Section 654.10  Purpose

 

The purpose of this Part is to describe the information that must be provided by a domestic company to notify the Director of certain transactions pursuant to Section 131.20a(1) of the Code.

 

(Source:  Amended at 43 Ill. Reg. 373, effective December 21, 2018)

 

Section 654.20  Definitions

 

Terms found in this Part, other than those defined in this Section, are used as defined in Section 131.1 of the Code.

 

"Code" means the Illinois Insurance Code [215 ILCS 5].

 

"Department" means the Illinois Department of Insurance.

 

"Director" means the Director of the Illinois Department of Insurance.

 

"Executive officer" means any individual charged with active management and control in a senior executive capacity as described by the company's by-laws (including a president, senior vice president, treasurer, secretary, controller, and any other individual regardless of title performing functions the same as those performed by the foregoing officers).

 

"NAIC" means the National Association of Insurance Commissioners.

 

(Source:  Amended at 43 Ill. Reg. 373, effective December 21, 2018)

 

Section 654.30  Prior Notification of Transactions – Required Information

 

a)         Any domestic company required, pursuant to Section 131.20a(1) of the Code, to notify the Director of a transaction between it and any person in its holding company system shall notify the Director of the transaction in writing at least 30 days prior to entering into the transaction.  The notice shall be deemed incomplete unless it includes all the information required by this Part.

 

b)         The Director shall, within 30 days after receipt of a complete notice, disapprove the transactions if the standards contained in Section 131.20 of the Code have not been met.

 

c)         Transactions Subject to Prior Notice – Notice Filing

 

1)         An insurer required to give notice of a proposed transaction pursuant to Section 131.20a(1) of the Code shall furnish the required information on Form D-1.

 

2)         Agreements for cost sharing services and management services shall, at a minimum and as applicable:

 

A)        Identify the person providing services and the nature of those services;

 

B)        Set forth the methods to allocate costs;

 

C)        Require timely settlement, not less frequently than on a quarterly basis, and compliance with the 2024 edition of the NAIC Accounting Practices and Procedures Manual (available at https://www.naic.org/prod_serv_alpha_listing.htm; this incorporation by reference does not include any subsequent editions or amendments);

 

D)        Prohibit advancement of funds by the insurer to the affiliate except to pay for services defined in the agreement;

 

E)        State that the insurer will maintain oversight for functions provided to the insurer by the affiliate and that the insurer will monitor services annually for quality assurance;

 

F)         Define books and records of the insurer to include all books and records developed or maintained under or related to the agreement that are otherwise the property of the insurer, in whatever form maintained, including, but not limited to, claims and claims files, policyholder lists, application files, litigation files, premium records, rate books, underwriting manuals, personnel records, financial records or similar records within the possession, custody or control of the affiliate;

 

G)        Specify that all books and records of the insurer are and remain the property of the insurer, and:

 

i)          Are subject to control of the insurer;

 

ii)         Are identifiable; and

 

iii)        Are segregated from all other persons' records and data or are readily capable of segregation at no additional cost to the insurer;

 

H)        State that all funds and invested assets of the insurer are the exclusive property of the insurer, are held for the benefit of the insurer, and are subject to the control of the insurer;

 

I)         Include standards for termination of the agreement, with and without cause;

 

J)         Include provisions for indemnification of the insurer in the event of gross negligence or willful misconduct on the part of the affiliate providing the services and for any actions by the affiliate that violate provisions of the agreement required in subsections 654.30(c)(2)(K) through (O);

 

K)        Specify that, if the insurer is placed in rehabilitation, liquidation, conservation, dissolution, receivership or seized by the Director under Article XIII of the Code:

 

i)          All of the rights of the insurer under the agreement extend to the receiver or Director to the extent permitted by Illinois law;

 

ii)         All books and records of the insurer shall be identifiable and segregated from all other persons' books and records or readily capable of segregation at no additional cost to the receiver or the Director;

 

iii)        A complete set of all books and records of the insurer will immediately be made available to the receiver or the Director in a usable format, and shall be turned over to the receiver or the Director immediately upon the receiver's or the Director's request, and the cost to transfer data to the receiver or the Director shall be fair and reasonable; and,

 

iv)        The affiliated persons will make available all employees essential to the operations of the insurer and the services associated therewith for the immediate continued performance of the essential services ordered or directed by the receiver or the Director;

 

L)        Specify that the affiliate has no automatic right to terminate the agreement if the insurer is placed in rehabilitation, liquidation, conservation, dissolution, receivership or seized pursuant to Article XIII of the Code; and

 

M)       Specify that the affiliate will provide the essential services for a minimum period of time after termination of the agreement, if the insurer is placed in rehabilitation, liquidation, conservation, dissolution, receivership or seized pursuant to Article XIII of the Code, as ordered or directed by the receiver or the Director.  Performance of the essential services will continue to be provided without regard to pre-receivership unpaid fees, so long as the affiliate continues to receive timely payment for post-receivership services rendered, and unless released by the receiver, the Director or supervising court;

 

N)        Specify that the affiliate will continue to maintain any systems, programs or other infrastructure, notwithstanding supervision, seizure, conservatorship or receivership pursuant to Article XIII of the Code, and will make them available to the receiver or the Director as ordered or directed by the receiver or the Director for so long as the affiliate continues to receive timely payment for post-receivership services rendered, and unless released by the receiver, the Director or supervising court; and

 

O)        Specify that, in furtherance of the cooperation between the receiver and the affected guaranty associations and subject to the receiver's authority over the insurer, if the insurer is placed in rehabilitation, liquidation, conservation, dissolution, receivership or seized pursuant to Article XIII of the Code, and portions of the insurer's policies or contracts are eligible for coverage by one or more guaranty associations, then the affiliate's commitments under subsections 654.30(c)(2)(K) through (N) will extend to such guaranty associations.

 

(Source:  Amended at 49 Ill. Reg. 3760, effective March 14, 2025)

 

Section 654.40  Penalties

 

Failure of a company to timely file the report required by this Part and Section 131.20a of the Code shall subject the company to the provisions of Sections 131.24 and 403A of the Code.

 

(Source:  Amended at 43 Ill. Reg. 373, effective December 21, 2018)

 

Section 654.50  Severability Provision

 

If any Section or portion of a Section of this Part, or the applicability of that Section or portion of a Section to any person or circumstance, is held invalid by a court, the remainder of the Section or Part or the applicability of the provision to other persons or circumstances shall not be affected by that determination of invalidity.

 

(Source:  Added at 43 Ill. Reg. 373, effective December 21, 2018)

 

 

Section 654.ILLUSTRATION A   Form D-1

 

FORM D-1

 

GENERAL INSTRUCTIONS

 

A.        Signature and Certification

For purposes of filing the Form D-1, the signature and certification required by this Part shall be signed by an executive officer of the insurer requesting the Director's approval.

 

B.        Copy of the Transaction Agreement

A copy of the proposed transaction agreement shall be attached to the Form D-1 filing as Exhibit A.  If the agreement is in other than final form, it shall be so identified.

 

PRIOR NOTICE OF A TRANSACTION

 

Filed with the Insurance Department of the State of Illinois

 

By

 

 

On Behalf of the Following Insurance Companies:

 

Name	Address

 

Date: _________________,  20 ___

 

Name, Title, Address and Telephone Number of Individual to Whom Notices and Correspondence Concerning this Request Should Be Addressed:

 

 

 

Item 1.             Identity of Parties to the Transaction

 

Furnish the following information for each of the parties to the transaction:

 

a)         Name.

 

b)         Home office address.

 

c)         Principal executive office address.

 

d)         The organizational structure, i.e. corporation, partnership, individual, trust, etc.

 

e)         A description of the nature of the parties' business operations.

 

f)         Relationship, if any, of other parties to the transaction to the insurer filing the notice, including any ownership or debtor/creditor interest by any other parties to the transaction in the insurer seeking approval, or by the insurer filing the notice in the affiliated parties.

 

g)         When the transaction is with a non-affiliate, the names of the affiliates that will receive, in whole or in substantial part, the proceeds of the proposed transaction. For purposes of this subsection, "substantial part" means an amount that would trigger disclosure if given directly to the affiliate.

 

Item 2.             Description of the Transaction

 

Furnish the following information for each transaction for which notice is being given:

 

a)         A statement as to whether notice is being given under Section 131.20a(1)(a)(i), (ii), (iii), (iv), or (v) of the Illinois Insurance Code.

 

b)         A brief description of the nature and purpose of the transaction.

 

c)         A statement of how the transaction meets the "fair and reasonable" standard of Section 131.20(1)(a) of the Illinois Insurance Code; and

 

d)         The proposed effective date of the transaction.

 

Item 3.             Sales, Purchases, Exchanges, Loans, Extensions of Credit, Guarantees, or Investments

 

a)         Furnish a brief description of the amount and source of funds, securities, property or other consideration for the sale, purchase, exchange, loan, extension of credit, guarantee, or investment, whether any provision exists for purchase by the insurer filing notice, by any party to the transaction, or by any affiliate of the insurer filing notice, a description of the terms of any securities being received, and a description of any other agreements relating to the transaction such as contracts or agreements for services, consulting agreements and the like. If the transaction involves other than cash, furnish a description of the consideration, its cost and its fair market value, together with an explanation of the basis for evaluation.

 

b)         If the transaction involves a loan, extension of credit or guarantee, furnish a description of the maximum amount that the insurer will be obligated to make available under the loan, extension of credit or guarantee, the date on which the credit or guarantee will terminate, and any provisions for the accrual of or deferral of interest.

 

c)         If borrowed funds are to be used by the insurer, identify the lender, any collateral requirements, interest due dates, interest rates, and principal payment due date.

 

d)         If the transaction involves an investment, guarantee or other arrangement, state the time period during which the investment, guarantee or other arrangement will remain in effect, together with any provisions for extensions or renewals of those investments, guarantees or arrangements. Furnish a brief statement as to the effect of the transaction upon the insurer's surplus.

 

Item 4.             Loans or Extensions of Credit to a Non-Affiliate

 

If the transaction involves a loan or extension of credit to any person who is not an affiliate, furnish a brief description of the agreement or understanding by which the proceeds of the proposed transaction, in whole or in substantial part, are to be used to make loans or extensions of credit to, to purchase the assets of, or to make investments in, any affiliate of the insurer making those loans or extensions of credit, and specify in what manner the proceeds are to be used to loan to, extend credit to, purchase assets of, or make investments in any affiliate.  Describe the amount and source of funds, securities, property or other consideration for the loan or extension of credit and, if the transaction is one involving consideration other than cash, a description of its cost and its fair market value, together with an explanation of the basis for evaluation. Furnish a brief statement as to the effect of the transaction upon the insurer's surplus.

 

Item 5.             Reinsurance

 

a)         If the transaction is a reinsurance agreement or modification to that agreement, or a reinsurance pooling agreement or modification to that agreement, furnish a description of the known and/or estimated amount of liability to be ceded and/or assumed in each calendar year, the period of time during which the agreement will be in effect, and a description of any agreement or understanding that exists between the insurer and a non-affiliate to the effect that any portion of the assets constituting the consideration for the agreement will be transferred to one or more of the insurer's affiliates.  Furnish a brief description of the consideration involved in the transaction, and a brief statement as to the effect of the transaction upon the insurer's surplus.

 

b)         No notice need be given for reinsurance agreements or modifications to those agreements if the insurance premium or a change in the insurer's liabilities, or the projected reinsurance premium or change in the insurer's liabilities in any of the next three years, in connection with the reinsurance agreement or modification is less than 5% of the insurer's surplus as regards policyholders, as of the December 31 next preceding.  Notice shall be given for all reinsurance pooling agreements, including modifications.

 

Item 6.             Management Agreements, Service Agreements, Cost Sharing Arrangements and Tax Allocation Agreements

 

For management and service agreements, furnish:

 

a)         a brief description of the managerial responsibilities or services to be performed; and

 

b)         a brief description of the agreement, including a statement of its duration, together with brief descriptions of the basis for compensation and the terms under which payment or compensation is to be made.

 

For cost-sharing arrangements, furnish:

 

a)         a brief description of the purpose of the agreement;

 

b)         a description of the period of time during which the agreement is to be in effect;

 

c)         a brief description of each party's expenses or costs covered by the agreement;

 

d)         a brief description of the accounting basis to be used in calculating each party's cost under the agreement;

 

e)         a brief statement as to the effect of the transaction upon the insurer's policyholder surplus;

 

f)         a statement regarding the cost allocation methods that specifies whether proposed charges are based on "cost or market". If market based, include the rationale for using market instead of cost, including justification for the company's determination that amounts are fair and reasonable; and

 

g)         a statement regarding compliance with the NAIC Accounting Practices and Procedure Manual pertaining to expense allocation.

 

For tax allocation agreements, furnish:

 

a)         a description of the tax allocation method to be used; and

 

b)         a statement regarding compliance with the NAIC Accounting Practices and

Procedure Manual regarding the tax allocation agreement.

 

Pursuant to the requirements of Section 131.20a of the Illinois Insurance Code,

has caused this notice to be duly signed on its behalf in the City of

and State

of

on the

day of

, 20

.

 

 

 

 

 

	Name of Requesting Insurer
By
	(Name)	(Title)

 

 

Attest:

 

 

 

 

(Signature of Officer)

(Title)

 

 

CERTIFICATION

 

The undersigned deposes and says that (s)he has duly executed the attached notice dated
	, 20			, for and on behalf of			; that (s)he is the
						(Name of Insurer)
			of such company and that (s)he is authorized to execute and file such
(Title of Officer)

instrument.  Deponent further says that (s)he is familiar with such instrument and the contents thereof, and that the facts therein set forth are true to the best of his/her knowledge, information and belief.

 

 

(Signature)
(Type or print name beneath)

 

(Source:  Amended at 43 Ill. Reg. 373, effective December 21, 2018)