Statutes > Illinois Statutes > CHAPTER 215 INSURANCE > 215 ILCS 5/ Illinois Insurance Code. > Article VIIC - Domestic Captive Insurance Companies

Article VIIC - Domestic Captive Insurance Companies


 
    (215 ILCS 5/Art. VIIC heading)
ARTICLE VIIC. DOMESTIC CAPTIVE INSURANCE COMPANIES
(Article scheduled to be repealed on January 1, 2017)

    (215 ILCS 5/123C‑1)(from Ch. 73, par. 735C‑1)
    (Section scheduled to be repealed on January 1, 2017)
    Sec. 123C‑1. Definitions. As used in this Article:
    A. "Affiliate" or "Affiliated company" 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.
(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, 2017)
    Sec. 123C‑2. Authority of captives; restrictions.
    A. 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.
    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, 2017)
    Sec. 123C‑3. Minimum Capital.
    A. 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. 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.
(Source: P.A. 86‑632.)

    (215 ILCS 5/123C‑4)(from Ch. 73, par. 735C‑4)
    (Section scheduled to be repealed on January 1, 2017)
    Sec. 123C‑4. Minimum Surplus.
    A. No captive insurance company shall be issued a certificate of authority unless it shall possess paid‑in surplus of not less than the minimum paid‑in surplus 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 (2) of Section 13 or subsection (1) of Section 43, as applicable.
    B. Each captive insurance company shall, in addition to the minimum capital required by Section 123C‑3, at all times maintain free surplus of not less than the minimum surplus 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 (3) of Section 13 or subsection (6) of Section 43, as applicable.
    C. The surplus referred to in subsections A or B 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 surplus, together with an irrevocable letter of credit for the remainder of the requisite surplus, 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 surplus, together with irrevocable contractual obligations of the member organizations of the captive insurance company for the payment of the remainder of the requisite surplus in no more than 3 equal installments in each of the 3 calendar years following the date of 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.
    D. Notwithstanding any other provision of this Section and Section 123C‑3, each captive insurance company shall at all times maintain at least $300,000 of capital and surplus in the form of cash or securities permitted by Article VIII.
(Source: P.A. 86‑632.)

    (215 ILCS 5/123C‑5)(from Ch. 73, par. 735C‑5)
    (Section scheduled to be repealed on January 1, 2017)
    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, 2017)
    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, 2017)
    Sec. 123C‑7. Directors ‑ Conflicts of Interest.
    A. The provisions of Section l0 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, 2017)
    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