Section 201.5  Statutory Authority

 

The following rule is promulgated and adopted pursuant to and in accordance with the provisions of Section 401 of the Illinois Insurance Code in order to implement Section 34.1 thereof.

 

Section 201.10  Application and Effective Date

 

This rule applies to all companies organized under Article II of the Illinois Insurance Code and is applicable to any and all debts other than those shown as a legal liability of the company.  It shall become effective September 1, 1963.

 

Section 201.20  Approval of Debenture Form by Director Prior to Shareholder Approval

 

The subordinated indebtedness agreement (debenture) shall be submitted for the approval of the Illinois Director of Insurance (Director) as required by Section 34.1 of the Illinois Insurance Code [215 ILCS 5/34.1].

 

a)         The agreement must state that:

 

1)         All payments of principal and/or interest must be approved by the Director, and

 

2)         The obligation of the company under such debenture may not be offset or be subject to recoupment with respect to any liability or obligation owed to the company, and

 

3)         No agreement or interest securing such debentures, whether existing on the date of such debenture or subsequently entered into, applies to the obligation under such debenture.

 

b)         The following shall be submitted for the Director's approval prior to submission to the shareholders of the company:

 

1)        Duplicate copies of the entire debenture.

 

2)        Certified copy of the resolution of the board of directors or proper company body or committee which is empowered to authorize such agreements. This resolution shall stipulate the maximum amount of subordinated indebtedness authorized.

 

(Source:  Amended at 23 Ill. Reg. 3782, effective March 10, 1999)

 

Section 201.30  Approval by Shareholders

 

After submission of the documents specified in Section 201.20 and approval thereof by the Director, the proposed form of debenture and the resolution authorizing it shall be presented for consideration at a regular or special shareholder's meeting called to determine the question of whether or not the debenture shall be made.  All agreements shall be executed and the consideration received within one year after the date of shareholder's approval.

 

(Source:  Amended at 13 Ill. Reg. 14054, effective September 11, 1989)

 

Section 201.40  Consideration

 

The consideration tendered to the company in exchange for the agreement shall be lawful money.

 

Section 201.50  Reporting and Accounting of Indebtedness

 

a)         The Director shall be notified immediately in writing upon the execution of any such debenture as to the amount thereof and to whom payable.

 

b)         All outstanding subordinated indebtedness and interest accrued thereon shall be reported separately in the Annual Statement on Page 3 and in any other financial statements of the company as special surplus funds.

 

c)         The issuance and repayment of the debenture, as well as the payment of the interest thereon, shall be reflected as direct debits or credits to the Capital and Surplus Account of the company's financial statement.

 

d)         The interest expense incurred on the debenture during the current period shall be reflected as a deduction from income in lieu thereof on the Statement of Income/Summary of Operations of the company's financial statements.

 

(Source:  Amended at 23 Ill. Reg. 3782, effective March 10, 1999)

 

Section 201.60  Repayment of Principal and Payment of Interest

 

A company may only repay principal and make payment of interest on any indebtedness as provided under Section 34.1 of the Illinois Insurance Code [215 ILCS 5/34.1].  No payment shall be authorized by the Director unless:  

 

a)         The company's surplus as regards policyholders is reasonable in relation to its outstanding liabilities and adequate for its financial needs (the determination of the reasonableness and adequacy of surplus shall include consideration of the following factors:  premium volume as referenced in Sections 144 and 244.1 of the Illinois Insurance Code [215 ILCS 5/144 and 244.1]; lines of business and additional authority as referenced in Sections 4, 11, 39, and 245.23 of the Illinois Insurance Code [215 ILCS 5/4, 11, 39, and 245.23] and Section 2-1 of the Health Maintenance Organization Act [215 ILCS 125/2-1]; reserves, company size and operational history as referenced in Section 113 of the Illinois Insurance Code [215 ILCS 5/113]), and

 

b)         Such payment will not reduce the company's surplus as regards policyholders to less than that currently required under Section 13 of the Illinois Insurance Code [215 ILCS 5/13], and

 

c)         Such payment is consistent with the terms of the debenture approved pursuant to Section 201.20 of this Part.

 

(Source:  Amended at 23 Ill. Reg. 3782, effective March 10, 1999)