Section 401.10  Authority

 

This Part is promulgated by the Director of Insurance under Subsection (a) of Section 401 of the Illinois Insurance Code which empowers the Director to make reasonable rules and regulations as may be necessary for making effective the insurance laws of this State.  It is the purpose of this Rule to implement Section 76 of the Illinois Insurance Code.

 

Section 401.20  Application and Effective Date

 

This Rule applies to all companies organized under Article IV of the Illinois Insurance Code and is applicable to any and all debts other than shown as a legal liability of the company.  It shall become effective on October 1, 1971.

 

Section 401.30  Approval of Certificate Form by Director

 

Guaranty Fund or Guaranty Capital certificates issued pursuant to Section 76 of the Illinois Insurance Code (Ill. Rev. Stat. 1987, ch. 73  par. 688) shall be submitted, in duplicate, for the Director's approval prior to being issued by the company.  The certificate must state that all payments of principal and/or interest must be approved by the Director of Insurance.  It also must state that neither principal nor interest may be repaid unless after such payment, surplus as regards policyholders is equal to or greater than surplus as regards policyholders immediately after the issuance of the guaranty fund or guaranty capital certificates.

 

(Source:  Amended at 13 Ill. Reg. 14048, effective September 11, 1989)

 

Section 401.40  Execution of Agreement

 

After submission of the documents specified in Section 401.30 and approval by the Director, the proposed agreement may be executed by the company.

 

Section 401.50  Consideration

 

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

 

Section 401.60  Reporting and Accounting of Indebtedness

 

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

 

b)         The company shall furnish a copy of the deposit slip evidencing that the funds derived from the execution of such certificate have been deposited into the company's account.

 

c)         All outstanding guaranty funds or guaranty capital 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.

 

d)         The issuance and repayment of the guaranty fund or guaranty capital, 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.

 

e)         The interest expense incurred on the guaranty fund or guaranty capital during the current period shall be reflected on the Statement of Income of the company's financial statement.

 

(Source:  Amended at 13 Ill. Reg. 14048, effective September 11, 1989)

 

Section 401.70  Retirement of Guaranty Fund and Guaranty Capital and Payment of Interest

 

a)         A company may only retire guaranty funds and guaranty capital and make payment of interest on any indebtedness as provided under Section 76 of the Illinois Insurance Code. No payment shall be authorized by the Director unless:

 

1)         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 (Code) (Ill. Rev. Stat. 1987, ch. 73, pars. 756 and 856.1); lines of business and additional authority as referenced in Sections 4, 11, 39, 245.23 of the Code (Ill. Rev. Stat. 1987, ch. 73, pars. 616, 623, 651, 857.23) and Section 2-1 of the Health Maintenance Organization Act (Ill. Rev. Stat. 1987, ch. 111½, par. 1403), reserves, company size and operational history as referenced in Section 113 of the Code (Ill. Rev. Stat. 1987, ch. 73, par. 725)], and

 

2)         Such payment will not reduce the company's surplus as regards policyholders to less than that currently required under Section 66 of the Illinois Insurance Code (Ill. Rev. Stat. 1987, ch. 73, par. 678), and

 

3)         Such payment is consistent with the terms of the certificate pursuant to Section 401.30 of this Part.

 

b)         Any payment which reduces the company's surplus as regards policyholders beyond the amount permitted under Section 401.70 hereof must be immediately returned in lawful money to the company.

 

(Source:  Amended at 13 Ill. Reg. 14048, effective September 11, 1989)