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92_HB2556eng HB2556 Engrossed LRB9207828JSpcA 1 AN ACT concerning insurers. 2 Be it enacted by the People of the State of Illinois, 3 represented in the General Assembly: 4 Section 5. The Illinois Insurance Code is amended by 5 changing Sections 10, 40, 131.20a, 187, and 188 and adding 6 Section 131.20b as follows: 7 (215 ILCS 5/10) (from Ch. 73, par. 622) 8 Sec. 10. Directors. 9 (1) After the date of incorporation, as determined by 10 Section 18, and until the first meeting of shareholders, the 11 incorporators shall have the powers and perform the duties 12 ordinarily possessed and exercised by a board of directors. 13 (2) Upon the issuance of a certificate of authority to a 14 company organized under this article, the corporate powers 15 shall be exercised by, and its business and affairs shall be 16 under the control of, a board of directors composed of not 17 less than 3 nor more than 21 natural persons who are 18 shareholders, except where the Company is a wholly owned 19 subsidiary, and who are at least 18 years of age and at least 20 3 of whom are residents and citizens of this State. After 21 June 30, 2002, at least 20%, but not less than one, of the 22 directors of a company that is not subject to Section 131.20b 23 shall be persons who are not officers or employees of the 24 company. A person convicted of a felony may not be a 25 director, and all directors shall be of good character and 26 known professional, administrative, or business ability, such 27 business ability to include a practical knowledge of 28 insurance, finance, or investment. The first board of 29 directors shall be elected at the first meeting of 30 shareholders, and, except as provided in subsection (3) 31 below, all directors shall be elected annually thereafter. HB2556 Engrossed -2- LRB9207828JSpcA 1 (3) If the board of directors consists of 6 or more 2 members, in lieu of electing the membership of the whole 3 board of directors annually, the articles of incorporation 4 may provide that the directors shall be divided into two or 5 three classes, each class to be as nearly equal in number as 6 is possible. The term of office of directors of the first 7 class shall expire at the first annual meeting of 8 shareholders after their election, that of the second class 9 shall expire at the second annual meeting after their 10 election, and that of the third class, if any, shall expire 11 at the third annual meeting after their election. At each 12 annual meeting after such classification, a number of 13 directors equal to the number of directors in the class whose 14 terms expire at the time of such meeting shall be elected to 15 hold office until the second succeeding annual meeting, if 16 there are two classes, or until the third succeeding annual 17 meeting, if there are three classes. 18 (4) In all elections for directors every shareholder of 19 common shares has the right to vote, in person or by proxy, 20 for the number of common shares owned by him, for as many 21 persons as there are directors to be elected, or to cumulate 22 his shares, and give one candidate as many votes as the 23 number of directors multiplied by the number of his shares 24 equals, or to distribute them on the same principle among as 25 many candidates as he thinks fit, and directors shall not be 26 elected in any other manner. 27 (5) Meetings of the board of directors, regular or 28 special, may be held either within or without the State. 29 Meetings of the board of directors shall be upon such notice 30 as the by-laws may prescribe. Attendance of a director at any 31 meeting shall constitute a waiver of notice of such meeting 32 except where a director attends the meeting for the express 33 purpose of objecting to the transaction of any business 34 because the meeting is not lawfully called or convened. HB2556 Engrossed -3- LRB9207828JSpcA 1 Neither the business to be transacted at, nor the purpose of, 2 any regular or special meeting of the board of directors need 3 be specified in the notice or waiver of notice of such 4 meeting, unless expressly otherwise provided by this Code. 5 Unless specifically prohibited by the articles of 6 incorporation or by-laws, members of the board of directors 7 or of any committee of the board of directors may participate 8 in and act at any meeting of such board or committee through 9 the use of a conference telephone or other communications 10 equipment by means of which all persons participating in the 11 meeting can hear each other. Participation in such meeting 12 shall constitute attendance and presence in person at the 13 meeting of the person or persons so participating. Unless 14 specifically prohibited by the articles of incorporation or 15 by-laws, members of the board of directors or of any 16 committee of the board of directors may take action without a 17 meeting, if a consent in writing setting forth the action so 18 taken shall be signed by all of the directors entitled to 19 vote with respect to the subject matter thereof, or by all of 20 the members of such committee, as the case may be. The 21 consent shall be evidenced by one or more written approvals, 22 each of which sets forth the action taken and bears the 23 signature of one or more directors or committee members. All 24 approvals evidencing the consent shall be filed in the 25 company's corporate records. The action taken shall be 26 effective when all of the directors, or members of the 27 committee, have approved the consent unless the consent 28 specifies a different effective date. 29 (6) If the number of directors provided for in the 30 articles of incorporation be indefinite, the number of 31 directors to be elected, within the minimum and maximum 32 limits set forth in paragraph (2), shall be as provided in 33 the by-laws. The number of directors may be increased or 34 decreased from time to time by amendment to the by-laws. The HB2556 Engrossed -4- LRB9207828JSpcA 1 by-laws may establish a variable range for the size of the 2 board by prescribing a minimum and maximum number of 3 directors. The maximum may not exceed the minimum by more 4 than 5. If a variable range is established, the number of 5 directors may be fixed or changed from time to time, within 6 the minimum and maximum, by the directors or the shareholders 7 without further amendment to the by-laws. 8 (7) (a) A company may indemnify any person who was or is 9 a party or is threatened to be made a party to any 10 threatened, pending or completed action, suit or proceeding, 11 whether civil, criminal, administrative or investigative 12 (other than an action by or in the right of the company) by 13 reason of the fact that he or she is or was a director, 14 officer, employee or agent, against expenses (including 15 attorneys' fees), judgments, fines and amounts paid in 16 settlement actually and reasonably incurred by such person in 17 connection with such action, suit or proceeding, if such 18 person acted in good faith and in a manner he or she 19 reasonably believed to be in, or not opposed to the best 20 interests of the company, and, with respect to any criminal 21 action or proceeding, had no reasonable cause to believe his 22 or her conduct was unlawful. The termination of any action, 23 suit or proceeding by judgment, order, settlement, 24 conviction, or upon a plea of nolo contendere or its 25 equivalent, shall not, of itself, create a presumption that 26 the person did not act in good faith and in a manner which he 27 or she reasonably believed to be in or not opposed to the 28 best interest of the company or, with respect to any criminal 29 action or proceeding, that the person had reasonable cause to 30 believe that his or her conduct was unlawful. 31 (b) A company may indemnify any person who was or is a 32 party, or is threatened to be made a party to any threatened, 33 pending or completed action or suit by or in the right of the 34 company to procure a judgment in its favor by reason of the HB2556 Engrossed -5- LRB9207828JSpcA 1 fact that such person is or was a director, officer, employee 2 or agent of the company, or is or was serving at the request 3 of the company as a director, officer, employee or agent of 4 another company, partnership, joint venture, trust or other 5 enterprise, against expenses (including attorneys' fees) 6 actually and reasonably incurred by such person in connection 7 with the defense or settlement of such action or suit, if 8 such person acted in good faith and in a manner he or she 9 reasonably believed to be in, or not opposed to the best 10 interests of the company, provided that no indemnification 11 shall be made in respect of any claim, issue or matter as to 12 which such person shall have been adjudged to be liable for 13 negligence or misconduct in the performance of his or her 14 duty to the company, unless, and only to the extent that the 15 court in which such action or suit was brought shall 16 determine upon application that, despite the adjudication of 17 liability, but in view of all the circumstances of the case, 18 such person is fairly and reasonably entitled to 19 indemnification for such expenses as the court shall deem 20 proper. 21 (c) To the extent that a director, officer, employee or 22 agent of a company has been successful, on the merits or 23 otherwise, in the defense of any action, suit or proceeding 24 referred to in subsections (a) and (b), or in defense of any 25 claim, issue or matter therein, such person shall be 26 indemnified against expenses (including attorneys' fees) 27 actually and reasonably incurred by such person in connection 28 therewith. 29 (d) Any indemnification under subsections (a) and (b) 30 (unless ordered by a court) shall be made by the company only 31 as authorized in the specific case, upon a determination that 32 indemnification of the director, officer, employee or agent 33 is proper in the circumstances because he or she has met the 34 applicable standard of conduct set forth in subsections (a) HB2556 Engrossed -6- LRB9207828JSpcA 1 or (b). Such determination shall be made (1) by the board of 2 directors by a majority vote of a quorum consisting of 3 directors who were not parties to such action, suit or 4 proceeding, or (2) if such a quorum is not obtainable, or 5 even if obtainable, if a quorum of disinterested directors so 6 directs, by independent legal counsel in a written opinion, 7 or (3) by the shareholders. 8 (e) Expenses incurred in defending a civil or criminal 9 action, suit or proceeding may be paid by the company in 10 advance of the final disposition of such action, suit or 11 proceeding, as authorized by the board of directors in the 12 specific case, upon receipt of an undertaking by or on behalf 13 of the director, officer, employee or agent to repay such 14 amount, unless it shall ultimately be determined that he or 15 she is entitled to be indemnified by the company as 16 authorized in this Section. 17 (f) The indemnification provided by this Section shall 18 not be deemed exclusive of any other rights to which those 19 seeking indemnification may be entitled under any by-law, 20 agreement, vote of shareholders or disinterested directors, 21 or otherwise, both as to action in his or her official 22 capacity and as to action in another capacity while holding 23 such office, and shall continue as to a person who has ceased 24 to be a director, officer, employee or agent, and shall inure 25 to the benefit of the heirs, executors and administrators of 26 such a person. 27 (g) A company may purchase and maintain insurance on 28 behalf of any person who is or was a director, officer, 29 employee or agent of the company, or who is or was serving at 30 the request of the company as a director, officer, employee 31 or agent of another company, partnership, joint venture, 32 trust or other enterprise, against any liability asserted 33 against such person and incurred by such person in any such 34 capacity, or arising out of his or her status as such, HB2556 Engrossed -7- LRB9207828JSpcA 1 whether or not the company would have the power to indemnify 2 such person against such liability under the provisions of 3 this Section. 4 (h) If a company has paid indemnification or has 5 advanced expenses to a director, officer, employee or agent, 6 the company shall report the indemnification or advance in 7 writing to the shareholders with or before the notice of the 8 next shareholders meeting. 9 (i) For purposes of this Section, references to "the 10 company" shall include, in addition to the surviving company, 11 any merging company (including any company having merged with 12 a merging company) absorbed in a merger which, if its 13 separate existence had continued, would have had the power 14 and authority to indemnify its directors, officers, and 15 employees or agents, so that any person who was a director, 16 officer, employee or agent of such merging company, or was 17 serving at the request of such merging company as a director, 18 officer, employee or agent of another company, partnership, 19 joint venture, trust or other enterprise, shall stand in the 20 same position under the provisions of this Section with 21 respect to the surviving company as such person would have 22 with respect to such merging company if its separate 23 existence had continued. 24 (j) For purposes of this Section, references to "other 25 enterprises" shall include employee benefit plans; references 26 to "fines" shall include any excise taxes assessed on a 27 person with respect to any employee benefit plan; and 28 references to "serving at the request of the company" shall 29 include any service as a director, officer, employee or agent 30 of the company which imposes duties on, or involves services 31 by such director, officer, employee, or agent with respect to 32 any employee benefit plan, its participants, or 33 beneficiaries. A person who acted in good faith and in a 34 manner he or she reasonably believed to be in the best HB2556 Engrossed -8- LRB9207828JSpcA 1 interests of the participants and beneficiaries of any 2 employee benefit plan shall be deemed to have acted in a 3 manner "not opposed to the best interest of the company" as 4 referred to in this Section. 5 (Source: P.A. 88-648, eff. 9-16-94.) 6 (215 ILCS 5/40) (from Ch. 73, par. 652) 7 Sec. 40. Directors or trustees. 8 (1) After the date of incorporation, as determined by 9 Section 48, and until the first meeting of the members, the 10 incorporators shall have the powers and perform the duties 11 ordinarily possessed and exercised by a board of directors. 12 (2) Upon the issuance of a certificate of authority to a 13 company organized under this Article, the corporate powers 14 shall be exercised by, and its business and affairs shall be 15 under the control of, a board of directors or trustees 16 composed of not less than 3 nor more than 21 natural persons 17 who are members and who are at least 18 years of age and at 18 least 3 of whom are residents and citizens of this State. 19 After June 30, 2002, at least 20%, but not less than one, of 20 the directors of a company that is not subject to Section 21 131.20b shall be persons who are not officers or employees of 22 the company. A person convicted of a felony may not be a 23 director, and all directors shall be of good character and 24 known professional, administrative, or business ability, such 25 business ability to include a practical knowledge of 26 insurance, finance, or investment. The first board of 27 directors or trustees shall be elected at the first meeting 28 of the members, and all directors or trustees shall be 29 elected annually thereafter, except only as provided in 30 subsection (3). 31 (3) The articles of incorporation may provide for the 32 division of the board into classes, as nearly equal in number 33 as possible, and fix the term of office for each class, but HB2556 Engrossed -9- LRB9207828JSpcA 1 no term shall be for more than 3 years. 2 (4) Meetings of the board of directors or trustees, 3 regular or special, may be held either within or without the 4 State. Meetings of the board of directors or trustees shall 5 be upon such notice as the by-laws may prescribe. Attendance 6 of a director or trustee at any meeting shall constitute a 7 waiver of notice of such meeting except where a director or 8 trustee attends the meeting for the express purpose of 9 objecting to the transaction of any business because the 10 meeting is not lawfully called or convened. Neither the 11 business to be transacted at, nor the purpose of, any regular 12 or special meeting of the board of directors or trustees need 13 be specified in the notice or waiver of notice of such 14 meeting, unless expressly otherwise provided by this Code. 15 Unless specifically prohibited by the articles of 16 incorporation or by-laws, members of the board of directors 17 or of any committee of the board of directors may participate 18 in and act at any meeting of such board or committee through 19 the use of a conference telephone or other communications 20 equipment by means of which all persons participating in the 21 meeting can hear each other. Participation in such meeting 22 shall constitute attendance and presence in person at the 23 meeting of the person or persons so participating. Unless 24 specifically prohibited by the articles of incorporation or 25 by-laws, members of the board of directors or of any 26 committee of the board of directors may take action without a 27 meeting, if a consent in writing setting forth the action so 28 taken shall be signed by all of the directors entitled to 29 vote with respect to the subject matter thereof, or by all of 30 the members of such committee, as the case may be. The 31 consent shall be evidenced by one or more written approvals, 32 each of which sets forth the action taken and bears the 33 signature of one or more directors or committee members. All 34 approvals evidencing the consent shall be filed in the HB2556 Engrossed -10- LRB9207828JSpcA 1 company's corporate records. The action taken shall be 2 effective when all of the directors, or members of the 3 committee, have approved the consent unless the consent 4 specifies a different effective date. 5 (5) A company may indemnify any person in conformance 6 with subsection (7) of Section 10. 7 (Source: P.A. 86-632.) 8 (215 ILCS 5/131.20a) (from Ch. 73, par. 743.20a) 9 Sec. 131.20a. Prior notification of transactions; 10 dividends and distributions. 11 (1) (a) The following transactions between a domestic 12 company and any person in its holding company system may not 13 be entered into unless the company has notified the Director 14 in writing of its intention to enter into such transaction at 15 least 30 days prior thereto, or such shorter period as the 16 Director may permit, and the Director has not disapproved it 17 within such period: 18 (i) Sales, purchases, exchanges of assets, loans or 19 extensions of credit, guarantees, investments, or any 20 other transaction (A) that involvesinvolvingthe 21 transfer of assets from or liabilities to a company equal 22 to or exceeding the lesser of 3% of the company's 23 admitted assets or 25% of its surplus as regards 24 policyholders as of the 31st day of December next 25 preceding or (B) that is proposed when the domestic 26 company is not eligible to declare and pay a dividend or 27 other distribution pursuant to the provisions of Section 28 27. 29 (ii) Loans or extensions of credit to any person 30 that is not an affiliate (A) thatwhichinvolve the 31 lesser of 3% of the company's admitted assets or 25% of 32 the company's surplus, each as of the 31st day of 33 December next preceding, made with the agreement or HB2556 Engrossed -11- LRB9207828JSpcA 1 understanding that the proceeds of such transactions, in 2 whole or in substantial part, are to be used to make 3 loans or extensions of credit to, to purchase assets of, 4 or to make investments in, any affiliate of the company 5 making such loans or extensions of credit or (B) that are 6 proposed when the domestic company is not eligible to 7 declare and pay a dividend or other distribution pursuant 8 to the provisions of Section 27. 9 (iii) Reinsurance agreements or modifications 10 thereto, including those agreements that may require as 11 consideration the transfer of assets from an insurer to a 12 nonaffiliate, if an agreement or understanding exists 13 between the insurer and nonaffiliate that any portion of 14 those assets will be transferred to one or more 15 affiliates of the insurer. 16 (iv) All management agreements, service contracts, 17 cost-sharing arrangements, and any other contracts 18 providing for the rendering of services on a regular 19 systematic basis. 20 (v) Any series of the previously described 21 transactions that are substantially similar to each 22 other, that take place within any 180 day period, and 23 that in total are equal to or exceed the lesser of 3% of 24 the domestic insurer's admitted assets or 25% of its 25 policyholders surplus, as of the 31st day of the December 26 next preceding. 27 (vi) Any other material transaction that the 28 Director by rule determines might render the company's 29 surplus as regards policyholders unreasonable in relation 30 to the company's outstanding liabilities and inadequate 31 to its financial needs or may otherwise adversely affect 32 the interests of the company's policyholders or 33 shareholders. 34 Nothing herein contained shall be deemed to authorize or HB2556 Engrossed -12- LRB9207828JSpcA 1 permit any transactions that, in the case of an insurer not a 2 member of the same holding company system, would be otherwise 3 contrary to law. 4 (b) Any transaction or contract otherwise described in 5 paragraph (a) of this subsection that is between a domestic 6 insurer and any person that is not its affiliate and that 7 precedes or follows within 180 days or is concurrent with a 8 similar transaction between that nonaffiliate and an 9 affiliate of the domestic company and that involves amounts 10 that are equal to or exceed the lesser of 3% of the domestic 11 insurer's admitted assets or 25% of its surplus as regards 12 policyholders at the end of the prior year may not be entered 13 into unless the company has notified the Director in writing 14 of its intention to enter into the transaction at least 30 15 days prior thereto or such shorter period as the Director may 16 permit, and the Director has not disapproved it within such 17 period. 18 (c) A company may not enter into transactions which are 19 part of a plan or series of like transactions with any person 20 within the holding company system if the purpose of those 21 separate transactions is to avoid the statutory threshold 22 amount and thus avoid the review that would occur otherwise. 23 If the Director determines that such separate transactions 24 were entered into for such purpose, he may exercise his 25 authority under subsection (2) of Section 131.24. 26 (d) The Director, in reviewing transactions pursuant to 27 paragraph (a), shall consider whether the transactions comply 28 with the standards set forth in Section 131.20 and whether 29 they may adversely affect the interests of policyholders. 30 (e) The Director shall be notified within 30 days of any 31 investment of the domestic insurer in any one corporation if 32 the total investment in that corporation by the insurance 33 holding company system exceeds 10% of that corporation's 34 voting securities. HB2556 Engrossed -13- LRB9207828JSpcA 1 (f) Except for those transactions subject to approval 2 under other Sections of this Code, any such transaction or 3 agreements which are not disapproved by the Director may be 4 effective as of the date set forth in the notice required 5 under this Section. 6 (g) If a domestic insurer enters into a transaction 7 described in this subsection without having given the 8 required notification, the Director may cause the insurer to 9 pay a civil forfeiture of not more than $250,000. Each 10 transaction so entered shall be considered a separate 11 offense. 12 (2) No domestic company subject to registration under 13 Section 131.13 may pay any extraordinary dividend or make any 14 other extraordinary distribution to its securityholders 15 until: (a) 30 days after the Director has received notice of 16 the declaration thereof and has not within such period 17 disapproved the payment, or (b) the Director approves such 18 payment within the 30-day period. For purposes of this 19 subsection, an extraordinary dividend or distribution is any 20 dividend or distribution of cash or other property whose fair 21 market value, together with that of other dividends or 22 distributions, made within the period of 12 consecutive 23 months ending on the date on which the proposed dividend is 24 scheduled for payment or distribution exceeds the greater of: 25 (a) 10% of the company's surplus as regards policyholders as 26 of the 31st day of December next preceding, or (b) the net 27 income of the company for the 12-month period ending the 31st 28 day of December next preceding, but does not include pro rata 29 distributions of any class of the company's own securities. 30 Notwithstanding any other provision of law, the company 31 may declare an extraordinary dividend or distribution which 32 is conditional upon the Director's approval, and such a 33 declaration confers no rights upon security holders until: 34 (a) the Director has approved the payment of the dividend or HB2556 Engrossed -14- LRB9207828JSpcA 1 distribution, or (b) the Director has not disapproved the 2 payment within the 30-day period referred to above. 3 (Source: P.A. 90-655, eff. 7-30-98.) 4 (215 ILCS 5/131.20b new) 5 Sec. 131.20b. Controlled insurers; management; 6 directors. 7 (1) Notwithstanding the control of a domestic insurer by 8 any person, the officers and directors of the insurer shall 9 not thereby be relieved of any obligation or liability to 10 which they would otherwise be subject by law, and the insurer 11 shall be managed so as to assure its separate operating 12 identity consistent with Article VIII 1/2 of this Code. 13 (2) Nothing in this Section shall preclude a domestic 14 insurer from having or sharing a common management or a 15 cooperative or joint use of personnel, property, or services 16 with one or more affiliated persons under arrangements 17 meeting the standards and requirements of Sections 131.20 and 18 131.20a. 19 (3) After June 30, 2002, not less than one-third of the 20 directors of a domestic insurer that is a member of an 21 insurance holding company system shall be persons who are not 22 officers or employees of the insurer or of any entity 23 controlling, controlled by, or under common control with the 24 insurer and who are not beneficial owners of a controlling 25 interest in the voting stock of the insurer or any such 26 entity. At least one such person shall be included in any 27 quorum for the transaction of business at any meeting of the 28 board of directors or any committee thereof. 29 (4) Subsection (3) of this Section does not apply to a 30 domestic insurer if the entity controlling the insurer, 31 whether directly or through an intermediate subsidiary, has a 32 board of directors composed in accordance with that 33 subsection. HB2556 Engrossed -15- LRB9207828JSpcA 1 (5) Subsection (3) of this Section does not apply to a 2 domestic insurer if the ultimate controlling party of the 3 domestic insurer is a corporation whose equity securities or 4 equivalent instruments are listed on the New York Stock 5 Exchange. 6 (215 ILCS 5/187) (from Ch. 73, par. 799) 7 Sec. 187. Scope of Article. 8 (1) This Article shall apply to every corporation, 9 association, society, order, firm, company, partnership, 10 individual, and aggregation of individuals to which any 11 Article of this Code is applicable, or which is subject to 12 examination, visitation or supervision by the Director under 13 any provision of this Code or under any law of this State, or 14 which is engaging in or proposing or attempting to engage in 15 or is representing that it is doing an insurance or surety 16 business, or is undertaking or proposing or attempting to 17 undertake to provide or arrange for health care services as a 18 health care plan as defined in subsection (7) of Section 1-2 19 of the Health Maintenance Organization Act, including the 20 exchanging of reciprocal or inter-insurance contracts between 21 individuals, partnerships and corporations in this State, or 22 which is in the process of organization for the purpose of 23 doing or attempting or intending to do such business, 24 anything as to any such corporation, association, society, 25 order, firm, company, partnership, individual or aggregation 26 of individuals provided in this Code or elsewhere in the laws 27 of this State to the contrary notwithstanding. 28 (2) The word "company" as used in this Article includes 29 all of the corporations, associations, societies, orders, 30 firms, companies, partnerships, and individuals specified in 31 subsectionssubsection(1), (4), and (5) of this Section and 32 agents, managing general agents, brokers, premium finance 33 companies, insurance holding companies, and all other HB2556 Engrossed -16- LRB9207828JSpcA 1 non-risk bearing entities or persons engaged in any aspect of 2 the business of insurance on behalf of an insurer against 3 which a receivership proceeding has been or is being filed 4 under this Article, including, but not limited to, entities 5 or persons that provide management, administrative, 6 accounting, data processing, marketing, underwriting, claims 7 handling, or any other similar services to that insurer, 8 whether or not those entities are licensed to engage in the 9 business of insurance in Illinois, if the entity or person is 10 an affiliate of that insurerthe word "assets" as used in11this article includes all deposits and funds of a special or12trust nature. 13 (3) The word "court" shall mean the court before which 14 the conservation, rehabilitation, or liquidation proceeding 15 of the company is pending, or the judge presiding in such 16 proceedings. 17 (4) The word "affiliate" as used in this Article means a 18 person that directly, or indirectly through one or more 19 intermediaries, controls, is controlled by, or is under 20 common control with, the person specified. 21 (5) The word "person" as used in this Article means an 22 individual, an aggregation of individuals, a partnership, or 23 a corporation. 24 (6) The word "assets" as used in this Article includes 25 all deposits and funds of a special or trust nature. 26 (7) The words "receivership proceedings" mean any 27 conservation, rehabilitation, liquidation, or ancillary 28 receivership. 29 (Source: P.A. 87-1012.) 30 (215 ILCS 5/188) (from Ch. 73, par. 800) 31 Sec. 188. Grounds for rehabilitation and liquidation of a 32 domestic company or an unauthorized foreign or alien company. 33 Whenever any domestic company or any unauthorized foreign or HB2556 Engrossed -17- LRB9207828JSpcA 1 alien company: 2 1. is insolvent; 3 2. has failed or refused to submit its books, 4 papers, accounts, records or affairs to the reasonable 5 inspection or examination of the Director or his 6 actuaries, supervisors, deputies, or examiners; 7 3. has concealed, removed, altered, destroyed or 8 failed to establish and maintain books, records, 9 documents, accounts, vouchers and other pertinent 10 material adequate for the determination of its financial 11 condition by examination under Sections 132 through 132.7 12 or has failed to properly administer claims and to 13 maintain claims records which are adequate for the 14 determination of its outstanding claims liability; 15 4. has failed or refused to observe an order of the 16 Director to make good within the time prescribed by law 17 any deficiency, whenever its capital and minimum required 18 surplus, if a stock company, or its required surplus, if 19 a company other than stock, has become impaired; 20 5. has, by articles of consolidation, contract of 21 reinsurance or otherwise, transferred or attempted to 22 transfer its entire property or business not in 23 conformity with this Code, or entered into any 24 transaction the effect of which is to merge substantially 25 its entire property or business in any other company 26 without having first obtained the written approval of the 27 Director under this Code; 28 6. is found to be in such condition that its 29 further transaction of business would be hazardous to its 30 policyholders, or to its creditors, or to the public; 31 7. has violated its charter or any law of this 32 State or has exceeded or is exceeding its corporate 33 powers; 34 8. has an officer who has refused upon reasonable HB2556 Engrossed -18- LRB9207828JSpcA 1 demand to be examined under oath touching its affairs; 2 9. is found to be in such condition that it could 3 not meet the requirements for organization and 4 authorization as required by law, except as to the amount 5 of the original surplus required of a stock company in 6 Section 13, and except as to the amount of the surplus 7 required of a mutual company in excess of the minimum 8 surplus required by this Code to be maintained, or either 9 an authorized control level event or a mandatory control 10 level event as set forth in Article IIA exists; 11 10. has ceased for the period of one year to 12 transact insurance business; 13 11. has commenced, or has attempted to commence, 14 any voluntary liquidation or dissolution proceeding, or 15 any proceeding to procure the appointment of a receiver, 16 liquidator, rehabilitator, sequestrator, or a similar 17 officer for itself; 18 12. is a party, whether plaintiff or defendant in 19 any proceeding in which an application is made for the 20 appointment of a receiver, custodian, liquidator, 21 rehabilitator, sequestrator, or similar officer for such 22 company or its property, or a receiver, custodian, 23 liquidator, rehabilitator, sequestrator or similar 24 officer, for such company or its property is appointed by 25 any court, or such appointment is imminent; 26 13. consents by a majority of its directors, 27 stockholders or members; 28 14. has not organized and obtained a certificate 29 authorizing it to commence the transaction of its 30 business within the period of time prescribed by the 31 sections of this Code under which it is or proposes to be 32 organized; or 33 15. has failed or refused to pay any valid final 34 judgment within 30 days after the rendition thereof, or HB2556 Engrossed -19- LRB9207828JSpcA 1 whenever it appears to the Director that any person has 2 committed a violation of Article VIII 1/2 with the result 3 described in Section 131.26, 4 sufficient grounds shall be deemed to exist for the 5 commencement of rehabilitation or liquidation proceedings. 6 With respect to a domestic company, the Director must 7 report, and with respect to an unauthorized foreign or alien 8 company, the Director may report any such case to the 9 Attorney General of this State whose duty it shall be to 10 apply forthwith by complaint on relation of the Director in 11 the name of the People of the State of Illinois, as 12 plaintiff, to the Circuit Court of Cook County, the Circuit 13 Court of Sangamon County, or the circuit court of the county 14 in which such company has, or last had its principal office, 15 for an order to rehabilitate or liquidate the defendant 16 company as provided in this Article, and for such other 17 relief as the nature of the case and the interests of its 18 policyholders, creditors, members, stockholders or the public 19 may require. 20 When, upon investigation, the Director finds that a 21 company is engaged in any aspect of the business of insurance 22 on behalf of or in association with any domestic insurance 23 company, against which a receivership proceeding has been or 24 is being filed under this Article,the controlling interest25of any domestic insurance company has been acquired by26another corporation and that the purchasing corporation is27operating the acquired companyin a manner thatwhichappears 28 to be detrimental to policyholders, creditors, members, 29 shareholders, or theinterests of the persons insured,30minority shareholders and the generalpublic, the Director 31 mayafter notice and hearing under Article XXIV issue an32order stating such finding andreport such case to the 33 Attorney General of this State, whose duty it is to apply 34 forthwith by complaint on relation of the Director in the HB2556 Engrossed -20- LRB9207828JSpcA 1 name of the People of the State of Illinois, as plaintiff, to 2 theCircuit Court of Cook County, the Circuit Court of3Sangamon County, or the circuitcourt in whichofthe 4 receivership proceeding is pendingcounty in which such5acquired or controlled company has, or last had its principal6office,for an order to appoint the Director as receiver to 7 assume control of the assets and operation of the company 8 pending a complete investigation and determination of the 9 rights of the policyholders, creditors, members, 10 shareholders, and the general public. 11 (Source: P.A. 88-364; 89-97, eff. 7-7-95; 89-206, eff. 12 7-21-95; 89-626, eff. 8-9-96.) 13 Section 10. The Health Maintenance Organization Act is 14 amended by changing Section 3-1 and adding Section 2-10 as 15 follows: 16 (215 ILCS 125/2-10 new) 17 Sec. 2-10. Directors. 18 (a) After June 30, 2002, the corporate powers for 19 domestic organizations issued a certificate of authority 20 under this Act must be exercised by, and its business and 21 affairs must be under the control of, a board of directors 22 composed of not less than 3 nor more than 21 natural persons 23 who are at least 18 years of age. At least 3 of the 24 directors must be residents and citizens of this State. A 25 person convicted of a felony may not be a director. A 26 director must be of good character and known professional, 27 administrative, or business ability. The requisite ability 28 must include a practical knowledge of managed health care, 29 insurance, finance, or investment. 30 (b) After June 30, 2002, not less than one-third of the 31 directors of a domestic organization that is not a controlled 32 insurer for purposes of Section 131.20b of the Illinois HB2556 Engrossed -21- LRB9207828JSpcA 1 Insurance Code must be persons who are not officers or 2 employees of the organization. At least one of those persons 3 must be included in any quorum for the transaction of 4 business at any meeting of the board of directors or any 5 committee thereof. 6 (215 ILCS 125/3-1) (from Ch. 111 1/2, par. 1407.3) 7 Sec. 3-1. Investment Regulations. 8 (a) Any health maintenance organization may invest its 9 funds as provided in this Section and not otherwise. A 10 health maintenance organization that is organized as an 11 insurance company may also acquire the investment assets 12 authorized for an insurance company pursuant to the laws 13 applicable to an insurance company in the organization's 14 state of domicile. Notwithstanding the provisions of this 15 Section, the Director may, after notice and hearing, order an 16 organization to limit or withdraw from certain investments, 17 or discontinue certain investment practices, to the extent 18 the Director finds that such investments or investment 19 practices are hazardous to the financial condition of the 20 organization. 21 (b) No investment or loan shall be made or engaged in by 22 any health maintenance organization unless the same have been 23 authorized or ratified by the board of directors or by a 24 committee thereof charged with the duty of supervising 25 investments and loans. Nothing contained in this subsection 26 shall prevent the board of directors of any such organization 27 from depositing any of its securities with a committee 28 appointed for the purpose of protecting the interest of 29 security holders or with the authorities of any state where 30 it is necessary to do so in order to secure permission to 31 transact its appropriate business therein, and nothing 32 contained in this subsection shall prevent the board of 33 directors of such organization from depositing any securities HB2556 Engrossed -22- LRB9207828JSpcA 1 as collateral for the securing of any bond required for the 2 business of the organization. 3 (c) No health maintenance organization shall pay any 4 commission or brokerage for the purchase or sale of property 5 whether real or personal, in excess of that usual and 6 customary at the time and in the locality where such 7 purchases or sales are made, and information regarding 8 payments of commissions and brokerage shall be maintained. 9 (d) A health maintenance organization may not directly 10 or indirectly, unless it has notified the Director in writing 11 of its intention to enter into the transaction at least 30 12 days prior thereto, or any shorter period as the Director may 13 permit, and the Director has not disapproved it within that 14 period: 15 (1) make a loan to or other investment in an 16 officer or director of the organization or a person in 17 which the officer or director has any direct or indirect 18 financial interest; 19 (2) make a guarantee for the benefit of or in favor 20 of an officer or director of the organization or a person 21 in which the officer or director has any direct or 22 indirect financial interest; or 23 (3) enter into an agreement for the purchase or 24 sale of property from or to an officer or director of the 25 organization or a person in which the officer or director 26 has any direct or indirect financial interest. 27 For the purposes of this Section, an officer or director 28 shall not be deemed to have a financial interest by reason of 29 an interest that is held directly or indirectly through the 30 ownership of equity interests representing less than 2% of 31 all outstanding equity interests issued by a person that is a 32 party to the transaction, or solely by reason of that 33 individual's position as a director or officer of a person 34 that is a party to the transaction. HB2556 Engrossed -23- LRB9207828JSpcA 1 This subsection does not apply to a transaction between 2 an organization and any of its subsidiaries or affiliates 3 that is entered into in compliance with Section 131.20a of 4 the Illinois Insurance Code, other than a transaction between 5 an insurer and its officer or director. 6No such Health Maintenance Organization shall knowingly7invest in or loan upon any property, directly or indirectly,8whether real or personal, in which any officer or director of9such organization has a financial interest, nor shall any10such organization make a loan of any kind to any officer or11director of such organization, except that this subsection12shall not apply in circumstances where the financial interest13of such officer or director is only nominal, trifling or so14remote as not to give rise to a conflict of interest. In any15case, the Director may approve a transaction between such16organization and its officers or directors under this17subsection if he is satisfied that (i) the transaction is18entered into in good faith for the advantage and benefit of19the organization, (ii) the amount of the proposed investment20or loan does not violate any other provision of this Section21nor exceed the reasonable, normal value of the property or22the interest which the organization proposes to acquire, and23that the transaction is otherwise fair and reasonable, and24(iii) the transaction will not adversely affect, to any25substantial degree, the liquidity of the organization's26investment or its ability thereafter to comply with27requirements of this Act or the payment of its claims and28obligations.29 (e) In applying the percentage limitations imposed by 30 this Section there shall be used as a base the total of all 31 assets which would be admitted by this Section without regard 32 to percentage limitations. All legal measurements used as a 33 base in the determination of all investment qualifications 34 shall consist of the amounts determined at the most recent HB2556 Engrossed -24- LRB9207828JSpcA 1 year end adjusted for subsequent acquisition and disposition 2 of investments. 3 (f) Valuation of investments. Investments shall be 4 valued in accordance with the published valuation standards 5 of the National Association of Insurance Commissioners. 6 Securities investments as to which the National Association 7 of Insurance Commissioners has not published valuation 8 standards in its Valuations of Securities manual or its 9 successor publication shall be valued as follows: 10 (1) All obligations having a fixed term and rate shall, 11 if not in default as to principal or interest, be valued as 12 follows: if purchased at par, at the par value; if purchased 13 above or below par, on the basis of the purchase price 14 adjusted so as to bring the value to par at maturity and so 15 as to yield in the meantime the effective rate of interest at 16 which the purchase was made; 17 (2) Common, preferred or guaranteed stocks shall be 18 valued at market value. 19 (3) Other security investments shall be valued in 20 accordance with regulations promulgated by the Director 21 pursuant to paragraph (6) of this subsection. 22 (4) Other investments, including real property, shall be 23 valued in accordance with regulations promulgated by the 24 Director pursuant to paragraph (6) of this subsection, but in 25 no event shall such other investments be valued at more than 26 the purchase price. The purchase price for real property 27 includes capitalized permanent improvements, less 28 depreciation spread evenly over the life of the property or, 29 at the option of the company, less depreciation computed on 30 any basis permitted under the Internal Revenue Code and 31 regulations thereunder. Such investments that have been 32 affected by permanent declines in value shall be valued at 33 not more than market value. 34 (5) Any investment, including real property, not HB2556 Engrossed -25- LRB9207828JSpcA 1 purchased by the Health Maintenance Organization but acquired 2 in satisfaction of a debt or otherwise shall be valued in 3 accordance with the applicable procedures for that type of 4 investment contained in this subsection. For purposes of 5 applying the valuation procedures, the purchase price shall 6 be deemed to be the market value at the time the investment 7 is acquired or, in the case of any investment acquired in 8 satisfaction of debt, the amount of the debt, including 9 interest, taxes and expenses, whichever amount is less. 10 (6) The Director shall promulgate rules and regulations 11 for determining and calculating values to be used in 12 financial statements submitted to the Department for 13 investments. 14 (g) Definitions. As used in this Section, unless the 15 context otherwise requires. 16 (1) "Business Corporation" means corporations organized 17 for other than not for profit purposes. 18 (2) "Business Entity" includes sole proprietorships, 19 corporations, associations, partnerships and business trusts. 20 (3) "Bank or Trust Company" means any bank or trust 21 company organized under the laws of the United States or any 22 State thereof if said bank or trust company is regularly 23 examined pursuant to such laws and said bank or trust company 24 has the insurance protection afforded by an agency of the 25 United States government. 26 (4) "Capital" means capital stock paid-up, if any, and 27 its use in a provision does not imply that a non-profit 28 Health Maintenance Organization without stated capital stock 29 is excluded from the provision. The capital of such an 30 organization will be zero. 31 (5) "Direct" when used in connection with "obligation" 32 means that the designated obligor shall be primarily liable 33 on the instrument representing the obligation. 34 (6) "Facility" means and includes real estate and any HB2556 Engrossed -26- LRB9207828JSpcA 1 and all forms of tangible personal property and services used 2 constituting an operating unit. 3 (7) "Guaranteed or insured" means that the guarantor or 4 insurer will perform or insure the obligation of the obligor 5 or will purchase the obligation to the extent of the guaranty 6 or insurance. 7 (8) "Mortgage" shall include a trust deed or other lien 8 on real property securing an obligation for the payment of 9 money. 10 (9) "Servicer" means a business entity that has a 11 contractual obligation to service a pool of mortgage loans. 12 The service provided shall include, but is not limited to, 13 collection of principal and interest, keeping the accounts 14 current, maintaining or confirming in force hazard insurance 15 and tax status and providing supportive accounting services. 16 (10) "Single credit risk" means the direct, guaranteed 17 or insured obligations of any one business entity including 18 affiliates thereof. 19 (11) "Surplus" means the amount properly shown as total 20 net worth on a company's balance sheet, plus all voluntary 21 reserves, but not including capital paid-up. 22 (12) "Tangible net worth" means the par value of all 23 issued and outstanding capital stock of a corporation (or in 24 the case of shares having no par value, the stated value) and 25 the amounts of all surplus accounts less the sum of (a) such 26 intangible assets as deferred charges, organization and 27 development expense, discount and expense incurred in 28 securing capital, good will, trade-marks, trade-names and 29 patents, (b) leasehold improvements, and (c) any reserves 30 carried by the corporation and not otherwise deducted from 31 assets. 32 (13) "Unconditional" when used in connection with 33 "obligation" means that nothing remains to be done or to 34 occur to make the designated obligor liable on the HB2556 Engrossed -27- LRB9207828JSpcA 1 instrument, and that the legal holder shall have the status 2 at least equal to that of general creditor of the obligor. 3 (h) Authorized investments. Any Health Maintenance 4 Organization, except those organized as an insurance company, 5 may acquire the assets set forth in paragraphs 1 through 17, 6 inclusive. A Health Maintenance Organization that is 7 organized as an insurance company may acquire the investment 8 assets authorized for an insurance company pursuant to the 9 laws applicable to an insurance company in the organization's 10 state of domicile. Any restriction, exclusion or provision 11 appearing in any paragraph shall apply only with respect to 12 the authorization of the particular paragraph in which it 13 appears and shall not constitute a general prohibition and 14 shall not be applicable to any other paragraph. The 15 qualifications or disqualifications of an investment under 16 one paragraph shall not prevent its qualification in whole or 17 in part under another paragraph, and an investment authorized 18 by more than one paragraph may be held under whichever 19 authorizing paragraph the organization elects. An investment 20 which qualified under any paragraph at the time it was 21 acquired or entered into by an organization shall continue to 22 be qualified under that paragraph. An investment in whole or 23 in part may be transferred from time to time, at the election 24 of the organization, to the authority of any paragraph under 25 which it qualifies, whether originally qualifying thereunder 26 or not. 27 (1) Direct obligations of the United States for the 28 payment of money, or obligations for the payment of money to 29 the extent guaranteed or insured as to the payment of 30 principal and interest by the United States. 31 (2) Direct obligations for the payment of money, issued 32 by an agency or instrumentality of the United States, or 33 obligations for the payment of money to the extent guaranteed 34 or insured as to the payment of principal and interest by an HB2556 Engrossed -28- LRB9207828JSpcA 1 agency or instrumentality of the United States. 2 (3) Direct, general obligations of any state of the 3 United States for the payment of money, or obligations for 4 the payment of money to the extent guaranteed or insured as 5 to the payment of principal and interest by any state of the 6 United States, on the following conditions: 7 (i) Such state has the power to levy taxes for the 8 prompt payment of the principal and interest of such 9 obligations; and 10 (ii) Such state shall not be in default in the payment 11 of principal or interest on any of its direct, guaranteed or 12 insured obligations at the date of such investment. 13 (4) Direct, general obligations of any political 14 subdivision of any state of the United States for the payment 15 of money, or obligations for the payment of money to the 16 extent guaranteed as to the payment of principal and interest 17 by any political subdivision of any state of the United 18 States, on the following conditions: 19 (i) The obligations are payable or guaranteed from ad 20 valorem taxes; 21 (ii) Such political subdivision is not in default in the 22 payment of principal or interest on any of its direct or 23 guaranteed obligations; 24 (iii) No investment shall be made under this paragraph 25 in obligations which are secured only by special assessments 26 for local improvements; and 27 (iv) An organization shall not invest under this 28 paragraph more than 2% of its admitted assets in obligations 29 issued or guaranteed by any one such political subdivision. 30 (5) Anticipation obligations of any political 31 subdivision of any state of the United States, including but 32 not limited to bond anticipation notes, tax anticipation 33 notes and construction anticipation notes, for the payment of 34 money within 12 months from the issuance of the obligation, HB2556 Engrossed -29- LRB9207828JSpcA 1 on the following conditions: 2 (i) Such anticipation notes must be a direct obligation 3 of the issuer under conditions set forth in paragraph 4; 4 (ii) Such political subdivision is not in default in the 5 payment of the principal or interest on any of its direct 6 general obligations or any obligation guaranteed by such 7 political subdivision; 8 (iii) The anticipated funds must be specifically pledged 9 to secure the obligation; 10 (iv) An organization shall not invest under this 11 paragraph more than 2% of its admitted assets in the 12 anticipation obligations issued by any one such political 13 subdivision. 14 (6) Obligations of any state of the United States, a 15 political subdivision thereof, or a public instrumentality of 16 any one or more of the foregoing, for the payment of money, 17 on the following conditions: 18 (i) The obligations are payable from revenues or 19 earnings of a public utility of such state, political 20 subdivision, or public instrumentality which are specifically 21 pledged therefor; 22 (ii) The law under which the obligations are issued 23 requires such rates for service shall be charged and 24 collected at all times that they will produce sufficient 25 revenue or earnings together with any other revenues or 26 moneys pledged to pay all operating and maintenance charges 27 of the public utility and all principal and interest on such 28 obligations; 29 (iii) No prior or parity obligations payable from the 30 revenues or earnings of that public utility are in default at 31 the date of such investment; 32 (iv) An organization shall not invest more than 20% of 33 its admitted assets under this paragraph; and 34 (v) An organization shall not invest under this Section HB2556 Engrossed -30- LRB9207828JSpcA 1 more than 2% of its admitted assets in the revenue 2 obligations issued in connection with any one facility. 3 (7) Obligations of any state of the United States, a 4 political subdivision thereof, or a public instrumentality of 5 any of the foregoing, for the payment of money, on the 6 following conditions: 7 (i) The obligations are payable from revenues or 8 earnings, excluding revenues or earnings from public 9 utilities, specifically pledged therefor by such state, 10 political subdivision or public instrumentality; 11 (ii) No prior or parity obligation of the same issuer 12 payable from revenues or earnings from the same source has 13 been in default as to principal or interest during the 5 14 years next preceding the date of such investment, but such 15 issuer need not have been in existence for that period, and 16 obligations acquired under this paragraph may be newly 17 issued; 18 (iii) An organization shall not invest in excess of 20% 19 of its admitted assets under this paragraph; and 20 (iv) An organization shall not invest under this 21 paragraph more than 2% of its admitted assets in the revenue 22 obligations issued in connection with any one facility; 23 (v) An organization shall not invest under this 24 paragraph more than 2% of its admitted assets in revenue 25 obligations payable from revenue or earning sources which are 26 the contractual responsibility of any one single credit risk. 27 (8) Direct, unconditional obligations of a solvent 28 business corporation for the payment of money, including 29 obligations to pay rent for equipment used in its business or 30 obligations for the payment of money to the extent guaranteed 31 or insured as to the payment of principal and interest by any 32 solvent business corporation, on the following conditions: 33 (i) The corporation shall be incorporated under the laws 34 of the United States or any state of the United States; HB2556 Engrossed -31- LRB9207828JSpcA 1 (ii) The corporation shall have tangible net worth of 2 not less than $1,000,000; 3 (iii) No such obligation, guarantee or insurance of the 4 corporation has been in default as to principal or interest 5 during the 5 years preceding the date of investment, but the 6 corporation need not have had obligations guarantees or 7 insurance outstanding during that period and need not have 8 been in existence for that period, and obligations acquired 9 under this paragraph may be newly issued; 10 (iv) An organization shall not invest more than 2% of 11 its admitted assets in obligations issued, guaranteed or 12 insured by any one such corporation; 13 (v) An organization may invest under this paragraph up 14 to an additional 2% of its admitted assets in obligations 15 which (i) are issued, guaranteed or insured by any one or 16 more such corporations, each having a tangible net worth of 17 not less than $25,000,000 and (ii) mature within 12 months 18 from the date of acquisition; 19 (vi) An organization may invest not more than 1/2 of 1% 20 of its admitted assets in such obligations of corporations 21 which do not meet the condition of subparagraph (ii) of this 22 paragraph; and 23 (vii) An organization shall not invest more than 75% of 24 its admitted assets under this paragraph. 25 (9) Direct, unconditional obligations for the payment of 26 money issued or obligations for the payment of money to the 27 extent guaranteed as to principal and interest by a solvent 28 not for profit corporation, on the following conditions: 29 (i) The corporation shall be incorporated under the laws 30 of the United States or of any state of the United States; 31 (ii) The corporation shall have been in existence for at 32 least 5 years and shall have assets of at least $2,000,000; 33 (iii) Revenues or other income from such assets and the 34 services or commodities dispensed by the corporation shall be HB2556 Engrossed -32- LRB9207828JSpcA 1 pledged for the payment of the obligations or guarantees; 2 (iv) No such obligation or guarantee of the corporation 3 has been in default as to principal or interest during the 5 4 years next preceding the date of such investment, but the 5 corporation need not have had obligations or guarantees 6 outstanding during that period and obligations which are 7 acquired under this paragraph may be newly issued; 8 (v) An organization shall not invest more than 15% of 9 its admitted assets under this paragraph; and 10 (vi) An organization shall not invest under this 11 paragraph more than 2% of its admitted assets in the 12 obligations issued or guaranteed by any one such corporation. 13 (10) Direct, unconditional nondemand obligations for the 14 payment of money issued by a solvent bank, mutual savings 15 bank or trust company on the following conditions: 16 (i) The bank, mutual savings bank or trust company shall 17 be incorporated under the laws of the United States, or of 18 any state of the United States; 19 (ii) The bank, mutual savings bank or trust company 20 shall have tangible net worth of not less than $1,000,000; 21 (iii) Such obligations must be of the type which are 22 insured by an agency of the United States or have a maturity 23 of no more than 1 day; 24 (iv) An organization shall not invest under this 25 paragraph more than the amount which is fully insured by an 26 agency of the United States plus 2% of its admitted assets in 27 nondemand obligations issued by any one such financial 28 institution; and 29 (v) An organization may invest under this paragraph up 30 to an additional 8% of its admitted assets in nondemand 31 obligations which (1) are issued by any such banks, mutual 32 savings banks or trust companies, each having a tangible net 33 worth of not less than $25,000,000 and (2) mature within 12 34 months from the date of acquisition. HB2556 Engrossed -33- LRB9207828JSpcA 1 (11) Preferred or guaranteed stocks issued or guaranteed 2 by a solvent business corporation incorporated under the laws 3 of the United States or any state of the United States, on 4 the following conditions: 5 (i) The corporation shall have tangible net worth of not 6 less than $1,000,000; 7 (ii) If such stocks have been outstanding prior to 8 purchase, an organization shall not invest under this 9 paragraph in such stock if prescribed current or cumulative 10 dividends are in arrears; 11 (iii) An organization shall not invest more than 33 1/3% 12 of its admitted assets under this paragraph and an 13 organization shall not invest more than 15% of its admitted 14 assets under this paragraph in stocks which, at the time of 15 purchase, are not Sinking Fund Stocks. An issue of preferred 16 or guaranteed stock shall be a Sinking Fund Stock when (1) 17 such issue is subject to a 100% mandatory sinking fund or 18 similar arrangement which will provide for the redemption of 19 the entire issue over a period not longer than 40 years from 20 the date of purchase; (2) annual mandatory sinking fund 21 installments on each issue commence not more than 10 years 22 from the date of issue; and (3) each annual sinking fund 23 installment provides for the purchase or redemption of at 24 least 2 1/2% of the original number of shares of such issue; 25 and 26 (iv) An organization shall not invest under this 27 paragraph more than 2% of its admitted assets in the 28 preferred or guaranteed stocks of any one such corporation. 29 (12) Common stock issued by any solvent business 30 corporation incorporated under the laws of the United States, 31 or of any state of the United States, on the following 32 conditions: 33 (i) The issuing corporation must have tangible net worth 34 of $1,000,000 or more; HB2556 Engrossed -34- LRB9207828JSpcA 1 (ii) An organization may not invest more than an amount 2 equal to its net worth under this paragraph; and 3 (iii) An organization may not invest under this 4 paragraph an amount equal to more than 10% of its net worth 5 in the common stock of any one corporation. 6 (13) Shares of common stock or units of beneficial 7 interest issued by any solvent business corporation or trust 8 incorporated or organized under the laws of the United 9 States, or of any state of the United States, on the 10 following conditions: 11 (i) If the issuing corporation or trust is advised by an 12 investment advisor which is the organization or an affiliate 13 of the organization, the issuing corporation or trust shall 14 have net assets of $100,000 or more, or if the issuing 15 corporation or trust has an unaffiliated investment advisor, 16 the issuing corporation or trust shall have net assets of 17 $10,000,000 or more; 18 (ii) The issuing corporation or trust is registered as 19 an investment company with the Securities and Exchange 20 Commission under the Investment Company Act of 1940, as 21 amended; 22 (iii) An organization shall not invest under this 23 paragraph more than the greater of $100,000 or 10% of its 24 admitted assets in any one bond fund, municipal bond fund or 25 money market fund; 26 (iv) An organization shall not invest under this 27 paragraph more than 10% of its net worth in any one common 28 stock fund, balanced fund or income fund; 29 (v) An organization shall not invest more than 50% of 30 its admitted assets in bond funds, municipal bond funds and 31 money market funds under this paragraph; and 32 (vi) An organization's investments in common stock 33 funds, balanced funds or income funds when combined with its 34 investments in common stocks made under paragraph (12) shall HB2556 Engrossed -35- LRB9207828JSpcA 1 not exceed the aggregate limitation provided by subparagraph 2 (ii) of paragraph (12). 3 (14) Shares of, or accounts or deposits with savings and 4 loan associations or building and loan associations, on the 5 following conditions: 6 (i) The shares, accounts, or deposits, or investments in 7 any form legally issuable shall be of a withdrawable type and 8 issued by an association which has the insurance protection 9 afforded by the Federal Savings and Loan Insurance 10 Corporation; but nonwithdrawable accounts which are not 11 eligible for insurance by the Federal Savings and Loan 12 Insurance Corporation shall not be eligible for investment 13 under this paragraph; 14 (ii) The association shall have tangible net worth of 15 not less than $1,000,000; 16 (iii) The investment shall be in the name of and owned 17 by the organization, unless the account is under a 18 trusteeship with the organization named as the beneficiary; 19 (iv) An organization shall not invest more than 50% of 20 its admitted assets under this paragraph; and 21 (v) Under this paragraph, an organization shall not 22 invest in any one such association an amount in excess of 2% 23 of its admitted assets or an amount which is fully insured by 24 the Federal Savings and Loan Insurance Corporation, whichever 25 is greater. 26 (15) Direct, unconditional obligations for the payment 27 of money secured by the pledge of any investment which is 28 authorized by any of the preceding paragraphs, on the 29 following conditions: 30 (i) The investment pledged shall by its terms be legally 31 assignable and shall be validly assigned to the organization; 32 (ii) The investment pledged shall have a fair market 33 value which is at least 25% greater than the amount invested 34 under this paragraph, except that a loan may be made up to HB2556 Engrossed -36- LRB9207828JSpcA 1 100% of the full fair market value of collateral that would 2 qualify as an investment under paragraph (1) provided it 3 qualifies under condition (i) of this paragraph; and 4 (iii) An organization's investment under this paragraph 5 when added to its investment of the category of the 6 collateral pledged shall not cause the sum to exceed the 7 limits provided by the paragraph authorizing that category of 8 investments. 9 (16) Real estate (including leasehold estates and 10 leasehold improvements) for the convenient accommodation of 11 the organization's business operations, including home 12 office, branch office, medical facilities and field office 13 operations, on the following conditions: 14 (i) Any parcel of real estate acquired under this 15 paragraph may include excess space for rent to others, if it 16 is reasonably anticipated that such excess will be required 17 by the organization for expansion or if the excess is 18 reasonably required in order to have one or more buildings 19 that will function as an economic unit; 20 (ii) Such real estate may be subject to a mortgage; and 21 (iii) The greater of the admitted value of the asset as 22 determined by subsection (f) or the organization's equity 23 plus all encumbrances on such real estate owned by a company 24 under this paragraph shall not exceed 20% of its admitted 25 assets, except with the permission of the Director if he 26 finds that such percentage of its admitted assets is 27 insufficient to provide convenient accommodation for the 28 company's business; provided, however, an organization that 29 directly provides medical services may invest an additional 30 20% of its admitted assets in such real estate, not requiring 31 the permission of the Director. 32 (17) Any investments of any kind, in the complete 33 discretion of the organization, without regard to any 34 condition of, restriction in, or exclusion from paragraphs HB2556 Engrossed -37- LRB9207828JSpcA 1 (1) to (16), inclusive, and regardless of whether the same or 2 a similar type of investment has been included in or omitted 3 from any such paragraph, on the following condition: 4 (a) An organization shall not invest under this 5 paragraph more than the lesser of (i) 10% of its admitted 6 assets, or (ii) 50% of the amount by which its net worth 7 exceeds the minimum requirements of a new health maintenance 8 organization to qualify for a certificate of authority. 9 (Source: P.A. 90-655, eff. 7-30-98.) 10 Section 99. Effective date. This Act takes effect upon 11 becoming law.