 407.1, 407.2, 4l2, 415 and subsections (1) and (3) of Section 441 shall apply to captive insurance companies and all those having dealings therewith.
B. The provisions of subsection (2) of Section 9, Section 11, subsection (2) of Section 12, and Sections 27.1, 28, 28.2, 28.2a, 29, 30, 31, 32, 33, 34, and 35 shall apply to stock captive insurance companies and all those having dealings therewith.
C. The provisions of subsection (2) of Section 39, Section 41, subsections (1) and (2) of Section 42, and Sections 54, 55, 56, 57, 58, 59, and 60 shall apply to mutual captive insurance companies and all those having dealings therewith.
D. The Director and each captive insurance company and all those having dealings therewith shall have the authorities, powers, rights, duties and obligations set forth in Section 144 (excluding paragraph (f) of subsection (4) of Section 144); provided, however, that:

(i) subsection (1) of Section 144 shall not apply to pure captive insurance companies; and
(ii) the Director may exempt any association captive insurance company and any industrial insured captive insurance company from the requirements of subsection (1) of Section 144, on terms and conditions established by the Director, upon a showing by any such captive insurance company and a determination by the Director that the limitations of subsection (1) of Section 144 are not necessary to protect the interests of policyholders in light of such captive insurance company's financial condition and the nature of the risks insured by such company.

E. Nothing in this Article or Code shall be deemed to prohibit the by-laws of a captive insurance company from providing for the allocation of underwriting or investment income or loss to the respective accounts of its members, or to prohibit a captive insurance company, if its by-laws so provide and the requirements of this Article are otherwise met, from distributing to a withdrawing member, whether by way of ordinary or liquidating distributions and whether the withdrawal of such member is voluntary or otherwise, on terms and conditions set forth in the by-laws, that member's share of the company's surplus, as well as that portion of the underwriting and investment income allocated to such withdrawing member for the period that such withdrawing member was a member of the mutual company; provided that (i) no such distribution may be made except out of earned, as distinguished from contributed, surplus, (ii) no such distribution shall be made if the surplus of the captive insurance company is less than the original surplus required for the kind or kinds of business authorized to be transacted by such company, or if the payment of such distribution would reduce its surplus to less than the minimum, and (iii) no such distribution shall be made without the approval of the Director if such distribution, together with other such distributions made within the period of 12 consecutive months ending on the date on which the proposed distribution is scheduled for payment or distribution, exceeds the greater of: (i) 10% of the company's surplus as regards policyholders as of the 31st day of December next preceding, or (ii) the net income of the company for the 12-month period ending the 31st day of December next preceding. For the purposes of this subsection, net income includes net realized capital gains in an amount not to exceed 20% of net unrealized capital gains. The right of a member of a captive insurance company to receive distributions under this Section shall be included within the provisions of paragraph (i) of subsection (1) of Section 205 in the event of liquidation or dissolution of such captive insurance company.

(Source: P.A. 100-863, eff. 8-14-18.)

(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);
(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 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).

D. (Blank).

(Source: P.A. 100-1118, eff. 11-27-18.)

(215 ILCS 5/123C-20) (from Ch. 73, par. 735C-20)

(Section scheduled to be repealed on January 1, 2027)

Sec. 123C-20. Laws applicable. No provisions of this Code, other than those contained in this Article or contained in specific references contained in this Article, shall apply to domestic captive insurance companies.

(Source: P.A. 85-131.)

(215 ILCS 5/123C-21) (from Ch. 73, par. 735C-21)

(Section scheduled to be repealed on January 1, 2027)

Sec. 123C-21. Severability. If any clause, sentence, paragraph, Section or part of this Article or the application thereof to any person or circumstances, shall, for any reason, be adjudged by any court of competent jurisdiction to be invalid, such judgment shall not affect, impair or invalidate the remainder of this Article, and the application thereof to other persons or circumstances, but shall be confined in its operation to the clause, sentence, paragraph, Section or part thereof directly involved in the controversy in which such judgment shall have been rendered and to the person or circumstances involved.

(Source: P.A. 85-131.)

(215 ILCS 5/123C-22) (from Ch. 73, par. 735C-22)

(Section scheduled to be repealed on January 1, 2027)

Sec. 123C-22. Subordinated indebtedness. A captive insurance company organized under this Article may borrow or assume a liability for the repayment of a sum of money upon a written agreement for the loan or advance, with interest at a rate not exceeding the corporate base rate as reported by the largest bank (measured by assets) with its head office located in Chicago, Illinois, as in effect on the first business day of the month, plus 3 percent per annum. Such rate shall be fixed on the execution of the loan and apply for the term of the loan. Such loan and interest thereon shall be repaid only out of surplus of the company in excess of such minimum surplus as is stipulated in and by the agreement. The agreement shall first be submitted to and approved by (A) not less than a majority of the Board of Directors of a stock company or a mutual company, and (B) the Director. Repayment of principal or payment of interest may be made only with the approval of the Director when he is satisfied that the financial condition of the company warrants such action. No loan or advance made under this Section or interest accruing thereon shall form a part of the legal liabilities of the company until authorized for payment by the Director but, until such authorization, all statements published by the company or filed with the Director shall show the amount thereof then remaining unpaid as a special surplus or capital account at the election of the company. Such account shall be considered in determining whether initial minimum capital and surplus requirements have been met. Nothing in this Section shall be construed to mean that a company may not otherwise borrow money, but the amount so borrowed with accrued interest thereon shall be carried by the company as a liability.

(Source: P.A. 86-632.)

(215 ILCS 5/123C-23)

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.

(Source: P.A. 100-1118, eff. 11-27-18.)

(215 ILCS 5/123C-24)

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.

(Source: P.A. 100-1118, eff. 11-27-18.)

(215 ILCS 5/123C-25)

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.

(Source: P.A. 100-1118, eff. 11-27-18.)

(215 ILCS 5/123C-26)

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.

(Source: P.A. 100-1118, eff. 11-27-18.)

(215 ILCS 5/123C-27)

Sec. 123C-27. Rulemaking authority. The Director may adopt reasonable rules as necessary to implement the purposes and provisions of this Article.

(Source: P.A. 100-1118, eff. 11-27-18.)

(215 ILCS 5/123C-28)

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.

(Source: P.A. 100-1118, eff. 11-27-18.)

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