2023 Illinois Compiled Statutes › Chapter 215 - INSURANCE › 215 ILCS 5/ - Illinois Insurance Code. › Article XI 1/2 - Protected Cell Companies

(215 ILCS 5/Art. XI.5 heading)
ARTICLE XI 1/2.  
		
		PROTECTED CELL COMPANIES
(215 ILCS 5/179A-1)
Sec. 179A-1. 
		Short title. 
		This Article may be cited as the Protected Cell
Company
Law.
(Source: P.A. 91-278, eff. 7-23-99.)
(215 ILCS 5/179A-5)
Sec. 179A-5. 
		Purpose. 
		This Article is adopted to provide a basis for the
creation of protected cells by a domestic insurer
as one means of accessing alternative sources of capital and achieving the
benefits of insurance securitization.  Investors in fully funded insurance
securitization transactions provide funds that are available to pay the
insurer's insurance obligations or to repay the investors or both.  The
creation of protected cells is intended to be a means to achieve more
efficiencies in conducting insurance securitizations.
Under the
terms of the typical debt instrument underlying an insurance securitization
transaction, prepaid
principal is repaid to the investor on a specified maturity date with interest,
unless a trigger event
occurs.  The insurance securitization proceeds secure both the protected
cell company's insurance obligations if a trigger event occurs,
as well as the
protected cell company's obligation to repay the insurance
securitization investors if a trigger event
does not occur. Insurance securitization transactions have
been performed
through alien companies
in order to utilize efficiencies available to alien companies that are not
currently available to
domestic companies.  This Article is adopted in order  to  create more
efficiency in conducting
insurance securitization,
to allow domestic companies easier access   to alternative sources of capital,
and to promote the
benefits of insurance securitization generally.
(Source: P.A. 91-278, eff. 7-23-99; 92-74, eff. 7-12-01.)
(215 ILCS 5/179A-10)
Sec. 179A-10. 
		Definitions.
"Domestic company" means an insurance company domiciled in the State of
Illinois.
"Fully funded" means that, with respect to any exposure attributed to a
protected cell, the market value of the protected cell assets, on the date on
which the insurance securitization is effected, equals or exceeds the maximum
possible exposure attributable to the protected cell with respect to those
exposures.
"General account" means the assets and liabilities of a protected cell
company
other than
protected cell assets and protected cell liabilities.
"Indemnity trigger" means a transaction term by which relief of
the issuer's
obligation to repay
investors is triggered by its incurring a specified level of
losses under its insurance or
reinsurance contracts.
"Market value" has the meaning given that term in Article VIII of
this Code
(Investments of Domestic Companies).
"Non-indemnity trigger" means a transaction term by which relief of the
issuer's obligation to repay investors is triggered solely by some event or
condition other than the individual protected cell company incurring a
specified level of losses under its insurance or reinsurance contracts.
"Protected cell" means an identified pool of assets and liabilities of a
domestic company
segregated and insulated by means of this Article from the remainder of the
company's assets
and liabilities.
"Protected cell account" means a specifically identified bank or custodial
account established by
a protected cell company for the purpose of segregating the
protected cell assets of
one protected cell from the protected cell assets of other protected cells and
from the assets of the
protected cell company's general account.
"Protected cell assets" means all assets, contract rights, and general
intangibles identified with and attributable to
a
specific protected cell
of a protected cell company.
"Protected cell company" means a domestic company that has one or more
protected cells.
"Protected cell company insurance securitization"
means the issuance of debt instruments, the proceeds from which support the
exposures attributed to the protected cell, by a protected cell company where
repayment of principal or interest, or both, to investors pursuant to the
transaction terms is contingent upon the occurrence or nonoccurrence of an
event with respect to which the protected cell company is exposed to loss under
insurance or reinsurance contracts it has issued.
"Protected cell liabilities" means all liabilities and other obligations
identified with and
attributable to a specific
protected cell of a protected cell company.
(Source: P.A. 91-278, eff. 7-23-99; 92-74, eff. 7-12-01.)
(215 ILCS 5/179A-15)
Sec. 179A-15. 
		Establishment of protected cells.
(a) A domestic company may,
with the prior written approval by the Director of a
plan of operation
submitted by the domestic company with respect to each protected cell,
establish one or more
protected cells in connection with an insurance securitization. Upon the
written approval by the Director of the plan of
operation, which shall
include, but not be limited to, the specific business and investment
guidelines
of the protected
cell, the protected cell company may, in accordance with the approved plan
of operation,
attribute to the
protected cell insurance obligations with
respect to
its insurance
business and obligations relating to the insurance securitization and
assets to fund those obligations. A protected cell shall have
its own distinct name
or designation, which shall include the words "protected cell". The protected
cell company
shall transfer all
assets attributable to a protected cell to one or more separately established
and identified
protected cell accounts bearing the name or designation of that protected cell.
 Protected cell
assets shall be held in the protected cell accounts for the purpose of
satisfying the obligations of
that protected cell.
(b) All attributions of assets and
liabilities between a protected
cell and the general account shall be in accordance
with the
plan
of operation approved by the Director. No
other
attribution of assets or
liabilities may be made by a protected cell company
between the
protected cell company's general account and its
protected cells.
Any attribution of assets and
liabilities between the general account and a protected cell
or from investors in the form of principal on a debt instrument
issued by a
protected cell company shall be in cash or in readily marketable securities
with
established market values.
(c) The creation of a protected cell does not create, in respect of that
protected cell, a legal person
separate from the protected cell company. Amounts attributed to a protected
cell under this
Article, including
assets transferred to a protected cell account, are owned by the protected
cell company and
the protected cell company may
not be, nor hold itself out to be, a trustee with respect to those protected
cell assets of that
protected cell account. Notwithstanding the foregoing, the company may allow
for a security
interest to attach to protected cell assets or a protected cell account when in
favor of a creditor of
the protected cell and otherwise allowed under applicable law.
(d) This Article shall not be construed to prohibit the protected cell
company from
contracting with or
arranging for an investment advisor, commodity trading advisor, or other third
party to manage
the protected cell assets of a protected cell, provided that all remuneration,
expenses, and other
compensation of the third party advisor or manager are payable from the
protected cell assets of
that protected cell and not from the protected cell assets of other protected
cells or the assets of
the protected cell company's general account.
(e) A protected cell company shall
establish
administrative and
accounting procedures necessary to properly identify the one or more
protected cells of the
protected cell company and the protected cell assets and protected cell
liabilities
attributable to the protected cells.  It shall be
the duty of the directors of a protected cell company to:
(1) keep protected cell assets and protected cell     liabilities separate and separately identifiable from the assets and liabilities of the protected cell company's general account; and
(2) keep protected cell assets and protected cell     liabilities attributable to one protected cell separate and separately identifiable from protected cell assets and protected cell liabilities attributable to other protected cells.
If this Section is violated,
the remedy of tracing shall
be
applicable to protected cell assets when commingled with protected cell assets
of other protected
cells or the assets of the protected cell company's general account.
The remedy of tracing shall not be construed as an exclusive remedy.
(f) The protected cell company shall, when
establishing a protected cell, attribute to the protected cell assets with a
value at least equal to the reserves and other insurance liabilities attributed
to that protected cell.
(Source: P.A. 91-278, eff. 7-23-99; 92-74, eff. 7-12-01.)
(215 ILCS 5/179A-20)
Sec. 179A-20. 
		Use and operation of protected cells.
(a) The protected cell
assets of any protected
cell may not be charged with liabilities arising out of any other business the
protected cell company may
conduct.  All contracts or other documentation reflecting protected cell
liabilities shall clearly indicate that only the
protected cell assets are available
for the satisfaction of those protected cell
liabilities.
(b) The income, gains, and losses, realized or unrealized, from
protected cell
assets and protected cell
liabilities must be credited to or charged against the protected
cell without
regard to other
income, gains, or losses of the protected cell company, including income,
gains, or losses of
other protected
cells.  Amounts attributed to a protected cell and accumulations thereon may
be invested and
reinvested without regard to any requirements or limitations of Article VIII of
this Code
(Investments of Domestic Companies), and
the investments in a
protected cell or cells may not be taken into account in applying
the
investment limitations
otherwise applicable to the investments of the protected cell company.
(c) Assets
attributed to a
protected
cell must be valued at
their market value on the date of valuation, or if there is no readily
available market, then as
provided in the contract or the rules or other written documentation applicable
to
the protected cell.
(d) A protected cell company shall, in respect of any of its protected
cells,
engage in fully funded
indemnity-triggered insurance securitization to support in full the protected
cell exposures attributable to that protected cell. A
protected cell company
insurance securitization that is not
indemnity-triggered may qualify as an insurance securitization under the
terms of this Article only after the Director
adopts rules addressing the methods of:(i) funding of the portion of the risk
that is not indemnity based, (ii) accounting, and
disclosure, (iii) risk-based capital treatment, and (iv) assessing risk
associated with
such securitizations.  A protected cell company
insurance securitization that is not fully funded, whether
indemnity triggered or non-indemnity triggered, is prohibited.
 Protected cell assets may be used to pay interest
or other
consideration on any outstanding debt or other obligation attributable to that
protected cell, and
nothing in this subsection shall be construed or interpreted to prevent a
protected cell company from
entering into a swap agreement or other transaction for the account of the
protected cell that has the effect of
guaranteeing such
interest or other consideration.
(e) In all protected cell company
insurance
securitizations,
the
contracts or other documentation
effecting such transaction shall contain provisions identifying the protected
cell to which the
transaction will be attributed.  In addition, the contracts or other
documentation shall
clearly disclose that the
assets of that  protected cell, and only those assets, are available to pay the
obligations of
that  protected cell.
Notwithstanding the foregoing, and subject to the provisions of this Article
and any other
applicable law or rule, the failure to include such language in the contracts
or other documentation shall not
be used as the sole basis by creditors, reinsurers, or other claimants to
circumvent the provisions
of this Article.
(f) A protected cell company may attribute to a
protected cell account only the insurance obligations relating to the protected
cell
company's general account.  A protected cell
may not issue insurance or reinsurance contracts directly to
policyholders or reinsureds or have any obligation to the policyholders or
reinsureds of the protected cell company's general account.
(g) At the cessation of business of a protected cell, the
protected cell
company
shall voluntarily close out the protected cell account in accordance with a plan approved by the
Director.
(Source: P.A. 91-278, eff. 7-23-99; 92-74, eff. 7-12-01.)
(215 ILCS 5/179A-25)
Sec. 179A-25. 
		Reach of creditors and other claimants.
(a) Protected cell assets are available only to
the
creditors of the protected cell company
who are creditors in
respect of that protected cell and entitled, in conformity
with the provisions of
this Article, to have recourse to the protected cell assets attributable to
that protected cell. Protected cell assets
shall be absolutely protected from the creditors of the protected cell
company who are not
creditors in respect
of that protected cell and who, accordingly, are not
entitled
to have
recourse to the protected
cell assets attributable to that protected cell.  Creditors with respect to a  protected
cell shall not be entitled to
have recourse against the protected cell assets of other protected cells or the
assets of the
protected cell company's general account.
Protected cell assets are available only to creditors of a
protected cell company after all protected cell liabilities have been
extinguished or otherwise provided for in accordance with the plan of operation
relating to that protected cell.
(b) When an obligation of a protected cell company to a person arises from a
transaction, or is otherwise imposed, in
respect of a  protected cell:
(1) that obligation of the protected cell company     shall extend only to the protected cell assets attributable to that protected cell, and the person shall, in respect of that obligation, be entitled to have recourse only to the protected cell assets attributable to that protected cell; and
(2) that obligation of the protected cell company     shall not extend to the protected cell assets of any other protected cell or the assets of the company's general account, and that person shall not, in respect of that obligation, be entitled to have recourse to the protected cell assets of any other protected cell or the assets of the company's general account.
(c) When an obligation of a protected cell company relates solely to the
general
account,  the
obligation of the protected cell company shall extend only to, and that
creditor shall, in
respect of that
obligation, be entitled to have recourse only to, the assets of the protected
cell company's general
account.
(d) The activities, assets, and obligations relating to a protected cell are not
subject to the provisions
of Article XXXIII1/2 (Illinois Life and Health Guaranty Association Law) or
Article XXXIV
(Illinois
Insurance Guaranty Fund), and neither a protected cell nor a protected cell
company shall be assessed by or
otherwise be required to
contribute to any guaranty fund or guaranty association in this State with
respect to the activities, assets, or obligations of a protected cell.
Nothing
in this subsection
shall affect the activities or obligations of a company's general account.
(e) In no event shall the establishment of one or more protected cells alone
constitute or be deemed
to be a fraudulent conveyance, an intent by the protected cell company to
defraud creditors,
or
the carrying out
of business by the protected cell company for any other fraudulent purpose.
(Source: P.A. 91-278, eff. 7-23-99; 92-74, eff. 7-12-01.)
(215 ILCS 5/179A-30)
Sec. 179A-30. 
		
		Rehabilitation and liquidation of
protected cell companies.
(a) Notwithstanding any contrary
provision in this Code, the rules promulgated
under this Code, or any
other applicable law or rule, upon any order of rehabilitation, conservation,
or
liquidation of a protected cell company, the receiver shall be
bound
to deal with the
protected cell company's assets and liabilities, including protected cell
assets and protected
cell liabilities, in
accordance with the requirements set forth in this Article.
(b) With respect to amounts recoverable under a protected cell company insurance securitization, the amount
recoverable by the
receiver shall not be reduced or diminished as a result of the entry of an
order of rehabilitation,
conservation, or
liquidation with respect to the protected cell company notwithstanding any
provisions to the
contrary in the contracts or other documentation governing the protected cell company
insurance securitization.
(Source: P.A. 91-278, eff. 7-23-99; 92-74, eff. 7-12-01.)
(215 ILCS 5/179A-35)
Sec. 179A-35. 
		No transaction of an insurance business. 
		A protected cell insurance securitization shall not
be deemed to be an
insurance or reinsurance contract.  An investor in a protected cell company
insurance securitization shall not, by
sole means of such investment, be deemed to be transacting an insurance
business in this State.  The underwriters or selling agents (and their
partners, directors, officers, members, managers, employees, agents,
representatives, and advisors) involved in a protected cell company insurance
securitization shall not be deemed to be conducting an insurance or reinsurance
agency, brokerage, intermediary, advisory, or consulting business by virtue of
their activities in connection therewith.
(Source: P.A. 91-278, eff. 7-23-99; 92-74, eff. 7-12-01.)
(215 ILCS 5/179A-40)
Sec. 179A-40. 
		Rules. 
		The Director may promulgate
reasonable rules as may be necessary to effectuate the purposes of this
Article.
(Source: P.A. 91-278, eff. 7-23-99.)