Article VIII - Investments Of Domestic Companies

(215 ILCS 5/Art. VIII heading)

ARTICLE VIII.
INVESTMENTS OF DOMESTIC COMPANIES

(215 ILCS 5/124) (from Ch. 73, par. 736)

Sec. 124.
(Repealed).

(Source: P.A. 83-695. Repealed by P.A. 90-418, eff. 8-15-97.)

(215 ILCS 5/124.1) (from Ch. 73, par. 736.1)

Sec. 124.1.
(Repealed).

(Source: P.A. 86-1156. Repealed by P.A. 90-418, eff. 8-15-97.)

(215 ILCS 5/124.2) (from Ch. 73, par. 736.2)

Sec. 124.2.
(Repealed).

(Source: P.A. 89-97, eff. 7-7-95. Repealed by P.A. 90-418, eff. 8-15-97.)

(215 ILCS 5/124.3) (from Ch. 73, par. 736.3)

Sec. 124.3.
(Repealed).

(Source: P.A. 87-757. Repealed by P.A. 90-418, eff. 8-15-97.)

(215 ILCS 5/124.4) (from Ch. 73, par. 736.4)

Sec. 124.4.
(Repealed).

(Source: Laws 1963, p. 3139. Repealed by P.A. 90-418, eff. 8-15-97.)

(215 ILCS 5/124.5) (from Ch. 73, par. 736.5)

Sec. 124.5.
(Repealed).

(Source: Laws 1963, p. 3139. Repealed by P.A. 90-418, eff. 8-15-97.)

(215 ILCS 5/124.6) (from Ch. 73, par. 736.6)

Sec. 124.6.
(Repealed).

(Source: P.A. 83-695. Repealed by P.A. 90-418, eff. 8-15-97.)

(215 ILCS 5/124.7) (from Ch. 73, par. 736.7)

Sec. 124.7.
(Repealed).

(Source: P.A. 83-695. Repealed by P.A. 90-418, eff. 8-15-97.)

(215 ILCS 5/124.7a) (from Ch. 73, par. 736.7a)

Sec. 124.7a.
(Repealed).

(Source: P.A. 83-695. Repealed by P.A. 90-418, eff. 8-15-97.)

(215 ILCS 5/124.7b) (from Ch. 73, par. 736.7b)

Sec. 124.7b.
(Repealed).

(Source: P.A. 85-1186. Repealed by 90-418, eff. 8-15-97.)

(215 ILCS 5/124.7c) (from Ch. 73, par. 736.7c)

Sec. 124.7c.
(Repealed).

(Source: P.A. 83-695. Repealed by 90-418, eff. 8-15-97.)

(215 ILCS 5/124.8) (from Ch. 73, par. 736.8)

Sec. 124.8.
(Repealed).

(Source: P.A. 83-695. Repealed by 90-418, eff. 8-15-97.)

(215 ILCS 5/124.9) (from Ch. 73, par. 736.9)

Sec. 124.9.
(Repealed).

(Source: Laws 1963, p. 3139. Repealed by 90-418, eff. 8-15-97.)

(215 ILCS 5/124.9a) (from Ch. 73, par. 736.9a)

Sec. 124.9a.
(Repealed).

(Source: P.A. 83-695. Repealed by 90-418, eff. 8-15-97.)

(215 ILCS 5/124.10) (from Ch. 73, par. 736.10)

Sec. 124.10.
(Repealed).

(Source: P.A. 86-1156. Repealed by 90-418, eff. 8-15-97.)

(215 ILCS 5/124.10a) (from Ch. 73, par. 736.10a)

Sec. 124.10a.
(Repealed).

(Source: P.A. 86-1156. Repealed by 90-418, eff. 8-15-97.)

(215 ILCS 5/124.10b) (from Ch. 73, par. 736.10b)

Sec. 124.10b.
(Repealed).

(Source: P.A. 83-695. Repealed by 90-418, eff. 8-15-97.)

(215 ILCS 5/124.11) (from Ch. 73, par. 736.11)

Sec. 124.11.
(Repealed).

(Source: P.A. 83-695. Repealed by 90-418, eff. 8-15-97.)

(215 ILCS 5/124.12) (from Ch. 73, par. 736.12)

Sec. 124.12.
(Repealed).

(Source: Laws 1963, p. 3139. Repealed by 90-418, eff. 8-15-97.)

(215 ILCS 5/124.13) (from Ch. 73, par. 736.13)

Sec. 124.13.
(Repealed).

(Source: Laws 1963, p. 3139. Repealed by 90-418, eff. 8-15-97.)

(215 ILCS 5/124.13a) (from Ch. 73, par. 736.13a)

Sec. 124.13a.
(Repealed).

(Source: P.A. 83-695. Repealed by 90-418, eff. 8-15-97.)

(215 ILCS 5/124.13b) (from Ch. 73, par. 736.13b)

Sec. 124.13b.
(Repealed).

(Source: P.A. 83-695. Repealed by 90-418, eff. 8-15-97.)

(215 ILCS 5/124.13c) (from Ch. 73, par. 736.13c)

Sec. 124.13c.
(Repealed).

(Source: P.A. 83-695. Repealed by 90-418, eff. 8-15-97.)

(215 ILCS 5/124.13d) (from Ch. 73, par. 736.13d)

Sec. 124.13d.
(Repealed).

(Source: P.A. 83-695. Repealed by 90-418, eff. 8-15-97.)

(215 ILCS 5/124.13e) (from Ch. 73, par. 736.13e)

Sec. 124.13e.
(Repealed).

(Source: P.A. 83-695. Repealed by 90-418, eff. 8-15-97.)

(215 ILCS 5/124.14) (from Ch. 73, par. 736.14)

Sec. 124.14.
(Repealed).

(Source: Laws 1963, p. 3139. Repealed by 90-418, eff. 8-15-97.)

(215 ILCS 5/124.15) (from Ch. 73, par. 736.15)

Sec. 124.15.
(Repealed).

(Source: P.A. 83-695. Repealed by 90-418, eff. 8-15-97.)

(215 ILCS 5/124.17) (from Ch. 73, par. 736.17)

Sec. 124.17.
(Repealed).

(Source: P.A. 83-695. Repealed by 90-418, eff. 8-15-97.)

(215 ILCS 5/125a) (from Ch. 73, par. 737a)

Sec. 125a.
(Repealed).

(Source: P.A. 84-805. Repealed by 90-418, eff. 8-15-97.)

(215 ILCS 5/125b) (from Ch. 73, par. 737b)

Sec. 125b.
(Repealed).

(Source: P.A. 86-1156. Repealed by 90-418, eff. 8-15-97.)

(215 ILCS 5/125.1a) (from Ch. 73, par. 737.1a)

Sec. 125.1a.
(Repealed).

(Source: P.A. 83-695. Repealed by P.A. 90-418, eff. 8-15-97.)

(215 ILCS 5/125.2a) (from Ch. 73, par. 737.2a)

Sec. 125.2a.
(Repealed).

(Source: P.A. 83-695. Repealed by P.A. 90-418, eff. 8-15-97.)

(215 ILCS 5/125.2b) (from Ch. 73, par. 737.2b)

Sec. 125.2b.
(Repealed).

(Source: Laws 1963, p. 3139. Repealed by P.A. 90-418, eff. 8-15-97.)

(215 ILCS 5/125.2c) (from Ch. 73, par. 737.2c)

Sec. 125.2c.
(Repealed).

(Source: Laws 1963, p. 3139. Repealed by P.A. 90-418, eff. 8-15-97.)

(215 ILCS 5/125.2d) (from Ch. 73, par. 737.2d)

Sec. 125.2d.
(Repealed).

(Source: P.A. 76-710. Repealed by P.A. 90-418, eff. 8-15-97.)

(215 ILCS 5/125.2e) (from Ch. 73, par. 737.2e)

Sec. 125.2e.
(Repealed).

(Source: P.A. 77-34. Repealed by P.A. 90-418, eff. 8-15-97.)

(215 ILCS 5/125.2f) (from Ch. 73, par. 737.2f)

Sec. 125.2f.
(Repealed).

(Source: P.A. 83-695. Repealed by P.A. 90-418, eff. 8-15-97.)

(215 ILCS 5/125.2g) (from Ch. 73, par. 737.2g)

Sec. 125.2g.
(Repealed).

(Source: P.A. 87-575. Repealed by P.A. 90-418, eff. 8-15-97.)

(215 ILCS 5/125.3a) (from Ch. 73, par. 737.3a)

Sec. 125.3a.
(Repealed).

(Source: P.A. 83-695. Repealed by P.A. 90-418, eff. 8-15-97.)

(215 ILCS 5/125.4a) (from Ch. 73, par. 737.4a)

Sec. 125.4a.
(Repealed).

(Source: P.A. 83-695. Repealed by P.A. 90-418, eff. 8-15-97.)

(215 ILCS 5/125.4b) (from Ch. 73, par. 737.4b)

Sec. 125.4b.
(Repealed).

(Source: P.A. 86-1156. Repealed by P.A. 90-418, eff. 8-15-97.)

(215 ILCS 5/125.5b) (from Ch. 73, par. 737.5b)

Sec. 125.5b.
(Repealed).

(Source: P.A. 83-695. Repealed by P.A. 90-418, eff. 8-15-97.)

(215 ILCS 5/125.6a) (from Ch. 73, par. 737.6a)

Sec. 125.6a.
(Repealed).

(Source: P.A. 83-695. Repealed by P.A. 90-418, eff. 8-15-97.)

(215 ILCS 5/125.9a) (from Ch. 73, par. 737.9a)

Sec. 125.9a.
(Repealed).

(Source: P.A. 87-1090. Repealed by P.A. 90-418, eff. 8-15-97.)

(215 ILCS 5/125.9b) (from Ch. 73, par. 737.9b)

Sec. 125.9b.
(Repealed).

(Source: P.A. 87-108. Repealed by P.A. 90-418, eff. 8-15-97.)

(215 ILCS 5/125.9c)

Sec. 125.9c.
(Repealed).

(Source: P.A. 89-97, eff. 7-7-95. Repealed by 90-418, eff. 8-15-97.)

(215 ILCS 5/125.10a) (from Ch. 73, par. 737.10a)

Sec. 125.10a.
(Repealed).

(Source: P.A. 83-695. Repealed by P.A. 90-418, eff. 8-15-97.)

(215 ILCS 5/125.10c) (from Ch. 73, par. 737.10c)

Sec. 125.10c.
(Repealed).

(Source: P.A. 86-1156. Repealed by P.A. 90-418, eff. 8-15-97.)

(215 ILCS 5/125.10d) (from Ch. 73, par. 737.10d)

Sec. 125.10d.
(Repealed).

(Source: P.A. 83-695. Repealed by P.A. 90-418, eff. 8-15-97.)

(215 ILCS 5/125.11a) (from Ch. 73, par. 737.11a)

Sec. 125.11a.
(Repealed).

(Source: P.A. 86-1156. Repealed by P.A. 90-418, eff. 8-15-97.)

(215 ILCS 5/125.12a) (from Ch. 73, par. 737.12a)

Sec. 125.12a.
(Repealed).

(Source: P.A. 86-1156. Repealed by P.A. 90-418, eff. 8-15-97.)

(215 ILCS 5/125.12b) (from Ch. 73, par. 737.12b)

Sec. 125.12b.
(Repealed).

(Source: P.A. 86-1475. Repealed by P.A. 90-418, eff. 8-15-97.)

(215 ILCS 5/125.12c) (from Ch. 73, par. 737.12c)

Sec. 125.12c.
(Repealed).

(Source: P.A. 86-1156. Repealed by P.A. 90-418, eff. 8-15-97.)

(215 ILCS 5/125.14a) (from Ch. 73, par. 737.14a)

Sec. 125.14a.
(Repealed).

(Source: P.A. 86-1475. Repealed by P.A. 90-418, eff. 8-15-97.)

(215 ILCS 5/125.15a) (from Ch. 73, par. 737.15a)

Sec. 125.15a.
(Repealed).

(Source: P.A. 89-97, eff. 7-7-95. Repealed by P.A. 90-418, eff. 8-15-97.)

(215 ILCS 5/125.15b) (from Ch. 73, par. 737.15b)

Sec. 125.15b.
(Repealed).

(Source: P.A. 86-1156. Repealed by P.A. 90-418, eff. 8-15-97.)

(215 ILCS 5/125.16a) (from Ch. 73, par. 737.16a)

Sec. 125.16a.
(Repealed).

(Source: P.A. 86-1156. Repealed by P.A. 90-418, eff. 8-15-97.)

(215 ILCS 5/125.17a) (from Ch. 73, par. 737.17a)

Sec. 125.17a.
(Repealed).

(Source: P.A. 83-695. Repealed by P.A. 90-418, eff. 8-15-97.)

(215 ILCS 5/125.18a) (from Ch. 73, par. 737.18a)

Sec. 125.18a.
(Repealed).

(Source: P.A. 86-1156. Repealed by P.A. 90-418, eff. 8-15-97.)

(215 ILCS 5/125.18b) (from Ch. 73, par. 737.18b)

Sec. 125.18b.
(Repealed).

(Source: P.A. 83-695. Repealed by P.A. 90-418, eff. 8-15-97.)

(215 ILCS 5/125.19a) (from Ch. 73, par. 737.19a)

Sec. 125.19a.
(Repealed).

(Source: P.A. 83-695. Repealed by P.A. 90-418, eff. 8-15-97.)

(215 ILCS 5/125.20a) (from Ch. 73, par. 737.20a)

Sec. 125.20a.
(Repealed).

(Source: P.A. 83-695. Repealed by P.A. 90-418, eff. 8-15-97.)

(215 ILCS 5/125.21a) (from Ch. 73, par. 737.21a)

Sec. 125.21a.
(Repealed).

(Source: P.A. 85-1186. Repealed by P.A. 90-418, eff. 8-15-97.)

(215 ILCS 5/125.22a) (from Ch. 73, par. 737.22a)

Sec. 125.22a.
(Repealed).

(Source: P.A. 86-1156. Repealed by P.A. 90-418, eff. 8-15-97.)

(215 ILCS 5/125.23a) (from Ch. 73, par. 737.23a)

Sec. 125.23a.
(Repealed).

(Source: P.A. 83-695. Repealed by P.A. 90-418, eff. 8-15-97.)

(215 ILCS 5/125.24a) (from Ch. 73, par. 737.24a)

Sec. 125.24a.
(Repealed).

(Source: P.A. 83-695. Repealed by P.A. 90-418, eff. 8-15-97.)

(215 ILCS 5/Art. VIII Pt. 1 heading)

1.
GENERAL PROVISIONS

(215 ILCS 5/126.1)

Sec. 126.1.
Purpose and scope.

A. Purpose.
The purpose of this Article is to protect the interests of insureds by
promoting
insurer solvency and financial strength. This will be accomplished through the
application of investment standards that facilitate a reasonable balance of the
following objectives:

(1) To preserve principal;
(2) To assure reasonable diversification as to type of investment, issuer and credit quality; and
(3) To allow insurers to allocate investments in a manner consistent with principles of prudent investment management to achieve an adequate return so that obligations to insureds are adequately met and financial strength is sufficient to cover reasonably foreseeable contingencies.

B. Scope.
This Article shall apply only to investments and investment practices of
domestic insurers and United States branches of alien insurers entered through
this State. This Article shall not apply to separate accounts of an insurer
except to the extent that the provisions of Article XIV 1/2 so provide.

(Source: P.A. 90-418, eff. 8-15-97.)

(215 ILCS 5/126.2)

Sec. 126.2.
Definitions.
For purposes of this Article:

A. “Acceptable collateral” means:

(1) As to securities lending transactions, and for the purpose of calculating counterparty exposure amount, cash, cash equivalents, letters of credit, direct obligations of, or securities that are fully guaranteed as to principal and interest by, the government of the United States or any agency of the United States, or by the Federal National Mortgage Association or the Federal Home Loan Mortgage Corporation, and as to lending foreign securities, sovereign debt rated 1 by the SVO;
(2) As to repurchase transactions, cash, cash equivalents and direct obligations of, or securities that are fully guaranteed as to principal and interest by, the government of the United States or an agency of the United States, or by the Federal National Mortgage Association or the Federal Home Loan Mortgage Corporation; and
(3) As to reverse repurchase transactions, cash and cash equivalents.

B. “Acceptable private mortgage insurance” means insurance written by a
private insurer protecting a mortgage lender against loss occasioned by a
mortgage loan default and issued by a licensed mortgage insurance company, with
an SVO 1 designation or a rating issued by a nationally recognized statistical
rating organization equivalent to an SVO 1 designation, that covers losses to
an 80% loan-to-value ratio.

C. “Accident and health insurance” means protection which provides payment
of benefits for covered sickness or accidental injury, excluding credit
insurance, disability insurance, accidental death and dismemberment insurance
and long-term care insurance.

D. “Accident and health insurer” means a licensed life or health insurer or
health service corporation whose insurance premiums and required statutory
reserves for accident and health insurance constitute at least
95% of total premium considerations or total statutory required
reserves, respectively.

E. “Admitted assets” means assets defined by Section 3.1 of this Code
permitted to be reported as admitted assets on the statutory financial
statement of the insurer most recently required to be filed with the Director,
but excluding assets of separate accounts, the investments of which are not
subject to the provisions of this Article except to the extent that the
provisions of Article XIV 1/2 so provide.

F. “Affiliate” means, as to any person, another person that, directly or
indirectly through one or more intermediaries, controls, is controlled by, or
is under common control with the person.

G. “Asset-backed security” means a security or other instrument, excluding
shares in a mutual fund, evidencing an interest in, or the right to receive
payments from, or payable from distributions on, an asset, a pool of assets or
specifically divisible cash flows which are legally transferred to a trust or
another special purpose bankruptcy-remote business entity, on the following
conditions:

(1) The trust or other business entity is established solely for the purpose of acquiring specific types of assets or rights to cash flows, issuing securities and other instruments representing an interest in or right to receive cash flows from those assets or rights, and engaging in activities required to service the assets or rights and any credit enhancement or support features held by the trust or other business entity; and
(2) The assets of the trust or other business entity consist solely of interest bearing obligations or other contractual obligations representing the right to receive payment from the cash flows from the assets or rights. However, the existence of credit enhancements, such as letters of credit or guarantees, or support features such as swap agreements, shall not cause a security or other instrument to be ineligible as an asset-backed security.

H. “Business entity” includes a sole proprietorship, corporation, limited
liability company, association, partnership, joint stock company, joint
venture, mutual fund, trust, joint tenancy or other similar form of business
organization, whether organized for profit or not for profit.

I. “Cap” means an agreement obligating the seller to make payments to the
buyer, with each payment based on the amount by which a reference price or
level or the performance or value of one or more underlying interests exceeds a
predetermined number, sometimes called the strike rate or strike price.

J. “Capital and surplus” means the sum of the capital and surplus of the
insurer required to be shown on the statutory financial statement of the
insurer most recently required to be filed with the Director.

K. “Cash equivalents” means short-term, highly rated and highly liquid
investments
or securities readily convertible to known amounts of cash without penalty and
so near maturity that they present insignificant risk of change in value. Cash
equivalents include government money market mutual funds and class one money
market mutual funds. For purposes of this definition:

(1) “Short-term” means investments with a remaining term to maturity of 90 days or less; and
(2) “Highly rated” means an investment rated “P-1” by Moody’s Investors Service, Inc., or “A-1” by Standard and Poor’s division of The McGraw Hill Companies, Inc. or its equivalent rating by a nationally recognized statistical rating organization recognized by the SVO.

L. “Class one bond mutual fund” means a mutual fund that at all times
qualifies for investment using the bond class one reserve factor under the
Purposes and Procedures of the Securities Valuation Office or any successor
publication.

M. “Class one money market mutual fund” means a money market mutual fund
that at all times qualifies for investment using the bond class one reserve
factor under the Purposes and Procedures of the Securities Valuation Office or
any successor publication.

N. “Code” means the Illinois Insurance Code.

O. “Collar” means an agreement to receive payments as the buyer of an
option, cap or floor and to make payments as the seller of a different option,
cap or floor.

P. “Commercial mortgage loan” means a mortgage loan, other than a
residential mortgage loan.

Q. “Construction loan” means a loan of less than 3 years in term,
made for financing the cost of construction of a building or other improvement
to real estate, that is secured by the real estate.

R. “Control” means the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of a person,
whether through the ownership of voting securities, by contract (other than a
commercial contract for goods or nonmanagement services), or otherwise, unless
the power is the result of an official position with or corporate office held
by the person. Control shall be presumed to exist if a person, directly or
indirectly, owns, controls, holds with the power to vote or holds proxies
representing 10% or more of the voting securities of another
person. This presumption may be rebutted by a showing that control does not
exist in fact. The Director may determine, after furnishing all interested
persons notice and an opportunity to be heard and making specific findings of
fact to support the determination, that control exists in fact, notwithstanding
the absence of a presumption to that effect.

S. “Counterparty exposure amount” means:

(1) The amount of credit risk attributable to a derivative instrument entered into with a business entity other than through a qualified exchange, qualified foreign exchange, or cleared through a qualified clearinghouse (“over-the-counter derivative instrument”). The amount of credit risk equals:

(a) The market value of the over-the-counter derivative instrument if the liquidation of the derivative instrument would result in a final cash payment to the insurer; or
(b) Zero if the liquidation of the derivative instrument would not result in a final cash payment to the insurer.

(2) If over-the-counter derivative instruments are entered into under a written master agreement which provides for netting of payments owed by the respective parties, and the domicile of the counterparty is either within the United States or if not within the United States, within a foreign jurisdiction listed in the Purposes and Procedures of the Securities Valuation Office as eligible for netting, the net amount of credit risk shall be the greater of zero or the net sum of:

(a) The market value of the over-the-counter derivative instruments entered into under the agreement, the liquidation of which would result in a final cash payment to the insurer; and
(b) The market value of the over-the-counter derivative instruments entered into under the agreement, the liquidation of which would result in a final cash payment by the insurer to the business entity.

(3) For open transactions, market value shall be determined at the end of the most recent quarter of the insurer’s fiscal year and shall be reduced by the market value of acceptable collateral held by the insurer or placed in escrow by one or both parties.

T. “Covered” means that an insurer owns or can immediately acquire, through
the exercise of options, warrants or conversion rights already owned, the
underlying interest in order to fulfill or secure its obligations under a call
option, cap or floor it has written, or has set aside, pursuant to a custodial
or escrow agreement, cash or cash equivalents with a market value equal to the
amount required to fulfill its obligations under a put option it has written,
in an income generation transaction.

U. “Credit tenant loan” means a mortgage loan which is made primarily in
reliance on the credit standing of a major tenant, structured with an
assignment of the rental payments to the lender with real estate pledged as
collateral in the form of a first lien.

V. (1) “Derivative instrument” means an agreement, option, instrument or a series or combination thereof:

(a) To make or take delivery of, or assume or relinquish, a specified amount of one or more underlying interests, or to make a cash settlement in lieu thereof; or
(b) That has a price, performance, value or cash flow based primarily upon the actual or expected price, level, performance, value or cash flow of one or more underlying interests.

(2) Derivative instruments include options, warrants used in a hedging transaction and not attached to another financial instrument, caps, floors, collars, swaps, forwards, futures and any other agreements, options or instruments substantially similar thereto or any series or combination thereof and any agreements, options or instruments permitted under rules adopted under Section 126.8. Derivative instruments shall not include an investment authorized by Sections 126.11 through 126.17, 126.19 and 126.24 through 126.30.

W. “Derivative transaction” means a transaction involving the use of one or
more derivative instruments.

X. “Direct” or “directly,” when used in connection with an obligation, means
the designated obligor is primarily liable on the instrument representing the
obligation.

Y. “Dollar roll transaction” means 2 simultaneous transactions with
settlement dates no more than 96 days apart, so that in one
transaction an insurer sells to a business entity, and in the other transaction
the insurer is obligated to purchase from the same business entity,
substantially similar securities of the following types:

(1) Asset-backed securities issued, assumed or guaranteed by the Government National Mortgage Association, the Federal National Mortgage Association or the Federal Home Loan Mortgage Corporation or their respective successors; and
(2) Other asset-backed securities referred to in Section 106 of Title I of the Secondary Mortgage Market Enhancement Act of 1984 (15 U.S.C. 77r1), as amended.

Z. “Domestic jurisdiction” means the United States, Canada, any state, any
province of Canada or any political subdivision of any of the foregoing.

AA. “Equity interest” means any of the following that are not rated credit
instruments: common stock; preferred stock; trust certificate; equity
investment in an investment company other than a money market mutual fund or a
class one bond
mutual fund; investment in a common trust fund of a bank regulated by a federal
or state agency; an ownership interest in minerals, oil or gas, the rights to
which have been separated from the underlying fee interest in the real estate
where the minerals, oil or gas are located; instruments which are mandatorily,
or at the option of the issuer, convertible to equity; limited partnership
interests and those general partnership interests authorized under Section
126.5(D); member interests in limited liability companies; warrants or other
rights to
acquire equity interests that are created by the person that owns or would
issue the equity to be acquired; or instruments that would be rated credit
instruments except for the provisions of subsection RRR(2) of this Section.

BB. “Equivalent securities” means:

(1) In a securities lending transaction, securities that are identical to the loaned securities in all features including the amount of the loaned securities, except as to certificate number if held in physical form, but if any different security shall be exchanged for a loaned security by recapitalization, merger, consolidation or other corporate action, the different security shall be deemed to be the loaned security;
(2) In a repurchase transaction, securities that are identical to the purchased securities in all features including the amount of the purchased securities, except as to the certificate number if held in physical form; or
(3) In a reverse repurchase transaction, securities that are identical to the sold securities in all features including the amount of the sold securities, except as to the certificate number if held in physical form.

CC. “Floor” means an agreement obligating the seller to make payments to the
buyer in which each payment is based on the amount by which a predetermined
number, sometimes called the floor rate or price, exceeds a reference price, a
level, or the performance or value of one or more underlying interests.

DD. “Foreign currency” means a currency other than that of a domestic
jurisdiction.

EE. (1) “Foreign investment” means an investment in a foreign jurisdiction, or an investment in a person, real estate or asset domiciled in a foreign jurisdiction, that is substantially of the same type as those eligible for investment under this Article, other than under Sections 126.17 and 126.30. An investment shall not be deemed to be foreign if the issuing person, qualified primary credit source or qualified guarantor is a domestic jurisdiction or a person domiciled in a domestic jurisdiction, unless:

(a) The issuing person is a shell business entity; and
(b) The investment is not assumed, accepted, guaranteed, or insured or otherwise backed by a domestic jurisdiction or a person, that is not a shell business entity, domiciled in a domestic jurisdiction.

(2) For purposes of this definition:

(a) “Shell business entity” means a business entity having no economic substance, except as a vehicle for owning interests in assets issued, owned or previously owned by a person domiciled in a foreign jurisdiction;
(b) “Qualified guarantor” means a guarantor against which an insurer has a direct claim for full and timely payment, evidenced by a contractual right for which an enforcement action can be brought in a domestic jurisdiction; and
(c) “Qualified primary credit source” means the credit source to which an insurer looks for payment as to an investment and against which an insurer has a direct claim for full and timely payment, evidenced by a contractual right for which an enforcement action can be brought in a domestic jurisdiction.

FF. “Foreign jurisdiction” means a jurisdiction other than a domestic
jurisdiction.

GG. “Forward” means an agreement (other than a future) to make or take
delivery of, or effect a cash settlement based on the actual or expected price,
level, performance or value of, one or more underlying interests.

HH. “Future” means an agreement, traded on a qualified exchange or qualified
foreign exchange, to make or take delivery of, or effect a cash settlement
based on the actual or expected price, level, performance or value of, one or
more underlying
interests and includes an insurance future.

II. “Government money market mutual fund” means a money market mutual fund
that at all times:

(1) Invests only in obligations issued, guaranteed, or insured by the federal government of the United States or collateralized repurchase agreements composed of these obligations; and
(2) Qualifies for investment without a reserve under the Purposes and Procedures of the Securities Valuation Office or any successor publication.

JJ. “Government sponsored enterprise” means a:

(1) Governmental agency; or
(2) Corporation, limited liability company, association, partnership, joint stock company, joint venture, trust or other entity or instrumentality organized under the laws of any domestic jurisdiction to accomplish a public policy or other governmental purpose.

KK. “Guaranteed or insured,” when used in connection with an obligation
acquired under this Article, means the guarantor or insurer has agreed to:

(1) Perform or insure the obligation of the obligor or purchase the obligation; or
(2) Be unconditionally obligated until the obligation is repaid to maintain in the obligor a minimum net worth, fixed charge coverage, stockholders’ equity or sufficient liquidity to enable the obligor to pay the obligation in full.

LL. “Hedging transaction” means:

(1) A derivative transaction that is entered into and maintained to reduce:

(a) the risk of a change in the value, yield, price, cash flow, or quantity of assets or liabilities that the insurer has acquired or incurred or anticipates acquiring or incurring; or
(b) the currency exchange rate risk or the degree of exposure as to assets or liabilities that the insurer has acquired or incurred or anticipates acquiring or incurring; or

(2) Such other derivative transactions as may be specified to constitute hedging transactions in rules adopted pursuant to Section 126.8.

MM. “High grade investment” means a rated credit instrument; rated 1, 2, P1,
P2, PSF1 or PSF2 by the SVO.

NN. “Income” means, as to a security, interest, accrual of discount,
dividends or other distributions, such as rights, tax or assessment credits,
warrants and distributions in kind.

OO. “Income generation transaction” means (1) a derivative transaction
involving the writing of covered call options, covered put options, covered
caps or covered floors that is intended to generate income or enhance return,
or (2) such other derivative transactions as may be specified to constitute
income generation transactions in rules adopted pursuant to Section
126.8.

PP. “Initial margin” means the amount of cash, securities or other
consideration initially required to be deposited to establish a futures
position.

QQ. “Insurance future” means a future relating to an index or pool that is
based on insurance-related items.

RR. “Insurance futures option” means an option on an insurance future.

SS. “Investment company” means an investment company as defined in Section
3(a) of the Investment Company Act of 1940 (15 U.S.C. 80a-1 et seq.), as
amended, and a person described in Section 3(c) of that Act.

TT. “Investment company series” means an investment portfolio of an
investment company that is organized as a series company and to which assets of
the investment company have been specifically allocated.

UU. “Investment practices” means transactions of the types described in
Section 126.16, 126.18, 126.29 or 126.31.

VV. “Investment subsidiary” means a subsidiary of an insurer engaged or
organized to engage exclusively in the ownership and management of assets
authorized as investments for the insurer if such subsidiary agrees to limit
its investment in any asset so that its investments will not cause the amount
of the total investment of the insurer to exceed any of the investment
limitations or avoid any other provisions of this Article applicable to the
insurer. As used in this subsection, the total investment of the insurer shall
include:

(1) Direct investment by the insurer in an asset; and
(2) The insurer’s proportionate share of an investment in an asset by an investment subsidiary of the insurer, which shall be calculated by multiplying the amount of the subsidiary’s investment by the percentage of the insurer’s ownership interest in the subsidiary.

WW. “Investment strategy” means the techniques and methods used by an
insurer to meet its investment objectives, such as active bond portfolio
management, passive bond portfolio management, interest rate anticipation,
growth investing and value investing.

XX. “Letter of credit” means a clean, irrevocable and unconditional letter
of credit issued or confirmed by, and payable and presentable at, a financial
institution on the list of financial institutions meeting the standards for
issuing letters of credit under the Purposes and Procedures of the Securities
Valuation Office or any successor publication. To constitute acceptable
collateral for the purposes of Sections 126.16 and 126.29, a letter of credit
must have
an expiration date beyond the term of the subject transaction.

YY. “Limited liability company” means a business organization, excluding
partnerships and ordinary business corporations, organized or operating under
the laws of the United States or any state thereof that limits the personal
liability of investors to the equity investment of the investor in the business
entity.

ZZ. “Lower grade investment” means a rated credit instrument rated 4, 5, 6,
P4, P5, P6, PSF4, PSF5, or PSF6 by the SVO.

AAA. “Market value” means:

(1) As to cash and letters of credit, the amounts thereof; and
(2) As to a security as of any date, the price for the security on that date obtained from a generally recognized source or the most recent quotation from such a source or, to the extent no generally recognized source exists, the price for the security as determined in good faith by the insurer, plus accrued but unpaid income thereon to the extent not included in the price as of that date.

BBB. “Medium grade investment” means a rated credit instrument rated 3, P3,
or PSF 3 by the SVO.

CCC. “Money market mutual fund” means a mutual fund that meets the
conditions of 17 Code of Federal Regulations Par. 270.2a-7, under the
Investment Company Act of 1940 (15 U.S.C. 80a-1 et seq.), as amended or
renumbered.

DDD. “Mortgage loan” means an obligation secured by a mortgage, deed of
trust, trust deed or other consensual lien on real estate.

EEE. “Multilateral development bank” means an international development
organization of which the United States is a member.

FFF. “Mutual fund” means an investment company or, in the case of an
investment company that is organized as a series company, an investment company
series, that, in either case, is registered with the United States Securities
and Exchange Commission under the Investment Company Act of 1940 (15 U.S.C.
80a-1 et
seq.), as amended.

GGG. “NAIC” means the National Association of Insurance Commissioners.

HHH. “Obligation” means a bond, note, debenture, trust certificate including
an equipment trust certificate, production payment, negotiable bank certificate
of deposit, bankers’ acceptance, credit tenant loan, loan secured by financing
net leases and other evidence of indebtedness for the payment of money (or
participations, certificates or other evidences of an interest in any of the
foregoing), whether constituting a general obligation of the issuer or payable
only out of certain revenues or certain funds pledged or otherwise dedicated
for payment.

III. “Option” means an agreement giving the buyer the right to buy or
receive (a “call option”), sell or deliver (a “put option”), enter into, extend
or terminate or effect a cash settlement based on the actual or expected price,
level, performance or value of one or more underlying interests and includes an
insurance futures option.

JJJ. “Person” means an individual, a business entity, a multilateral
development bank or a government or quasi governmental body, such as a
political subdivision or a government sponsored enterprise.

KKK. “Potential exposure” means the amount determined in accordance with the
NAIC Annual Statement Instructions.

LLL. “Preferred stock” means preferred, preference or guaranteed stock of a
business entity authorized to issue the stock, that has a preference in
liquidation over the common stock of the business entity.

MMM. “Qualified bank” means:

(1) A national bank, state bank or trust company that at all times is no less than adequately capitalized as determined by standards adopted by United States banking regulators and that either is regulated by state banking laws or is a member of the Federal Reserve System; or
(2) A bank or trust company incorporated or organized under the laws of a country other than the United States that is regulated as a bank or trust company by that country’s government or an agency thereof and that at all times is no less than adequately capitalized as determined by the standards adopted by international banking authorities.

NNN. “Qualified business entity” means a business entity that is:

(1) An issuer of obligations or preferred stock that are rated 1 or 2 by the SVO or an issuer of obligations, preferred stock or derivative instruments that are rated the equivalent of 1 or 2 by the SVO or by a nationally recognized statistical rating organization recognized by the SVO;
(2) A primary dealer in United States government securities, recognized by the Federal Reserve Bank of New York; or
(3) With respect to securities lending arrangements under Sections 126.16 and 126.29, an affiliate of an entity that is a qualified business entity pursuant to paragraph (1) or (2) of this subsection NNN, whose arrangement with the insurer is guaranteed by the affiliated entity that is a qualified business entity under paragraph (1) or (2).

OOO. “Qualified clearinghouse” means a clearinghouse for, and subject to the
rules of, a
qualified exchange or a qualified foreign exchange, which provides clearing
services, including acting as a counterparty to each of the parties to a
transaction
such that the parties no longer have credit risk as to each other.

PPP. “Qualified exchange” means:

(1) A securities exchange registered as a national securities exchange, or a securities market regulated under the Securities Exchange Act of 1934 (15 U.S.C. 78 et seq.), as amended;
(2) A board of trade or commodities exchange designated as a contract market by the Commodity Futures Trading Commission or any successor thereof;
(3) Private Offerings, Resales and Trading through Automated Linkages (PORTAL);
(4) A designated offshore securities market as defined in Securities Exchange Commission Regulation S, 17 C.F.R. Part 230, as amended; or
(5) A qualified foreign exchange.

QQQ. “Qualified foreign exchange” means a foreign exchange, board of trade
or contract market located outside the United States, its territories or
possessions:

(1) That has received regulatory comparability relief under Commodity Futures Trading Commission (CFTC) Rule 30.10 (as set forth in Appendix C to Part 30 of the CFTC’s Regulations, 17 C.F.R. Part 30);
(2) That is, or its members are, subject to the jurisdiction of a foreign futures authority that has received regulatory comparability relief under CFTC Rule 30.10 (as set forth in Appendix C to Part 30 of the CFTC’s Regulations, 17 C.F.R. Part 30) as to futures transactions in the jurisdiction where the exchange, board of trade or contract market is located; or
(3) Upon which foreign stock index futures contracts are listed that are the subject of no-action relief issued by the CFTC’s Office of General Counsel, provided that an exchange, board of trade or contract market that qualifies as a “qualified foreign exchange” only under this subsection shall only be a “qualified foreign exchange” as to foreign stock index futures contracts that are the subject of no-action relief.

RRR. (1) “Rated credit instrument” means an obligation or other instrument which gives its holder a contractual right to receive cash or another rated credit instrument from another entity, if the instrument:

(a) Is rated or required to be rated by the SVO;
(b) In the case of an instrument with a maturity of 397 days or less, is issued, guaranteed, or insured by an entity that is rated by, or another instrument of such entity is rated by, the SVO or by a nationally recognized statistical rating organization recognized by the SVO;
(c) In the case of an instrument with a maturity of 90 days or less, the instrument has been issued, assumed, accepted, guaranteed, or insured by a qualified bank;
(d) Is a share of a class one bond mutual fund; or
(e) Is a share of a money market mutual fund.

(2) However, “rated credit instrument” does not mean:

(a) An instrument that is mandatorily, or at the option of the issuer, convertible to an equity interest; or
(b) A security that has a par value and whose terms provide that the issuer’s net obligation to repay all or part of the security’s par value is determined by reference to the performance of an equity, a commodity, a foreign currency or an index of equities, commodities, foreign currencies or combinations thereof.

SSS. “Real estate” means:

(1) (a) Real property;

(b) Interests in real property, such as leaseholds, minerals and oil and gas that have not been separated from the underlying fee interest;
(c) Improvements and fixtures located on or in real property; and
(d) The seller’s equity in a contract providing for a deed of real estate.

(2) As to a mortgage on a leasehold estate, real estate shall include the leasehold estate only if it has an unexpired term (including renewal options exercisable at the option of the lessee) extending beyond the scheduled maturity date of the obligation that is secured by a mortgage on the leasehold estate by a period equal to at least 20% of the original term of the obligation or 10 years, whichever is greater.

TTT. “Replication transaction” means a derivative transaction that is
intended to replicate the performance of one or more assets that an insurer is
authorized to acquire under this Article. A derivative transaction that is
entered into as a hedging transaction shall not be considered a replication
transaction.

UUU. “Repurchase transaction” means a transaction in which an insurer
purchases securities from a business entity that is obligated to repurchase the
purchased securities or equivalent securities from the insurer at a specified
price, either
within a specified period of time or upon demand.

VVV. “Required liabilities” means total liabilities required to be reported
on the
statutory financial statement of the insurer most recently required to be filed
with the Director.

WWW. “Residential mortgage loan” means a loan primarily secured by a
mortgage on real estate improved with a one to four family residence.

XXX. “Reverse repurchase transaction” means a transaction in which an
insurer sells securities to a business entity and is obligated to repurchase
the sold securities or equivalent securities from the business entity at a
specified price, either within a specified period of time or upon demand.

YYY. “Secured location” means the contiguous real estate owned by one
person.

ZZZ. “Securities lending transaction” means a transaction in which
securities are loaned by an insurer to a business entity that is obligated to
return the loaned securities or equivalent securities to the insurer, either
within a specified period of time or upon demand.

AAAA. “Series company” means an investment company that is organized as a
series company, as defined in Rule 18f-2(a) adopted under the Investment
Company Act of 1940 (15 U.S.C. 80a-1 et seq.), as amended.

BBBB. “Sinking fund stock” means preferred stock that:

(1) Is subject to a mandatory sinking fund or similar arrangement that will provide for the redemption (or open market purchase) of the entire issue over a period not longer than 40 years from the date of acquisition; and
(2) Provides for mandatory sinking fund installments (or open market purchases) commencing not more than 10.5 years from the date of issue, with the sinking fund installments providing for the purchase or redemption, on a cumulative basis commencing 10 years from the date of issue, of at least 2.5% per year of the original number of shares of that issue of preferred stock.

CCCC. “Special rated credit instrument” means a rated credit instrument that
is:

(1) An instrument that is structured so that, if it is held until retired by or on behalf of the issuer, its rate of return, based on its purchase cost and any cash flow stream possible under the structure of the transaction, may become negative due to reasons other than the credit risk associated with the issuer of the instrument; however, a rated credit instrument shall not be a special rated credit instrument under this subsection if it is:

(a) A share in a class one bond mutual fund;
(b) An instrument, other than an asset-backed security, with payments of par value fixed as to amount and timing, or callable but in any event payable only at par or greater, and interest or dividend cash flows that are based on either a fixed or variable rate determined by reference to a specified rate or index;
(c) An instrument, other than an asset-backed security, that has a par value and is purchased at a price no greater than 110% of par;
(d) An instrument, including an asset-backed security, whose rate of return would become negative only as a result of a prepayment due to casualty, condemnation or economic obsolescence of collateral or change of law;
(e) An asset-backed security that relies on collateral that meets the requirements of subparagraph (b) of this paragraph, the par value of which collateral:

(i) Is not permitted to be paid sooner than one half of the remaining term to maturity from the date of acquisition;
(ii) Is permitted to be paid prior to maturity only at a premium sufficient to provide a yield to maturity for the investment, considering the amount prepaid and reinvestment rates at the time of early repayment, at least equal to the yield to maturity of the initial investment; or
(iii) Is permitted to be paid prior to maturity at a premium at least equal to the yield of a treasury issue of comparable remaining life; or

(f) An asset-backed security that relies on cash flows from assets that are not prepayable at any time at par, but is not otherwise governed by subparagraph (e) of this paragraph, if the asset-backed security has a par value reflecting principal payments to be received if held until retired by or on behalf of the issuer and is purchased at a price no greater than 105% of such par amount.

(2) An asset-backed security that:

(a) Relies on cash flows from assets that are prepayable at par at any time;
(b) Does not make payments of par that are fixed as to amount and timing; and
(c) Has a negative rate of return at the time of acquisition if a prepayment threshold assumption is used with such prepayment threshold assumption defined as either:

(i) Two (2) times the prepayment expectation reported by a recognized, publicly available source as being the median of expectations contributed by broker dealers or other entities, except insurers, engaged in the business of selling or evaluating such securities or assets. The prepayment expectation used in this calculation shall be, at the insurer’s election, the prepayment expectation for pass-through securities of the Federal National Mortgage Association, the Federal Home Loan Mortgage Corporation, the Government National Mortgage Association, or for other assets of the same type as the assets that underlie the asset- backed security, in either case with a gross weighted average coupon comparable to the gross weighted average coupon of the assets that underlie the asset-backed security; or
(ii) Another prepayment threshold assumption specified by the Director by rule promulgated under Section 126.8.

(3) For purposes of subparagraph 2 of this subsection, if the asset-backed security is purchased in combination with one or more other asset-backed securities that are supported by identical underlying collateral, the insurer may calculate the rate of return for these specific combined asset-backed securities in combination. The insurer must maintain documentation demonstrating that such securities were acquired and are continuing to be held in combination.

DDDD. “State” means a state, territory or possession of the United States of
America, the District of Columbia or the Commonwealth of Puerto Rico.

EEEE. “Substantially similar securities” means securities that meet all
criteria for substantially similar
securities
specified in the NAIC Accounting Practices
and Procedures
Manual, as amended, and in an amount that constitutes good delivery form as
determined from time to time by the PSA The Bond Market Trade Association.

FFFF. “Subsidiary” means, as to any person, an affiliate controlled by such
person, directly or indirectly through one or more intermediaries.

GGGG. “SVO” means the Securities Valuation Office of the NAIC or any
successor office established by the NAIC.

HHHH. “Swap” means an agreement to exchange or to net payments at one or
more times based on the actual or expected price, level, performance or value
of one or more underlying interests.

IIII. “Underlying interest” means the assets, liabilities, other interests
or a combination thereof underlying a derivative instrument, such as any one or
more securities, currencies, rates, indices, commodities or derivative
instruments.

JJJJ. “Unrestricted surplus” means the amount by which total admitted assets
exceed 125% of the insurer’s required liabilities.

KKKK. “Warrant” means an instrument that gives the holder the right to
purchase an underlying financial instrument at a given price and time or at a
series of prices and times outlined in the warrant agreement. Warrants may be
issued alone or in connection with the sale of other securities, for example,
as part of a merger or recapitalization agreement, or to facilitate divestiture
of the securities of another business entity.

(Source: P.A. 90-418, eff. 8-15-97; 90-794, eff. 8-14-98.)

(215 ILCS 5/126.3)

Sec. 126.3.
General investment qualifications.

A. Insurers may acquire, hold or invest in investments or engage in
investment practices as set forth in this Article. Insurers may also acquire,
hold or invest in investments not conforming to the requirements of this
Article that are not otherwise prohibited by this Code. Investments not
conforming to this Article shall not be admitted assets unless they are
acquired under other authority of this Code.

B. Subject to subsection C of this Section, an insurer shall not acquire or
hold an
investment as an admitted asset unless at the time of acquisition it is:

(1) Eligible for the payment or accrual of interest or discount (whether in cash or other forms of income or securities), eligible to receive dividends or other distributions or is otherwise income producing; or
(2) Acquired under Section 126.15B, 126.15C, 126.16, 126.18, 126.20, 126.28C, 126.29, 126.31, or 126.32 or under the authority of Sections of the Code other than this Article.

C. An insurer may acquire or hold as admitted assets investments that do not
otherwise qualify as provided in this Article if the insurer has not acquired
them for the purpose of circumventing any limitations contained in this
Article, if the insurer acquires the investments in the following circumstances
and the insurer complies with the provisions of Sections 126.5 and 126.7 as to
the investments:

(1) As payment on account of existing indebtedness or in connection with the refinancing, restructuring or workout of existing indebtedness, if taken to protect the insurer’s interest in that investment;
(2) As realization on collateral for indebtedness;
(3) In connection with an otherwise qualified investment or investment practice, as interest on or a dividend or other distribution related to the investment or investment practice or in connection with the refinancing of the investment, in each case for no additional or only nominal consideration;
(4) Under a lawful and bona fide agreement of recapitalization or voluntary or involuntary reorganization in connection with an investment held by the insurer; or
(5) Under a bulk reinsurance, merger or consolidation transaction approved by the Director if the assets constitute admissible investments for the ceding, merged or consolidated companies.

D. An investment or portion of an investment acquired by an insurer under
subsection C of this Section shall become a nonadmitted asset 3 years
(or 5 years in the case of mortgage loans and real estate) from the date of
its acquisition, unless within that period the investment has become a
qualified investment under a Section of this Article other than subsection C of
this Section, but an investment acquired under an agreement of bulk
reinsurance, merger or consolidation may be qualified for a longer period if so
provided in the plan for reinsurance, merger or consolidation as approved by
the Director. Upon application by the insurer and a showing that the
nonadmission of an asset held under subsection C of this Section would injure
the interests of the insurer, the Director may extend the period for
admissibility for an additional reasonable period of time.

E. Except as provided in subsections F and H of this Section, an investment
shall qualify under this Article if, on the date the insurer committed to
acquire the investment or on the date of its acquisition, it would have
qualified under this Article. For the purposes of determining limitations
contained in this Article, an insurer shall give appropriate recognition to any
commitments to acquire investments.

F. (1) An investment held as an admitted asset by an insurer on the effective date of this amendatory Act of 1997 which qualified immediately prior to the effective date of this amendatory Act of 1997 shall remain qualified as an admitted asset under this Article.

(2) Each specific transaction constituting an investment practice of the type described in this Article immediately prior to the effective date of this amendatory Act of 1997 that was lawfully entered into by an insurer and was in effect on the effective date of this amendatory Act of 1997 shall continue to be permitted under this Article until its expiration or termination under its terms.

G. Unless otherwise specified, an investment limitation computed on the
basis of an
insurer’s admitted assets or capital and surplus shall relate to the amount
required to be shown on the statutory balance sheet of the insurer most
recently required to be filed (annual or last quarter) with the Director.
Solely for purposes of
computing any limitation under this Article based upon admitted assets, the
insurer shall deduct from the amount of its admitted assets the amount of the
liability recorded on such statutory balance sheet for:

(1) The return of acceptable collateral received in a reverse repurchase transaction or a securities lending transaction;
(2) Cash received in a dollar roll transaction; and
(3) The amount reported as borrowed money in such statutory balance sheet to the extent not included in paragraphs (1) and (2) of this subsection.

H. An investment qualified, in whole or in part, for acquisition or holding
as an admitted asset may be qualified or requalified at the time of acquisition
or a later date, in whole or in part, under any other Section, if the relevant
conditions contained in the other Section are satisfied at the time of
qualification or requalification.

I. An insurer shall maintain documentation demonstrating that investments
were acquired in accordance with this Article, and specifying the Section of
this Article under which they were acquired.

J. An insurer shall not enter into an agreement to purchase securities in
advance of their issuance for resale to the public as part of a distribution of
the securities by
the issuer or otherwise guarantee the distribution, except that an insurer may
acquire privately placed securities with registration rights.

K. Notwithstanding the provisions of this Article, the Director, for good
cause, may
order an insurer to nonadmit, limit, dispose of, withdraw from or discontinue
an investment or investment practice in accordance with Article XXIV. The
authority of the Director under this subsection is in addition to any other
authority of the Director.

(Source: P.A. 90-418, eff. 8-15-97.)

(215 ILCS 5/126.4)

Sec. 126.4.
Authorization of investments by the board of directors.

A. Within 3 months after the effective date of this amendatory Act of 1997,
an insurer’s board of directors shall adopt a written plan for acquiring
and holding investments and for engaging in investment practices that specifies
guidelines as to the quality, maturity and diversification of investments and
other specifications including investment strategies intended to assure that
the investments and investment practices are appropriate for the business
conducted by the insurer, its liquidity needs and its capital and surplus. The
board shall review and assess the insurer’s technical investment and
administrative capabilities and expertise before
adopting a written plan concerning an investment strategy or investment
practice.

B. Investments acquired and held under this Article shall be acquired and
held under the supervision and direction of the board of directors of the
insurer. The board of directors shall evidence by formal resolution, at least
annually, that it has determined whether all investments have been made in
accordance with delegations, standards, limitations and investment objectives
prescribed by the board or a committee of the board charged with the
responsibility to direct its investments.

C. On no less than a quarterly basis, and more often if deemed appropriate,
an insurer’s board of directors or committee of the board of directors shall:

(1) Receive and review a summary report on the insurer’s investment portfolio, its investment activities and investment practices engaged in under delegated authority, in order to determine whether the investment activity of the insurer is consistent with its written plan; and
(2) Review and revise, as appropriate, the written plan.

D. In discharging its duties under this Section, the board of directors
shall require that records of any authorizations or approvals, other
documentation as the board may require and reports of any action taken under
authority delegated under the plan referred to in subsection A of this Section
shall be made available on a regular basis to the board of directors.

E. In discharging their duties under this Section, the directors of an
insurer shall perform their duties in good faith and with that degree of care
that ordinarily prudent individuals in like positions would use under similar
circumstances.

F. If an insurer does not have a board of directors, all references to the
board of directors in this Article shall be deemed to be references to the
governing body of the insurer having authority equivalent to that of a board of
directors.

(Source: P.A. 90-418, eff. 8-15-97.)

(215 ILCS 5/126.5)

Sec. 126.5.
Prohibited investments.
An insurer shall not, directly or indirectly:

A. Invest in an obligation or security or make a guarantee for the benefit
of or in favor of an officer or director of the insurer, except as provided in
Section 126.6;

B. Invest in an obligation or security, make a guarantee for the benefit of
or in favor of, or make other investments in a business entity of which 10% or
more of the voting securities or equity interests are owned
directly or indirectly by
or for the benefit of one or more officers or directors of the insurer, except
pursuant to a transaction entered into in compliance with Section 131.20a of
this Code or provided in Section 126.6;

C. Engage on its own behalf or through one or more affiliates in a
transaction or
series of transactions designed to evade the prohibitions of this Article;

D. (1) Invest in a partnership as a general partner, except that an insurer may make an investment as a general partner:

(a) If all other partners in the partnership are subsidiaries of the insurer or other insurance company affiliates of the insurer;
(b) For the purpose of:

(i) Meeting cash calls committed to prior to the effective date of this amendatory Act of 1997;
(ii) Completing those specific projects or activities of the partnership in which the insurer was a general partner as of the effective date of this amendatory Act of 1997 that had been undertaken as of that date; or
(iii) Making capital improvements to property owned by the partnership on the effective date of this amendatory Act of 1997 if the insurer was a general partner as of that date; or

(2) This subsection shall not prohibit a subsidiary or other affiliate of the insurer from becoming a general partner; or

E. Invest in or lend its funds upon the security of shares of its own stock,
except as authorized by other provisions of this Code. However, no such shares
shall be admitted assets of the insurer.

(Source: P.A. 90-418, eff. 8-15-97.)

(215 ILCS 5/126.6)

Sec. 126.6.
Loans to officers and directors.

A. (1) Except as provided in Section 126.6B, an insurer shall not directly
or indirectly, unless it has notified the Director in writing of its intention
to enter into the transaction at least 30 days prior thereto, or any shorter
period as the Director may permit, and the Director has not disapproved it
within that period:

(a) Make a loan to or other investment in an officer or director of the insurer or a person in which the officer or director has any direct or indirect financial interest;
(b) Make a guarantee for the benefit of or in favor of an officer or director of the insurer or a person in which the officer or director has any direct or indirect financial interest; or
(c) Enter into an agreement for the purchase or sale of property from or to an officer or director of the insurer or a person in which the officer or director has any direct or indirect financial interest.

(2) For purposes of this Section, an officer or director shall not be
deemed to have a financial interest by reason of an interest that is held
directly or indirectly through the ownership of equity interests representing
less than 2% of all outstanding equity interests issued by a person that is a
party to the transaction, or solely by reason of that individual’s position as
a director or officer of a person that is a party to the transaction.

(3) This subsection does not permit an investment that is prohibited by
Section 126.5.

(4) This subsection does not apply to a transaction between an insurer and
any of its subsidiaries or affiliates that is entered into in compliance with
Section 131.20a of this Code, other than a transaction between an insurer
and its officer or director.

B. An insurer may make, without the prior written approval of the Director:

(1) Policy loans in accordance with the terms of the policy or contract and Section 126.19;
(2) Advances to officers or directors for expenses reasonably expected to be incurred in the ordinary course of the insurer’s business or guarantees associated with credit or charge cards issued or credit extended for the purpose of financing these expenses;
(3) Loans secured by the principal residence of an existing or new officer of the insurer made in connection with the officer’s relocation at the insurer’s request, if the loans comply with the requirements of Section 126.15 or 126.28 and the terms and conditions otherwise are the same as those generally available from unaffiliated third parties;
(4) Secured loans to an existing or new officer of the insurer made in connection with the officer’s relocation at the insurer’s request, if the loans:

(a) Do not have a term exceeding 2 years;
(b) Are required to finance mortgage loans outstanding at the same time on the prior and new residences of the officer;
(c) Do not exceed an amount equal to the equity of the officer in the prior residence; and
(d) Are required to be fully repaid upon the earlier of the end of the 2 year period or the sale of the prior residence; and

(5) Loans and advances to officers or directors made in compliance with state or federal law specifically related to the loans and advances by a regulated non-insurance subsidiary or affiliate of the insurer in the ordinary course of business and on terms no more favorable than available to other customers of the entity.

(Source: P.A. 90-418, eff. 8-15-97.)

(215 ILCS 5/126.7)

Sec. 126.7.
Valuation of investments.
For the purposes of this Article, the value or amount of an investment acquired
or held, or an investment practice engaged in, under this Article, unless
otherwise specified in this Code, shall be the value at which assets of an
insurer are required to be reported for statutory accounting purposes as
determined in accordance with procedures prescribed in published accounting and
valuation standards of the NAIC, including the Purposes and Procedures of the
Securities
Valuation Office, the Valuation of Securities manual, the Accounting Practices
and Procedures
manual, the Annual Statement Instructions or any successor valuation procedures
officially adopted by the
NAIC. The Director shall promulgate rules for determining and calculating
values to be used in financial statements submitted to the Department for
investments not subject to published National Association of Insurance
Commissioners valuation standards.

(Source: P.A. 90-418, eff. 8-15-97.)

(215 ILCS 5/126.8)

Sec. 126.8.
Rules.
The Director may, in accordance with Section 401 of this Code, promulgate
rules implementing the provisions of this Article.

(Source: P.A. 90-418, eff. 8-15-97.)

(215 ILCS 5/Art. VIII Pt. 2 heading)

2.
LIFE AND HEALTH INSURERS

(215 ILCS 5/126.9)

Sec. 126.9.
Applicability.
This Part shall apply to the investments and investment practices of
companies authorized to transact business under Class 1 of Section 4 of this
Code and other companies whose investments and investment practices are
regulated as life insurers under this Code, subject to the provisions of
Section 126.1B.

(Source: P.A. 90-418, eff. 8-15-97.)

(215 ILCS 5/126.10)

Sec. 126.10.

General 3% diversification, medium and lower grade
investments, and Canadian investments.

A. General 3% diversification.

(1) Except as otherwise specified in this Article, an insurer shall not acquire, directly or indirectly through an investment subsidiary, an investment under this Article if, as a result of and after giving effect to the investment, the insurer would hold more than 3% of its admitted assets in investments of all kinds issued, assumed, accepted, guaranteed, or insured by a single person.
(2) This 3% limitation shall not apply to the aggregate amounts insured by a single financial guaranty insurer with the highest generic rating issued by a nationally recognized statistical rating organization.
(3) Asset-backed securities shall not be subject to the limitations of paragraph (1) of this subsection, however, except as permitted by subsection A(4) of this Section, an insurer shall not acquire an asset-backed security if, as a result of and after giving effect to the investment, the aggregate amount of asset-backed securities secured by or evidencing an interest in a single asset or single pool of assets held by a trust or other business entity, then held by the insurer would exceed 3% of its admitted assets.
(4) A company’s investments in mortgage related securities, as defined by the Secondary Mortgage Market Enhancement Act of 1984 (United States Public Law 98-440) [12 U.S.C. 24, 1451, 1454 et seq.], that are backed by any single pool of mortgages and made pursuant to the authority of that Act, shall not exceed 5% of its admitted assets.

B. Medium and lower grade investments.

(1) An insurer shall not acquire, directly or indirectly through an investment subsidiary, an investment under Sections 126.11, 126.14, and 126.17 or counterparty exposure under Section 126.18D if, as a result of and after giving effect to the investment:

(a) The aggregate amount of medium and lower grade investments then held by the insurer would exceed 20% of its admitted assets;
(b) The aggregate amount of lower grade investments then held by the insurer would exceed 10% of its admitted assets;
(c) The aggregate amount of investments rated 5 or 6 by the SVO then held by the insurer would exceed 3% of its admitted assets;
(d) The aggregate amount of investments rated 6 by the SVO then held by the insurer would exceed 1% of its admitted assets; or
(e) The aggregate amount of lower grade investments then held by the insurer that receive as cash income less than the equivalent yield for Treasury issues with a comparative average life, would exceed 1% of its admitted assets.

(2) An insurer shall not acquire, directly or indirectly through an investment subsidiary, an investment under Sections 126.11, 126.14, and 126.17 or counterparty exposure under Section 126.18D if, as a result of and after giving effect to the investment:

(a) The aggregate amount of medium and lower grade investments issued, assumed, accepted, guaranteed, or insured by any one person or, as to asset-backed securities secured by or evidencing an interest in a single asset or pool of assets, then held by the insurer would exceed 1% of its admitted assets; or
(b) The aggregate amount of lower grade investments issued, assumed, accepted, guaranteed, or insured by any one person or, as to asset-backed securities secured by or evidencing an interest in a single asset or pool of assets, then held by the insurer would exceed 0.5% of its admitted assets.

(3) If an insurer attains or exceeds the limit of any one rating category referred to in this subsection, the insurer shall not thereby be precluded from acquiring investments in other rating categories subject to the specific and multi-category limits applicable to those investments.

C. Canadian investments.

(1) An insurer shall not acquire, directly or indirectly through an investment subsidiary, a Canadian investment authorized by this Article, if as a result of and after giving effect to the investment, the aggregate amount of these investments then held by the insurer would exceed 40% of its admitted assets, or if the aggregate amount of Canadian investments not acquired under Section 126.11B then held by the insurer would exceed 25% of its admitted assets.
(2) However, as to an insurer that is authorized to do business in Canada or that has outstanding insurance, annuity or reinsurance contracts on lives or risks resident or located in Canada and denominated in Canadian currency, the limitations of paragraph (1) of this subsection shall be increased by the greater of:

(a) The amount the insurer is required by Canadian law to invest in Canada or to be denominated in Canadian currency; or
(b) 115% of the amount of its reserves and other obligations under contracts on lives or risks resident or located in Canada.

(Source: P.A. 90-418, eff. 8-15-97.)

(215 ILCS 5/126.11)

Sec. 126.11.
Rated credit instruments.
Subject to the limitations of subsection F of this Section, an insurer may
acquire rated credit instruments:

A. Subject to the limitations of Section 126.10B, but not to the limitations
of Section 126.10A, except for that of subsection (4) of Section 126.10A, an
insurer may acquire rated credit instruments issued, assumed, guaranteed, or
insured by:

(1) The United States; or
(2) A government sponsored enterprise of the United States, if the instruments of the government sponsored enterprise are assumed, guaranteed, or insured by the United States or are otherwise backed or supported by the full faith and credit of the United States.

B. (1) Subject to the limitations of Section 126.10B, but not to the limitations of Section 126.10A, an insurer may acquire rated credit instruments issued, assumed, guaranteed, or insured by:

(a) Canada; or
(b) A government sponsored enterprise of Canada, if the instruments of the government sponsored enterprise are assumed, guaranteed, or insured by Canada or are otherwise backed or supported by the full faith and credit of Canada;

(2) However, an insurer shall not acquire an instrument under this subsection if, as a result of and after giving effect to the investment, the aggregate amount of investments then held by the insurer under this subsection would exceed 40% of its admitted assets.

C. (1) Subject to the limitations of Section 126.10B, but not to the limitations of Section 126.10A, an insurer may acquire rated credit instruments, excluding asset-backed securities:

(a) Issued by a government money market mutual fund, a class one money market mutual fund or a class one bond mutual fund;
(b) Issued, assumed, guaranteed, or insured by a government sponsored enterprise of the United States other than those eligible under subsection A of this Section;
(c) Issued, assumed, guaranteed, or insured by a state, if the instruments are general obligations of the state; or
(d) Issued by a multilateral development bank;

(2) However, an insurer shall not acquire an instrument of any one fund, any one enterprise or entity or any one state under this subsection if, as a result of and after giving effect to the investment, the aggregate amount of investments then held by the insurer in any one fund, enterprise, entity, or state under this subsection would exceed 10% of its admitted assets.

D. Subject to the limitations of Section 126.10, an insurer may acquire
preferred stocks that are not foreign investments and that meet the
requirements of rated credit instruments if, as a result of and after giving
effect to the investment:

(1) The aggregate amount of preferred stocks then held by the insurer under this subsection does not exceed 33 1/3% of its admitted assets; and
(2) The aggregate amount of preferred stocks then held by the insurer under this subsection which are not sinking fund stocks or rated P1 or P2 by the SVO does not exceed 15% of its admitted assets.

E. Subject to the limitations of Section 126.10, in addition to those
investments eligible under subsections A, B, C and D of this Section, an
insurer may acquire rated credit instruments that are not foreign investments.

F. An insurer shall not acquire special rated credit instruments under this
Section if, as a result of and after giving effect to the investment, the
aggregate amount of special rated credit instruments then held by the insurer
would exceed 5% of its admitted assets. The Director may, by
rule, identify certain special rated credit instruments that will be
exempt from the limitation imposed by this subsection.

(Source: P.A. 90-418, eff. 8-15-97.)

(215 ILCS 5/126.12)

Sec. 126.12. Insurer investment pools.

A. An insurer may acquire investments in investment pools that:

(1) Invest only in:

(a) Obligations that are rated 1 or 2 by the SVO or have an equivalent of an SVO 1 or 2 rating (or, in the absence of a 1 or 2 rating or equivalent rating, the issuer has outstanding obligations with an SVO 1 or 2 or equivalent rating) by a nationally recognized statistical rating organization recognized by the SVO and have:

(i) A remaining maturity of 397 days or less or a put that entitles the holder to receive the principal amount of the obligation which put may be exercised through maturity at specified intervals not exceeding 397 days; or
(ii) A remaining maturity of 3 years or less and a floating interest rate that resets no less frequently than quarterly on the basis of a current short-term index (federal funds, prime rate, treasury bills, London InterBank Offered Rate (LIBOR) or commercial paper) and is subject to no maximum limit, if the obligations do not have an interest rate that varies inversely to market interest rate changes;

(b) Government money market mutual funds or class one money market mutual funds; or
(c) Securities lending, repurchase, and reverse repurchase transactions that meet all the requirements of Section 126.16, except the quantitative limitations of Section 126.16D; or

(2) Invest only in investments which an insurer may acquire under this Article, if the insurer’s proportionate interest in the amount invested in these investments when combined with amount of such investments made directly or indirectly through an investment subsidiary or other insurer investment pool permitted under this subsection A(2) does not exceed the applicable limits of this Article for such investments.

B. For an investment in an investment pool to be qualified under this
Article, the investment pool shall not:

(1) Acquire securities issued, assumed, guaranteed or insured by the insurer or an affiliate of the insurer;
(2) Borrow or incur any indebtedness for borrowed money, except for securities lending and reverse repurchase transactions that meet the requirements of Section 126.16 except the quantitative limitations of Section 126.16D; or
(3) Acquire an investment if, as a result of such transaction, the aggregate value of securities then loaned or sold to, purchased from or invested in any one business entity under this Section would exceed 10% of the total assets of the investment pool.

C. The limitations of Section 126.10A shall not apply to an insurer’s
investment in an investment pool, however an insurer shall not acquire an
investment in an investment pool under this Section if, as a result of and
after giving effect to the investment, the aggregate amount of investments then
held by the insurer under this Section:

(1) In all investment pools investing in investments permitted under subsection A(2) of this Section would exceed 25% of its admitted assets; or
(2) In all investment pools would exceed 35% of its admitted assets.

D. For an investment in an investment pool to be qualified under this
Article, the manager of the investment pool shall:

(1) Be organized under the laws of the United States or a state and designated as the pool manager in a pooling agreement;
(2) Be the insurer, an affiliated insurer or a business entity affiliated with the insurer, a qualified bank, a business entity registered under the Investment Advisers Act of 1940 (15 U.S.C. 80a-1 et seq.), as amended or, in the case of a reciprocal insurer or interinsurance exchange, its attorney-in-fact, or in the case of a United States branch of an alien insurer, its United States manager or an affiliate or subsidiary of its United States manager;
(3) Be responsible for the compilation and maintenance of detailed accounting records setting forth:

(a) The cash receipts and disbursements reflecting each participant’s proportionate investment in the investment pool;
(b) A complete description of all underlying assets of the investment pool (including amount, interest rate, maturity date (if any) and other appropriate designations); and
(c) Other records which, on a daily basis, allow third parties to verify each participant’s investment in the investment pool; and

(4) Maintain the assets of the investment pool in one or more accounts, in the name of or on behalf of the investment pool, under a custody agreement with a qualified bank. The custody agreement shall:

(a) State and recognize the claims and rights of each participant;
(b) Acknowledge that the underlying assets of the investment pool are held solely for the benefit of each participant in proportion to the aggregate amount of its investments in the investment pool; and
(c) Contain an agreement that the underlying assets of the investment pool shall not be commingled with the general assets of the custodian qualified bank or any other person.

E. The pooling agreement for each investment pool shall be in writing and
shall provide that:

(1) An insurer and its affiliated insurers or, in the case of an investment pool investing solely in investments permitted under subsection A(1) of this Section, the insurer and its subsidiaries, affiliates or any pension or profit sharing plan of the insurer, its subsidiaries and affiliates or, in the case of a United States branch of an alien insurer, affiliates or subsidiaries of its United States manager, shall, at all times, hold 100% of the interests in the investment pool;
(2) The underlying assets of the investment pool shall not be commingled with the general assets of the pool manager or any other person;
(3) In proportion to the aggregate amount of each pool participant’s interest in the investment pool:

(a) Each participant owns an undivided interest in the underlying assets of the investment pool; and
(b) The underlying assets of the investment pool are held solely for the benefit of each participant;

(4) A participant, or in the event of the participant’s insolvency, bankruptcy or receivership, its trustee, receiver or other successor-in-interest, may withdraw all or any portion of its investment from the investment pool under the terms of the pooling agreement;
(5) Withdrawals may be made on demand without penalty or other assessment on any business day, but settlement of funds shall occur within a reasonable and customary period thereafter not to exceed 10 business days. Distributions under this paragraph shall be calculated in each case net of all then applicable fees and expenses of the investment pool. The pooling agreement shall provide that the pool manager shall distribute to a participant, at the discretion of the pool manager:

(a) In cash, the then fair market value of the participant’s pro rata share of each underlying asset of the investment pool;
(b) In kind, a pro rata share of each underlying asset; or
(c) In a combination of cash and in kind distributions, a pro rata share in each underlying asset; and

(6) The pool manager shall make the records of the investment pool available for inspection by the Director.

F. Except for
the
formation of the investment pool, transactions and
between a domestic insurer and an affiliated insurer
investment pool shall not be subject to the requirements of Section
131.20a of this Code.

(Source: P.A. 100-201, eff. 8-18-17.)

(215 ILCS 5/126.13)

Sec. 126.13.
Equity interests.

A. Subject to the limitations of Section 126.10, an insurer may acquire
directly
or indirectly through an investment subsidiary, equity interests in business
entities organized under the laws of any domestic jurisdiction.

B. An insurer shall not acquire directly or indirectly through an investment
subsidiary an investment under this Section if, as a result of and after giving
effect
to the investment, the aggregate amount of investments then held by the insurer
under this Section would exceed 20% of its admitted assets or, except for
mutual
funds, the amount of equity interests then held by the insurer that are not
listed on
a qualified exchange would exceed 5% of its admitted assets. An
accident and health insurer shall not be subject to this Section but shall be
subject to the same aggregate limitation on equity interests as a property and
casualty insurer under Section 126.26 and also to the provisions of Section
126.22 of this Article.

C. An insurer shall not acquire under this Section any investments that the
insurer may acquire under Section 126.15.

D. An insurer shall not short sell equity interests unless the insurer
covers the short sale by owning the equity interest or an unrestricted right to
the equity interest exercisable within 6 months of the short sale.

(Source: P.A. 90-418, eff. 8-15-97.)

(215 ILCS 5/126.14)

Sec. 126.14.
Tangible personal property under lease.

A. (1) Subject to the limitations of Section 126.10, an insurer may acquire
tangible personal property or
equity interests therein located or used wholly or in part within a domestic
jurisdiction either directly or indirectly through limited partnership
interests and general partnership interests not otherwise prohibited by
Section 126.5D, joint ventures, stock of an investment subsidiary or
membership interests in a limited liability company, trust certificates, or
other similar instruments.

(2) Investments acquired under paragraph (1) of this subsection shall be
eligible only if:

(a) The property is subject to a lease or other agreement with a person whose rated credit instruments in the amount of the purchase price of the personal property the insurer could then acquire under Section 126.11; and
(b) The lease or other agreement provides the insurer the right to receive rental, purchase or other fixed payments for the use or purchase of the property, and the aggregate value of the payments, together with the estimated residual value of the property at the end of its useful life and the estimated tax benefits to the insurer resulting from ownership of the property, shall be adequate to return the cost of the insurer’s investment in the property, plus a return deemed adequate by the insurer.

B. The insurer shall compute the amount of each investment under this
Section on the basis of the out of pocket purchase price and applicable related
expenses paid by the insurer for the investment, net of each borrowing made to
finance the purchase price and expenses, to the extent the borrowing is without
recourse to the insurer.

C. An insurer shall not acquire directly or indirectly through an investment
subsidiary an investment under this Section if, as a result of and after giving
effect to the investment, the aggregate amount of all investments then held by
the insurer under this Section would exceed:

(1) 2% of its admitted assets; or
(2) 0.5% of its admitted assets as to any single item of tangible personal property.

D. For purposes of determining compliance with the limitations of Section
126.10, investments acquired by an insurer under this Section shall be
aggregated with those acquired under Section 126.11, and each lessee of the
property under a lease referred to in this Section shall be deemed the issuer
of an obligation in the amount of the investment of the insurer in the property
determined as provided in subsection B of this Section.

E. Nothing in this Section is applicable to tangible personal property lease
arrangements between an insurer and its subsidiaries and affiliates under a
cost sharing arrangement or agreement permitted under Section
131.20a(1)(a)(iv).

(Source: P.A. 90-418, eff. 8-15-97.)

(215 ILCS 5/126.15)

Sec. 126.15.
Mortgage loans and real estate.

A. Mortgage loans.

(1) Subject to the limitations of Section 126.10, an insurer may acquire, either directly or indirectly through limited partnership interests and general partnership interests not otherwise prohibited by Section 126.5D, joint ventures, stock of an investment subsidiary or membership interests in a limited liability company, trust certificates, or other similar instruments, obligations secured by mortgages on real estate situated within a domestic jurisdiction, but a mortgage loan which is secured by other than a first lien shall not be acquired under this subsection (1) unless the insurer is the holder of the first lien. The obligations held by the insurer and any obligations with an equal lien priority, shall not, at the time of acquisition of the obligation, exceed:

(a) 90% of the fair market value of the real estate, if the mortgage loan is secured by a purchase money mortgage or like security received by the insurer upon disposition of the real estate;
(b) 80% of the fair market value of the real estate, if the mortgage loan requires immediate scheduled payment in periodic installments of principal and interest, has an amortization period of 30 years or less and periodic payments made no less frequently than annually. Each periodic payment shall be sufficient to assure that at all times the outstanding principal balance of the mortgage loan shall be not greater than the outstanding principal balance that would be outstanding under a mortgage loan with the same original principal balance, with the same interest rate and requiring equal payments of principal and interest with the same frequency over the same amortization period. Mortgage loans permitted under this subsection are permitted notwithstanding the fact that they provide for a payment of the principal balance prior to the end of the period of amortization of the loan. For residential mortgage loans, the 80% limitation may be increased to 97% if acceptable private mortgage insurance has been obtained; or
(c) 75% of the fair market value of the real estate for mortgage loans that do not meet the requirements of subparagraph (a) or (b) of this paragraph.

(2) For purposes of paragraph (1) of this subsection, the amount of an obligation required to be included in the calculation of the loan-to-value ratio may be reduced to the extent the obligation is insured by the Federal Housing Administration or guaranteed by the Administrator of Veterans Affairs, or their successors.
(3) Subject to the limitations of Section 126.10, an insurer may acquire, either directly or indirectly through limited partnership interests and general partnership interests not otherwise prohibited by Section 126.5D, joint ventures, stock of an investment subsidiary or membership interests in a limited liability company, trust certificates, or other similar instruments, obligations secured by a second mortgage on real estate situated within a domestic jurisdiction, other than as authorized in subsection (1) of this Section 126.15. The obligation held by the insurer shall be the sole second lien priority obligation and shall not, at the time of acquisition of the obligation, exceed 70% of the amount by which the fair market value of the real estate exceeds the amount outstanding under the first mortgage.
(4) A mortgage loan that is held by an insurer under Section 126.3F or acquired under this Section and is restructured in a manner that meets the requirements of a restructured mortgage loan in accordance with the NAIC Accounting Practices and Procedures Manual or successor publication shall continue to qualify as a mortgage loan under this Article.
(5) Subject to the limitations of Section 126.10, credit lease transactions that do not qualify for investment under Section 126.11 with the following characteristics shall be exempt from the provisions of paragraph (1) of this subsection:

(a) The loan amortizes over the initial fixed lease term at least in an amount sufficient so that the loan balance at the end of the lease term does not exceed the original appraised value of the real estate;
(b) The lease payments cover or exceed the total debt service over the life of the loan;
(c) A tenant or its affiliated entity, whose rated credit instruments have a SVO 1 or 2 designation or a comparable rating from a nationally recognized statistical rating organization recognized by the SVO, has a full faith and credit obligation to make the lease payments;
(d) The insurer holds or is the beneficial holder of a first lien mortgage on the real estate;
(e) The expenses of the real estate are passed through to the tenant, excluding exterior, structural, parking and heating, ventilation and air conditioning replacement expenses, unless annual escrow contributions, from cash flows derived from the lease payments, cover the expense shortfall; and
(f) There is a perfected assignment of the rents due pursuant to the lease to, or for the benefit of, the insurer.

B. Income producing real estate.

(1) An insurer may acquire, manage and dispose of real estate situated in a domestic jurisdiction either directly or indirectly through limited partnership interests and general partnership interests not otherwise prohibited by Section 126.5D, joint ventures, stock of an investment subsidiary or membership interests in a limited liability company, trust certificates, or other similar instruments. The real estate shall be income producing or intended for improvement or development for investment purposes under an existing program (in which case the real estate shall be deemed to be income producing).
(2) The real estate may be subject to mortgages, liens or other encumbrances, the amount of which shall, to the extent that the obligations secured by the mortgages, liens or encumbrances are without recourse to the insurer, be deducted from the amount of the investment of the insurer in the real estate for purposes of determining compliance with subsections D(2) and D(3) of this Section.

C. Real estate for the accommodation of business.

An insurer may acquire, manage, and dispose of real estate for the convenient
accommodation of the insurer’s (which may include its affiliates) business
operations, including home office, branch office and field office operations.

(1) Real estate acquired under this subsection may include excess space for rent to others, if the excess space, valued at its fair market value, would otherwise be a permitted investment under subsection B of this Section and is so qualified by the insurer;
(2) The real estate acquired under this subsection may be subject to one or more mortgages, liens or other encumbrances, the amount of which shall, to the extent that the obligations secured by the mortgages, liens or encumbrances are without recourse to the insurer, be deducted from the amount of the investment of the insurer in the real estate for purposes of determining compliance with subsection D(4) of this Section; and
(3) For purposes of this subsection, business operations shall not include that portion of real estate used for the direct provision of health care services by an accident and health insurer for its insureds. An insurer may acquire real estate used for these purposes under subsection B of this Section.

D. Quantitative limitations.

(1) An insurer shall not acquire an investment under subsection A of this Section if, as a result of and after giving effect to the investment, the aggregate amount of all investments then held by the insurer under subsection A of this Section would exceed:

(a) 1% of its admitted assets in mortgage loans covering any one secured location;
(b) 0.25% of its admitted assets in construction loans covering any one secured location; or
(c) 2% of its admitted assets in construction loans in the aggregate.

(2) An insurer shall not acquire an investment under subsection B of this Section if, as a result of and after giving effect to the investment and any outstanding guarantees made by the insurer in connection with the investment, the aggregate amount of investments then held by the insurer under subsection B of this Section plus the guarantees then outstanding would exceed:

(a) 1% of its admitted assets in one parcel or group of contiguous parcels of real estate, except that this limitation shall not apply to that portion of real estate used for the direct provision of health care services by an accident and health insurer for its insureds, such as hospitals, medical clinics, medical professional buildings or other health facilities used for the purpose of providing health services; or
(b) 15% of its admitted assets in the aggregate, but not more than 5% of its admitted assets in real estate to be improved or developed.

(3) An insurer shall not acquire an investment under subsections A or B of this Section if, as a result of and after giving effect to the investment and any guarantees made by the insurer in connection with the investment, the aggregate amount of all investments then held by the insurer under subsections A and B of this Section plus the guarantees then outstanding would exceed 45% of its admitted assets. However, an insurer may exceed this limitation by no more than 30% of its admitted assets if:

(a) This increased amount is invested only in residential mortgage loans;
(b) The insurer has no more than 10% of its admitted assets invested in mortgage loans other than residential mortgage loans;
(c) The loan-to-value ratio of each residential mortgage loan does not exceed 60% at the time the mortgage loan is qualified under this increased authority, and the fair market value is supported by an appraisal no more than 2 years old, prepared by an independent appraiser;
(d) A single mortgage loan qualified under this increased authority shall not exceed 0.5% of its admitted assets;
(e) The insurer files with the Director, and receives approval from the Director for, a plan that is designed to result in a portfolio of residential mortgage loans that is sufficiently geographically diversified; and
(f) The insurer agrees to file annually with the Director records that demonstrate that its portfolio of residential mortgage loans is geographically diversified in accordance with the plan.

(4) The limitations of Section 126.10 shall not apply to an insurer’s acquisition of real estate under subsection C of this Section. An insurer shall not acquire real estate under subsection C of this Section if, as a result of and after giving effect to the acquisition, the aggregate amount of real estate then held by the insurer under subsection C of this Section would exceed 10% of its admitted assets. With the permission of the Director, additional amounts of real estate may be acquired under subsection C of this Section.

(Source: P.A. 90-418, eff. 8-15-97.)

(215 ILCS 5/126.16)

Sec. 126.16.

Securities lending and repurchase, reverse repurchase, and
dollar roll transactions.
An insurer may enter into securities lending, repurchase, reverse repurchase,
and dollar roll transactions with business entities, subject to the following
requirements:

A. The insurer’s board of directors shall adopt a written plan that is
consistent with
the requirements of the written plan in Section 126.4A that specifies
guidelines and objectives to be followed, such as:

(1) A description of how cash received will be invested or used for general corporate purposes of the insurer;
(2) Operational procedures to manage interest rate risk, counterparty default risk, the conditions under which proceeds from reverse repurchase transactions may be used in the ordinary course of business and the use of acceptable collateral in a manner that reflects the liquidity needs of the transaction; and
(3) The extent to which the insurer may engage in these transactions.

B. The insurer shall enter into a written agreement for all transactions
authorized in this Section other than dollar roll transactions. The written
agreement shall require that each transaction terminate no more than one year
from its inception or upon
the earlier demand of the insurer. The agreement shall be with the business
entity counterparty, but for securities lending transactions, the agreement may
be with an agent acting on behalf of the insurer, if the agent is a qualified
business entity, and if the agreement:

(1) Requires the agent to enter into separate agreements with each counterparty that are consistent with the requirements of this Section; and
(2) Prohibits securities lending transactions pursuant to the agreement with the agent or its affiliates.

C. Cash received in a transaction under this Section shall be invested in
accordance with this Article and in a manner that recognizes the liquidity
needs of the transaction or used by the insurer for its general corporate
purposes. For so long as the transaction remains outstanding, the insurer, its
agent or custodian shall
maintain, as to acceptable collateral received in a transaction under this
Section, either physically or through the book entry systems of the Federal
Reserve, Depository Trust Company, Participants Trust Company or other
securities depositories approved by the Director:

(1) Possession of the acceptable collateral;
(2) A perfected security interest in the acceptable collateral; or
(3) In the case of a jurisdiction outside of the United States, title to, or rights of a secured creditor to, the acceptable collateral.

D. The limitations of Sections 126.10 and 126.17 shall not apply to the
business entity counterparty exposure created by transactions under this
Section. For purposes of calculations made to determine compliance with this
subsection, no effect will be
given to the insurer’s future obligation to resell securities, in the case of a
repurchase transaction, or to repurchase securities, in the case of a reverse
repurchase transaction. An insurer shall not enter into a transaction under
this Section if, as a result of and after giving effect to the transaction:

(1) The aggregate amount of securities then loaned or sold to, or purchased from, any one business entity counterparty under this Section would exceed 5% of its admitted assets. In calculating the amount sold to or purchased from a business entity counterparty under repurchase or reverse repurchase transactions, effect may be given to netting provisions under a master written agreement; or
(2) The aggregate amount of all securities then loaned, sold to or purchased from all business entities under this Section would exceed 40% of its admitted assets.

E. In a dollar roll transaction, the insurer shall receive cash in an amount
at least equal to the market value of the securities transferred by the insurer
in the transaction as of the transaction date.

F. The Director may promulgate reasonable rules for investments
and transactions under this Section including, but not limited to, rules
which impose financial solvency standards, valuation standards, and
reporting requirements.

(Source: P.A. 90-418, eff. 8-15-97.)

(215 ILCS 5/126.17)

Sec. 126.17.
Foreign investments and foreign currency exposure.

A. Subject to the limitations of Section 126.10, an insurer may acquire
directly or indirectly through an investment subsidiary, foreign investments,
or engage in investment practices with persons of or in foreign jurisdictions,
of substantially the same types as those that an insurer is permitted to
acquire under this Article, other than of the type permitted under Section
126.12, if, as a result and after giving effect to the investment:

(1) The aggregate amount of foreign investments then held by the insurer under this subsection does not exceed 20% of its admitted assets; and
(2) The aggregate amount of foreign investments then held by the insurer under this subsection in a single foreign jurisdiction does not exceed 10% of its admitted assets as to a foreign jurisdiction that has a sovereign debt rating of SVO 1 or 3% of its admitted assets as to any other foreign jurisdiction.

B. Subject to the limitations of Section 126.10, an insurer may acquire
investments, or engage in investment practices denominated in foreign
currencies, whether or not they are foreign investments acquired under
subsection A of this Section, or additional foreign currency exposure as a
result of the termination or expiration of a hedging transaction with respect
to investments denominated in a foreign currency, if, as a result of and after
giving effect to the transaction:

(1) The aggregate amount of investments then held by the insurer under this subsection denominated in foreign currencies does not exceed 10% of its admitted assets; and
(2) The aggregate amount of investments then held by the insurer under this subsection denominated in the foreign currency of a single foreign jurisdiction does not exceed 10% of its admitted assets as to a foreign jurisdiction that has a sovereign debt rating of SVO 1 or 3% of its admitted assets as to any other foreign jurisdiction.
(3) However, an investment shall not be considered denominated in a foreign currency if the acquiring insurer enters into one or more contracts in transactions permitted under Section 126.18 in which the business entity counterparty agrees to exchange, or grants to the insurer the option to exchange, all payments made on the foreign currency denominated investment (or amounts equivalent to the payments that are or will be due to the insurer in accordance with the terms of such investment) for United States currency during the period the contract or contracts are in effect to insulate the insurer against loss caused by diminution of the value of payments owed to the insurer due to future changes in currency exchange rates.

C. In addition to investments permitted under subsections A and B of this
Section, an insurer that is authorized to do business in a foreign
jurisdiction, and that has outstanding insurance, annuity or reinsurance
contracts on lives or risks resident or located in that foreign jurisdiction
and denominated in foreign currency of that jurisdiction, may acquire foreign
investments respecting that foreign jurisdiction, and may acquire investments
denominated in the currency of that jurisdiction, subject to the limitations of
Section 126.10. However, investments made under this subsection in obligations
of foreign governments, their political subdivisions and government sponsored
enterprises shall not be subject to the limitations of Section 126.10 if those
investments carry an SVO rating of 1 or 2. The aggregate amount of investments
acquired by the insurer under this subsection shall not exceed the
greater of:

(1) The amount the insurer is required by the law of the foreign jurisdiction to invest in the foreign jurisdiction; or
(2) 115% of the amount of its reserves, net of reinsurance, and other obligations under the contracts on lives or risks resident or located in the foreign jurisdiction.

D. In addition to investments permitted under subsections A and B of this
Section, an insurer that is not authorized to do business in a foreign
jurisdiction, but which has outstanding insurance, annuity or reinsurance
contracts on lives or risks resident or located in that foreign jurisdiction
and denominated in foreign currency of that jurisdiction, may acquire foreign
investments respecting that foreign jurisdiction, and may acquire investments
denominated in the currency of that jurisdiction subject to the limitations of
Section 126.10. However, investments made under this subsection in obligations
of foreign governments, their political subdivisions and government sponsored
enterprises shall not be subject to the limitations of Section 126.10 if those
investments carry an SVO rating of 1 or 2. The
aggregate amount of investments acquired by the insurer under this subsection
shall not exceed 105% of the amount of its reserves, net of reinsurance,
and other obligations under the contracts on lives or risks resident or located
in the foreign jurisdiction.

E. Investments acquired under this Section shall be aggregated with
investments of
the same types made under all other Sections of this Article, and in a similar
manner, for purposes of determining compliance with the limitations, if any,
contained in the other Sections. Investments in obligations of foreign
governments, their political subdivisions and government sponsored enterprises
of these persons, except for those exempted under subsections C and D of this
Section, shall be subject to the limitations of Section 126.10.

(Source: P.A. 90-418, eff. 8-15-97.)

(215 ILCS 5/126.18)

Sec. 126.18.
Derivative transactions.
An insurer may, directly or
indirectly through an investment subsidiary, engage in derivative transactions
under this Section under the following conditions:

A. General conditions.

(1) An insurer may use derivative instruments under this Section to engage in hedging transactions and income generation transactions.
(2) An insurer may use derivative instruments for replication transactions only after the Director promulgates reasonable rules that set forth methods of disclosure, reserving for risk-based capital, and determining the asset valuation reserve for these investments. Any asset being replicated is subject to all the provisions and limitations on the making thereof specified in this Article with respect to investments by the insurer as if the transaction constituted a direct investment by the insurer in the replicated asset.
(3) With respect to all hedging transactions, an insurer shall be able to demonstrate to the Director the intended hedging characteristics and the ongoing effectiveness of the derivative transaction or combination of the transactions through cash flow testing or other appropriate analyses.
(4) The Director may promulgate reasonable rules for investments and transactions under this Section including, but not limited to, rules which impose financial solvency standards, valuation standards, and reporting requirements.

B. Limitations on hedging transactions.

An insurer may enter into hedging transactions under this Section if, as a
result of and after giving effect to the transaction:

(1) The aggregate statement value of options, caps, floors and warrants not attached to another financial instrument purchased and used in hedging transactions then engaged in by the insurer does not exceed 7.5% of its admitted assets;
(2) The aggregate statement value of options, caps and floors written in hedging transactions then engaged in by the insurer does not exceed 3% of its admitted assets; and
(3) The aggregate potential exposure of collars, swaps, forwards and futures used in hedging transactions then engaged in by the insurer does not exceed 6.5% of its admitted assets.

C. Limitations on income generation transactions.

An insurer may enter into the following types of income generation
transactions subject to the quantitative limits of subsection C(5):

(1) Sales of covered call options on noncallable fixed income securities, callable fixed income securities if the option expires by its terms prior to the end of the noncallable period or derivative instruments based on fixed income securities;
(2) Sales of covered call options on equity securities, if the insurer holds in its portfolio, or can immediately acquire through the exercise of options, warrants or conversion rights already owned, the equity securities subject to call during the complete term of the call option sold;
(3) Sales of covered puts on investments that the insurer is permitted to acquire under this Article, if the insurer has escrowed, or entered into a custodian agreement segregating, cash or cash equivalents with a market value equal to the amount of its purchase obligations under the put during the complete term of the put option sold; or
(4) Sales of covered caps or floors, if the insurer holds in its portfolio the investments generating the cash flow to make the required payments under the caps or floors during the complete term that the cap or floor is outstanding.
(5) If as a result of and after giving effect to the transactions, the aggregate statement value of the fixed income assets that are subject to call or that generate the cash flows for payments under the caps or floors, plus the face value of fixed income securities underlying a derivative instrument subject to call, plus the amount of the purchase obligations under the puts, does not exceed 10% of its admitted assets.

D. Counterparty exposure.
An insurer shall include all counterparty exposure amounts in determining
compliance with the limitations of Section 126.10.

E. Additional transactions.
Pursuant to rules promulgated under Section 126.8, the Director may approve
additional transactions involving the use of derivative instruments in excess
of the limits of subsection B of this Section or for other risk management
purposes.

(Source: P.A. 90-418, eff. 8-15-97.)

(215 ILCS 5/126.19)

Sec. 126.19.
Policy loans.
A life insurer may lend to a policyholder on the security of the cash
surrender value of the
policyholder’s policy a sum not exceeding the legal reserve that the insurer is
required to
maintain on the policy.

(Source: P.A. 90-418, eff. 8-15-97.)

(215 ILCS 5/126.20)

Sec. 126.20.
Additional investment authority.

A. Solely for the purpose of acquiring investments that exceed the
quantitative limitations of Sections 126.10 through 126.17, an insurer may
acquire under this subsection an investment, or engage in investment practices
described in Section 126.16, but an insurer shall not acquire an investment, or
engage in investment practices described in Section 126.16, under this
subsection if, as a result of and after giving effect to the transaction:

(1) The aggregate amount of investments then held by an insurer under this subsection would exceed 3% of its admitted assets; or
(2) The aggregate amount of investments as to one limitation in Sections 126.10 through 126.17 then held by the insurer under this subsection would exceed 1% of its admitted assets.

B. (1) In addition to the authority provided under subsection A of this Section, an insurer may acquire under this subsection an investment of any kind, or engage in investment practices described in Section 126.16, that are not specifically prohibited by this Article, without regard to the categories, conditions, standards or other limitations of Sections 126.10 through 126.17 if, as a result of and after giving effect to the transaction, the aggregate amount of investments then held under this subsection would not exceed the lesser of:

(a) 10% of its admitted assets; or
(b) 75% of its capital and surplus.

(2) However, an insurer shall not acquire any investment or engage in any investment practice under this subsection if, as a result of and after giving effect to the transaction, the aggregate amount of all investments in any one person then held by the insurer under this subsection would exceed 3% of its admitted assets.

C. In addition to the investments acquired under subsections A and B of this
Section, an insurer may acquire under this subsection an investment of any
kind, or engage in investment practices described in Section 126.16, that are
not specifically prohibited by this Article without regard to any limitations
of Sections 126.10 through 126.17 if:

(1) The Director grants prior approval;
(2) The insurer demonstrates that its investments are being made in a prudent manner and that the additional amounts will be invested in a prudent manner; and
(3) As a result of and after giving effect to the transaction the aggregate amount of investments then held by the insurer under this subsection does not exceed the greater of:

(a) 25% of its capital and surplus; or
(b) 100% of capital and surplus less 10% of its admitted assets.

D. Under this Section, an insurer shall not acquire or engage in an
investment practice prohibited under Section 126.5 or an investment that is a
derivative transaction.

(Source: P.A. 90-418, eff. 8-15-97.)

(215 ILCS 5/Art. VIII Pt. 3 heading)

3.
PROPERTY AND CASUALTY INSURERS

(215 ILCS 5/126.21)

Sec. 126.21.
Applicability.
This Part 3 shall apply to the investments and investment practices of
property and
casualty insurers authorized to transact the kinds of insurance in either or
both Class 2 or Class 3
of Section 4 of this Code, subject to the provisions of Section 126.1B.

(Source: P.A. 90-418, eff. 8-15-97.)

(215 ILCS 5/126.22)

Sec. 126.22.
Reserve requirements.

A. Reserve requirements.

(1) Subject to all other limitations and requirements of this Article, a property and casualty insurer shall maintain an amount at least equal to the lesser of $250,000,000 or 100% of adjusted loss reserves and loss adjustment expense reserves, 100% of adjusted unearned premium reserves and 100% of statutorily required policy and contract reserves in:

(a) Cash and cash equivalents;
(b) High and medium grade investments that qualify under Sections 126.24 or 126.25;
(c) Equity interests that qualify under Section 126.26 and that are traded on a qualified exchange;
(d) Investments of the type set forth in Section 126.30 if the investments are rated in the highest generic rating category by a nationally recognized statistical rating organization recognized by the SVO for rating foreign jurisdictions and if any foreign currency exposure is effectively hedged through the maturity date of the investments;
(e) Qualifying investments of the type set forth in subparagraphs (b), (c) or (d) of this paragraph that are acquired under Section 126.32;
(f) Interest and dividends receivable on qualifying investments of the type set forth in subparagraphs (a) through (e) of this subsection; or
(g) Reinsurance recoverable on paid losses.

(2) Reserve Requirement Amount:

(a) For purposes of determining the amount of assets to be maintained under this subsection, the calculation of adjusted loss reserves and loss adjustment expense reserves, adjusted unearned premium reserves and statutorily required policy and contract reserves shall be based on the amounts reported as of the most recent annual or quarterly statement date.
(b) Adjusted loss reserves and loss adjustment expense reserves shall be equal to the sum of the amounts derived from the following calculations:

(i) The result of each amount reported by the insurer as losses and loss adjustment expenses unpaid for each accident year for each individual line of business; multiplied by
(ii) The discount factor that is applicable to the line of business and accident year published by the Internal Revenue Service under Internal Revenue Code Section 846 (26 U.S.C. 846), as amended, for the calendar year that corresponds to the most recent annual statement of the insurer; minus
(iii) Accrued retrospective premiums discounted by an average discount factor. The discount factor shall be calculated by dividing the losses and loss adjustment expenses unpaid after discounting (the product of Items (i) and (ii) in this subparagraph) by loss and loss adjustment expense reserves before discounting Item (i) of this subparagraph.
(iv) For purposes of these calculations, the losses and loss adjustment expenses unpaid shall be determined net of anticipated salvage and subrogation, and gross of any discount for the time value of money or tabular discount.

(i) The amount reported by the insurer as unearned premium reserves; minus
(ii) The admitted asset amounts reported by the insurer as:

(I) Premiums in and agents’ balances in the course of collection, accident and health premiums due and unpaid and uncollected premiums for accident and health premiums;
(II) Premiums, agents’ balances and installments booked but deferred and not yet due;
(III) Bills receivable, taken for premium; and
(IV) Equities and deposits in pools and associations.

(d) Statutorily required policy and contract reserves shall also include contingency reserves required for mortgage guaranty insurers, municipal bond insurers, and other financial guaranty insurers.

B. Monitoring and reporting.
A property and casualty insurer shall supplement its annual statement with a
reconciliation and summary of its assets and reserve requirements as required
in subsection A of this Section. A reconciliation and summary showing that an
insurer’s assets as required in subsection A of this Section are greater than
or equal to its undiscounted reserves referred to in subsection A of this
Section shall be sufficient to satisfy this requirement. Upon prior
notification, the Director
may
require an insurer to submit such a reconciliation and summary with any
quarterly
statement filed during the calendar year.

C. Notification requirements and mandatory safeguards.
If a property and casualty insurer’s assets and reserves do not comply with
subsection A of this Section, the insurer shall notify the Director immediately
of the amount by which the reserve requirements exceed the annual statement
value of the qualifying assets, explain why the deficiency exists and within 30
days of the date of the notice propose a plan of action to remedy the
deficiency.

D. Authority of the Director.

(1) If the Director determines that an insurer is not in compliance with subsection A of this Section, the Director shall require the insurer to eliminate the condition causing the noncompliance within a specified time from the date the notice of the Director’s requirement is mailed or delivered to the insurer.
(2) If an insurer fails to comply with the Director’s requirement under paragraph (1) of this subsection, the insurer is deemed to be in hazardous financial condition, and the Director shall take one or more of the actions authorized by law as to insurers in hazardous financial condition.

E. An insurer subject to this Section must comply with the requirements of
this Section after December 31, 1997.

(Source: P.A. 90-418, eff. 8-15-97.)

(215 ILCS 5/126.23)

Sec. 126.23.

General 5% diversification, medium and lower grade
investments, and Canadian investments.

A. General 5% diversification.

(1) Except as otherwise specified in this Article, an insurer shall not acquire directly or indirectly through an investment subsidiary an investment under this Article if, as a result of and after giving effect to the investment, the insurer would hold more than 5% of its admitted assets in investments of all kinds issued, assumed, accepted, guaranteed, or insured by a single person.
(2) This 5% limitation shall not apply to the aggregate amounts insured by a single financial guaranty insurer with the highest generic rating issued by a nationally recognized statistical rating organization.
(3) Asset-backed securities shall not be subject to the limitations of paragraph (1) of this subsection, however, except as permitted by subsection A(4) of this Section, an insurer shall not acquire an asset-backed security if, as a result of and after giving effect to the investment, the aggregate amount of asset-backed securities secured by or evidencing an interest in a single asset or single pool of assets held by a trust or other business entity, then held by the insurer would exceed 5% of its admitted assets.
(4) A company’s investments in mortgage related securities, as defined by the Secondary Mortgage Market Enhancement Act of 1984 (United States Public Law 98-440, 12 U.S.C. 24, 1451, 1454 et seq.), that are backed by any single pool of mortgages and made pursuant to the authority of that Act, shall not exceed 5% of its admitted assets.

B. Medium and lower grade investments.

(1) An insurer shall not acquire, directly or indirectly through an investment subsidiary, an investment under Sections 126.24, 126.27, and 126.30 or counterparty exposure under Section 126.31D if, as a result of and after giving effect to the investment:

(a) The aggregate amount of all medium and lower grade investments then held by the insurer would exceed 20% of its admitted assets;
(b) The aggregate amount of lower grade investments then held by the insurer would exceed 10% of its admitted assets;
(c) The aggregate amount of investments rated 5 or 6 by the SVO then held by the insurer would exceed 5% of its admitted assets;
(d) The aggregate amount of investments rated 6 by the SVO then held by the insurer would exceed 1% of its admitted assets; or
(e) The aggregate amount of lower grade investments then held by the insurer that receive as cash income less than the equivalent yield for Treasury issues with a comparative average life, would exceed 1% of its admitted assets.

(2) An insurer shall not acquire, directly or indirectly through an investment subsidiary, an investment under Sections 126.24, 126.27, and 126.30 or counterparty exposure under Section 126.31D if, as a result of and after giving effect to the investment:

(a) The aggregate amount of medium and lower grade investments issued, assumed, accepted, guaranteed, or insured by any one person or, as to asset-backed securities secured by or evidencing an interest in a single asset or pool of assets, then held by the insurer would exceed 1% of its admitted assets; or
(b) The aggregate amount of lower grade investments issued, assumed, accepted, guaranteed, or insured by any one person or, as to asset-backed securities secured by or evidencing an interest in a single asset or pool of assets, then held by the insurer would exceed 0.5% of its admitted assets.

(3) If an insurer attains or exceeds the limit of any one rating category referred to in this subsection, the insurer shall not thereby be precluded from acquiring investments in other rating categories subject to the specific and multi-category limits applicable to those investments.

C. Canadian investments.

(1) An insurer shall not acquire, directly or indirectly through an investment subsidiary, any Canadian investments authorized by this Article, if as a result of and after giving effect to the investment, the aggregate amount of these investments then held by the insurer would exceed 40% of its admitted assets, or if the aggregate amount of Canadian investments not acquired under Section 126.24B then held by the insurer would exceed 25% of its admitted assets.
(2) However, as to an insurer that is authorized to do business in Canada or that has outstanding insurance, annuity or reinsurance contracts on lives or risks resident or located in Canada and denominated in Canadian currency, the limitations of paragraph (1) of this subsection shall be increased by the greater of:

(a) The amount the insurer is required by Canadian law to invest in Canada or to be denominated in Canadian currency; or
(b) 125% of the amount of its reserves and other obligations under contracts on risks resident or located in Canada.

(Source: P.A. 90-418, eff. 8-15-97.)

(215 ILCS 5/126.24)

Sec. 126.24.
Rated credit instruments.
Subject to the limitations of subsection F of this Section, an insurer may
acquire rated credit instruments:

A. Subject to the limitations of Section 126.23B, but not to the limitations
of Section 126.23A except for the limitation of subsection (4) of Section
126.23A, an insurer may acquire rated credit instruments issued, assumed,
guaranteed, or insured by:

(1) The United States; or
(2) A government sponsored enterprise of the United States, if the instruments of the government sponsored enterprise are assumed, guaranteed, or insured by the United States or are otherwise backed or supported by the full faith and credit of the United States.
B. (1) Subject to the limitations of Section 126.23B, but not to the limitations of Section 126.23A, an insurer may acquire rated credit instruments issued, assumed, guaranteed, or insured by:

(a) Canada; or
(b) A government sponsored enterprise of Canada, if the instruments of the government sponsored enterprise are assumed, guaranteed, or insured by Canada or are otherwise backed or supported by the full faith and credit of Canada;

(2) However, an insurer shall not acquire an instrument under this subsection if, as a result of and after giving effect to the investment, the aggregate amount of investments then held by the insurer under this subsection would exceed 40% of its admitted assets.
C. (1) Subject to the limitations of Section 126.23B, but not to the limitations of Section 126.23A, an insurer may acquire rated credit instruments, excluding asset-backed securities:

(a) Issued by a government money market mutual fund, a class one money market mutual fund or a class one bond mutual fund;
(b) Issued, assumed, guaranteed, or insured by a government sponsored enterprise of the United States other than those eligible under subsection A of this Section;
(c) Issued, assumed, guaranteed, or insured by a state, if the instruments are general obligations of the state; or
(d) Issued by a multilateral development bank.

(2) However, an insurer shall not acquire an instrument of any one fund, any one enterprise or entity, or any one state under this subsection if, as a result of and after giving effect to the investment, the aggregate amount of investments then held by the insurer in any one fund, enterprise, entity, or state under this subsection would exceed 10% of its admitted assets.

D. Subject to the limitations of Section 126.23, an insurer may acquire
preferred stocks that are not foreign investments and that meet the
requirements of rated credit instruments if, as a result of and after giving
effect to the investment:

(1) The aggregate amount of preferred stocks then held by the insurer under this subsection does not exceed 33 1/3% of its admitted assets; and
(2) The aggregate amount of preferred stocks then held by the insurer under this subsection which are not sinking fund stocks or rated P1 or P2 by the SVO does not exceed 15% of its admitted assets.

E. Subject to the limitations of Section 126.23 in addition to those
investments eligible under subsections A, B, C and D of this Section, an
insurer may acquire rated credit instruments that are not foreign investments.

F. An insurer shall not acquire special rated credit instruments under this
Section if, as a result of and after giving effect to the investment, the
aggregate amount of special rated credit instruments then held by the insurer
would exceed 5% of its admitted assets. The Director may, by rule, identify
certain special rated credit instruments that are exempt from the limitation
imposed by this subsection.

(Source: P.A. 90-418, eff. 8-15-97.)

(215 ILCS 5/126.25)

Sec. 126.25. Insurer investment pools.

A. An insurer may acquire investments in investment pools that:

(1) Invest only in:

(a) Obligations that are rated 1 or 2 by the SVO or have an equivalent of an SVO 1 or 2 rating (or, in the absence of a 1 or 2 rating or equivalent rating, the issuer has outstanding obligations with an SVO 1 or 2 or equivalent rating) by a nationally recognized statistical rating organization recognized by the SVO and have:

(i) A remaining maturity of 397 days or less or a put that entitles the holder to receive the principal amount of the obligation which put may be exercised through maturity at specified intervals not exceeding 397 days; or
(ii) A remaining maturity of 3 years or less and a floating interest rate that resets no less frequently than quarterly on the basis of a current short-term index (federal funds, prime rate, treasury bills, London InterBank Offered Rate (LIBOR) or commercial paper) and is subject to no maximum limit, if the obligations do not have an interest rate that varies inversely to market interest rate changes;

(b) Government money market mutual funds or class one money market mutual funds; or
(c) Securities lending, repurchase, and reverse repurchase, transactions that meet all the requirements of Section 126.29, except the quantitative limitations of Section 126.29D; or

(2) Invest only in investments which an insurer may acquire under this Article, if the insurer’s proportionate interest in the amount invested in these investments when combined with amounts of such investments made directly or indirectly through an investment subsidiary or other insurer investment pool permitted under this subsection A(2) does not exceed the applicable limits of this Article for such investments.

B. For an investment in an investment pool to be qualified under this
Article, the investment pool shall not:

(1) Acquire securities issued, assumed, guaranteed, or insured by the insurer or an affiliate of the insurer;
(2) Borrow or incur any indebtedness for borrowed money, except for securities lending and reverse repurchase transactions that meet the requirements of Section 126.29 except the quantitative limitations of Section 126.29D; or
(3) Acquire an investment if, as a result of such transaction, the aggregate value of securities then loaned or sold to, purchased from or invested in any one business entity under this Section would exceed 10% of the total assets of the investment pool.

C. The limitations of Section 126.23A shall not apply to an insurer’s
investment in an investment pool, however an insurer shall not acquire an
investment in an investment pool under this Section if, as a result of and
after giving effect to the investment, the aggregate amount of investments then
held by the insurer under this Section:

(1) In all investment pools investing in investments permitted under subsection A(2) of this Section would exceed 25% of its admitted assets; or
(2) In all investment pools would exceed 40% of its admitted assets.

D. For an investment in an investment pool to be qualified under this
Article, the manager of the investment pool shall:

(1) Be organized under the laws of the United States or a state and designated as the pool manager in a pooling agreement;
(2) Be the insurer, an affiliated insurer or a business entity affiliated with the insurer, a qualified bank, a business entity registered under the Investment Advisers Act of 1940 (15 U.S.C. 80a-1 et seq.), as amended or, in the case of a reciprocal insurer or interinsurance exchange, its attorney-in-fact, or in the case of a United States branch of an alien insurer, its United States manager or an affiliate or subsidiary of its United States manager;
(3) Be responsible for the compilation and maintenance of detailed accounting records setting forth:

(a) The cash receipts and disbursements reflecting each participant’s proportionate investment in the investment pool;
(b) A complete description of all underlying assets of the investment pool (including amount, interest rate, maturity date (if any) and other appropriate designations); and
(c) Other records which, on a daily basis, allow third parties to verify each participant’s investment in the investment pool; and

(4) Maintain the assets of the investment pool in one or more accounts, in the name of or on behalf of the investment pool, under a custody agreement with a qualified bank. The custody agreement shall:

(a) State and recognize the claims and rights of each participant;
(b) Acknowledge that the underlying assets of the investment pool are held solely for the benefit of each participant in proportion to the aggregate amount of its investments in the investment pool; and
(c) Contain an agreement that the underlying assets of the investment pool shall not be commingled with the general assets of the custodian qualified bank or any other person.

E. The pooling agreement for each investment pool shall be in writing and
shall provide that:

(1) An insurer and its affiliated insurers or, in the case of an investment pool investing solely in investments permitted under subsection A(1) of this Section, the insurer and its subsidiaries, affiliates or any pension or profit sharing plan of the insurer, its subsidiaries and affiliates or, in the case of a United States branch of an alien insurer, affiliates or subsidiaries of its United States manager, shall, at all times, hold 100% of the interests in the investment pool;
(2) The underlying assets of the investment pool shall not be commingled with the general assets of the pool manager or any other person;
(3) In proportion to the aggregate amount of each pool participant’s interest in the investment pool:

(a) Each participant owns an undivided interest in the underlying assets of the investment pool; and
(b) The underlying assets of the investment pool are held solely for the benefit of each participant;

(4) A participant, or in the event of the participant’s insolvency, bankruptcy or receivership, its trustee, receiver or other successor-in-interest, may withdraw all or any portion of its investment from the investment pool under the terms of the pooling agreement;
(5) Withdrawals may be made on demand without penalty or other assessment on any business day, but settlement of funds shall occur within a reasonable and customary period thereafter not to exceed 10 business days. Distributions under this paragraph shall be calculated in each case net of all then applicable fees and expenses of the investment pool. The pooling agreement shall provide that the pool manager shall distribute to a participant, at the discretion of the pool manager:

(a) In cash, the then fair market value of the participant’s pro rata share of each underlying asset of the investment pool;
(b) In kind, a pro rata share of each underlying asset; or
(c) In a combination of cash and in kind distributions, a pro rata share in each underlying asset; and

(6) The pool manager shall make the records of the investment pool available for inspection by the Director.

F. Except for the formation of the investment pool, transactions between a
domestic insurer and an affiliated insurer
investment pool shall not be subject to the requirements of Section
131.20a of this Code.

(Source: P.A. 100-201, eff. 8-18-17.)

(215 ILCS 5/126.26)

Sec. 126.26.
Equity Interests.

A. Subject to the limitations of Section 126.23, an insurer may acquire
directly, or indirectly through an investment subsidiary, equity interests in
business entities organized under the laws of any domestic jurisdiction.

B. An insurer shall not acquire directly, or indirectly through an
investment
subsidiary, an investment under this Section if, as a result of and after
giving effect
to the investment, the aggregate amount of investments then held by the insurer
under this Section would exceed the greater of 25% of its
admitted assets or 100% of its surplus as regards
policyholders.

C. An insurer shall not acquire under this Section any investments that the
insurer
may acquire under Section 126.28.

D. An insurer shall not short sell equity interests unless the insurer
covers the short
sale by owning the equity interest or an unrestricted right to the equity
interest
exercisable within 6 months of the short sale.

(Source: P.A. 90-418, eff. 8-15-97.)

(215 ILCS 5/126.27)

Sec. 126.27.
Tangible personal property under lease.

A. (1) Subject to the limitations of Section 126.23, an
insurer may acquire tangible personal property or
equity interests therein located or used wholly or in part within a domestic
jurisdiction either directly or indirectly through limited partnership
interests and general partnership interests not otherwise prohibited by
Section 126.5D, joint ventures, stock of an investment subsidiary or
membership interests in a limited liability company, trust certificates, or
other similar instruments.

(2) Investments acquired under paragraph (1) of this subsection shall be eligible only if:

(a) The property is subject to a lease or other agreement with a person whose rated credit instruments in the amount of the purchase price of the personal property the insurer could then acquire under Section 126.24; and
(b) The lease or other agreement provides the insurer the right to receive rental, purchase or other fixed payments for the use or purchase of the property, and the aggregate value of the payments, together with the estimated residual value of the property at the end of its useful life and the estimated tax benefits to the insurer resulting from ownership of the property, shall be adequate to return the cost of the insurer’s investment in the property, plus a return deemed adequate by the insurer.

B. The insurer shall compute the amount of each investment under this
Section on the
basis of the out of pocket purchase price and applicable related expenses paid
by the insurer for the investment, net of each borrowing made to finance the
purchase price and expenses, to the extent the borrowing is without recourse to
the insurer.

(1) 2% of its admitted assets; or
(2) 0.5% of its admitted assets as to any single item of tangible personal property.

D. For purposes of determining compliance with the limitations of Section
126.23, investments acquired by an insurer under this Section shall be
aggregated with those acquired under Section 126.24, and each lessee of the
property under a lease referred to in this Section shall be deemed the issuer
of an obligation in the amount of the investment of the insurer in the property
determined as provided in subsection B of this Section.

(Source: P.A. 90-418, eff. 8-15-97.)

(215 ILCS 5/126.28)

Sec. 126.28.
Mortgage loans and real estate.

A. Mortgage loans.

(1) Subject to the limitations of Section 126.23, an insurer may acquire,
either directly or indirectly through limited partnership interests and general
partnership interests not otherwise prohibited by Section 126.5D, joint
ventures, stock of an investment subsidiary or membership interests in a
limited liability company, trust certificates, or other similar instruments,
obligations secured by mortgages on real estate situated within a domestic
jurisdiction, but a mortgage loan which is secured by other than a first lien
shall not be acquired under this subsection (1) unless the insurer is the
holder of the first lien. The obligations held by the insurer and any
obligations with an equal lien priority, shall not, at the time of acquisition
of the obligation, exceed:

(a) 90% of the fair market value of the real estate, if the mortgage loan is secured by a purchase money mortgage or like security received by the insurer upon disposition of the real estate;
(b) 80% of the fair market value of the real estate, if the mortgage loan requires immediate scheduled payment in periodic installments of principal and interest, has an amortization period of 30 years or less and periodic payments made no less frequently than annually. Each periodic payment shall be sufficient to assure that at all times the outstanding principal balance of the mortgage loan shall be not greater than the outstanding principal balance which would be outstanding under a mortgage loan with the same original principal balance, with the same interest rate and requiring equal payments of principal and interest with the same frequency over the same amortization period. Mortgage loans permitted under this subsection are permitted notwithstanding the fact that they provide for a payment of the principal balance prior to the end of the period of amortization of the loan. For residential mortgage loans, the 80% limitation may be increased to 97% if acceptable private mortgage insurance has been obtained; or
(c) 75% of the fair market value of the real estate for mortgage loans that do not meet the requirements of subparagraph (a) or (b) of this paragraph.

(2) For purposes of paragraph (1) of this subsection, the amount of an obligation required to be included in the calculation of the loan-to-value ratio may be reduced to the extent the obligation is insured by the Federal Housing Administration or guaranteed by the Administrator of Veterans Affairs, or their successors.
(3) Subject to the limitations of Section 126.23, an insurer may acquire, either directly or indirectly through limited partnership interests and general partnership interests not otherwise prohibited by Section 126.5D, joint ventures, stock of an investment subsidiary or membership interests in a limited liability company, trust certificates, or other similar instruments, obligations secured by a second mortgage on real estate situated within a domestic jurisdiction, other than as authorized in subsection (1) of this Section 126.28. The obligation held by the insurer shall be the sole second lien priority obligation and shall not, at the time of acquisition of the obligation, exceed 70% of the amount by which the fair market value of the real estate exceeds the amount outstanding under the first mortgage.
(4) A mortgage loan that is held by an insurer under Section 126.3F or acquired under this Section and is restructured in a manner that meets the requirements of a restructured mortgage loan in accordance with the NAIC Accounting Practices and Procedures Manual or successor publication shall continue to qualify as a mortgage loan under this Article.
(5) Subject to the limitations of Section 126.23, credit lease transactions that do not qualify for investment under Section 126.24 with the following characteristics shall be exempt from the provisions of paragraph (1) of this subsection:

(a) The loan amortizes over the initial fixed lease term at least in an amount sufficient so that the loan balance at the end of the lease term does not exceed the original appraised value of the real estate;
(b) The lease payments cover or exceed the total debt service over the life of the loan;
(c) A tenant or its affiliated entity, whose rated credit instruments have a SVO 1 or 2 designation or a comparable rating from a nationally recognized statistical rating organization recognized by the SVO, has a full faith and credit obligation to make the lease payments;
(d) The insurer holds or is the beneficial holder of a first lien mortgage on the real estate;
(e) The expenses of the real estate are passed through to the tenant, excluding exterior, structural, parking and heating, ventilation and air conditioning replacement expenses, unless annual escrow contributions, from cash flows derived from the lease payments, cover the expense shortfall; and
(f) There is a perfected assignment of the rents due pursuant to the lease to, or for the benefit of, the insurer.

B. Income producing real estate.

(1) An insurer may acquire, manage and dispose of real estate situated in a domestic jurisdiction either directly or indirectly through limited partnership interests and general partnership interests not otherwise prohibited by Section 126.5D, joint ventures, stock of an investment subsidiary or membership interests in a limited liability company, trust certificates, or other similar instruments. The real estate shall be income producing or intended for improvement or development for investment purposes under an existing program (in which case the real estate shall be deemed to be income producing).
(2) The real estate may be subject to mortgages, liens or other encumbrances, the amount of which shall, to the extent that the obligations secured by the mortgages, liens or encumbrances are without recourse to the insurer, be deducted from the amount of the investment of the insurer in the real estate for purposes of determining compliance with subsections D(2) and D(3) of this Section.

C. Real estate for the accommodation of business.

(1) Real estate acquired under this subsection may include excess space for rent to others, if the excess space, valued at its fair market value, would otherwise be a permitted investment under subsection B of this Section and is so qualified by the insurer;
(2) The real estate acquired under this subsection may be subject to one or more mortgages, liens or other encumbrances, the amount of which shall, to the extent that the obligations secured by the mortgages, liens or encumbrances are without recourse to the insurer, be deducted from the amount of the investment of the insurer in the real estate for purposes of determining compliance with subsection D(4) of this Section; and
(3) For purposes of this subsection, business operations shall not include that portion of real estate used for the direct provision of health care services by an insurer whose insurance premiums and required statutory reserves for accident and health insurance constitute at least 95% of total premium considerations or total statutory required reserves, respectively. An insurer may acquire real estate used for these purposes under subsection B of this Section.

D. Quantitative limitations.

(1) An insurer shall not acquire an investment under subsection A of this Section if, as a result of and after giving effect to the investment, the aggregate amount of all investments then held by the insurer under subsection A of this Section would exceed:

(a) 1% of its admitted assets in mortgage loans covering any one secured location;
(b) 0.25% of its admitted assets in construction loans covering any one secured location; or
(c) 1% of its admitted assets in construction loans in the aggregate.

(2) An insurer shall not acquire an investment under subsection B of this Section if, as a result of and after giving effect to the investment and any outstanding guarantees made by the insurer in connection with the investment, the aggregate amount of investments then held by the insurer under subsection B of this Section plus the guarantees then outstanding would exceed:

(a) 1% of its admitted assets in any one parcel or group of contiguous parcels of real estate, except that this limitation shall not apply to that portion of real estate used for the direct provision of health care services by an insurer whose insurance premiums and required statutory reserves for accident and health insurance constitute at least 95% of total premium considerations or total statutory required reserves, respectively, such as hospitals, medical clinics, medical professional buildings or other health facilities used for the purpose of providing health services; or
(b) The lesser of 10% of its admitted assets or 40% of its surplus as regards policyholders in the aggregate, except for an insurer whose insurance premiums and required statutory reserves for accident and health insurance constitute at least 95% of total premium considerations or total statutory required reserves, respectively, this limitation shall be increased to 15% of its admitted assets in the aggregate.

(3) An insurer shall not acquire an investment under subsection A or B of this Section if, as a result of and after giving effect to the investment and any guarantees it has made in connection with the investment, the aggregate amount of all investments then held by the insurer under subsections A and B of this Section plus the guarantees then outstanding would exceed 25% of its admitted assets.
(4) The limitations of Section 126.23 shall not apply to an insurer’s acquisition of real estate under subsection C of this Section. An insurer shall not acquire real estate under subsection C of this Section if, as a result of and after giving effect to the acquisition, the aggregate amount of all real estate then held by the insurer under subsection C of this Section would exceed 10% of its admitted assets. With the permission of the Director, additional amounts of real estate may be acquired under subsection C of this Section.

(Source: P.A. 90-418, eff. 8-15-97.)

(215 ILCS 5/126.29)

Sec. 126.29.

Securities lending and repurchase, reverse repurchase, and
dollar roll transactions. An insurer may enter into securities lending,
repurchase, reverse repurchase, and dollar roll transactions with business
entities, subject to the following requirements:

A. The insurer’s board of directors shall adopt a written plan that is
consistent with the requirements of the written plan in Section 126.4A that
specifies guidelines and objectives to be followed, such as:

(1) A description of how cash received will be invested or used for general corporate purposes of the insurer;
(2) Operational procedures to manage interest rate risk, counterparty default risk, the conditions under which proceeds from reverse repurchase transactions may be used in the ordinary course of business and the use of acceptable collateral in a manner that reflects the liquidity needs of the transaction; and
(3) The extent to which the insurer may engage in these transactions.

B. The insurer shall enter into a written agreement for all transactions
authorized in this Section other than dollar roll transactions. The written
agreement shall require that each transaction terminate no more than one year
from its inception or upon the earlier demand of the insurer. The agreement
shall be with the business entity counterparty, but for securities lending
transactions, the agreement may be with an agent acting on behalf of the
insurer, if the agent is a qualified business entity, and if the agreement:

(1) Requires the agent to enter into separate agreements with each counterparty that are consistent with the requirements of this Section; and
(2) Prohibits securities lending transactions pursuant to the agreement with the agent or its affiliates.

C. Cash received in a transaction under this Section shall be invested in
accordance with this Article and in a manner that recognizes the liquidity
needs of the transaction or used by the insurer for its general corporate
purposes. For so long as the transaction remains outstanding, the insurer, its
agent or custodian shall maintain, as to acceptable collateral received in a
transaction under this Section, either physically or through the book entry
systems of the Federal Reserve, Depository Trust Company, Participants Trust
Company or other securities depositories approved by the Director:

(1) Possession of the acceptable collateral;
(2) A perfected security interest in the acceptable collateral; or
(3) In the case of a jurisdiction outside of the United States, title to, or rights of a secured creditor to, the acceptable collateral.

D. The limitations of Sections 126.23 and 126.30 shall not apply to the
business entity
counterparty exposure created by transactions under this Section. For purposes
of calculations made to determine compliance with this subsection, no effect
will
be given to the insurer’s future obligation to resell securities, in the case
of a repurchase transaction, or to repurchase securities, in the case of a
reverse repurchase transaction. An insurer shall not enter into a transaction
under this Section if, as a result of and after giving effect to the
transaction:

(1) The aggregate amount of securities then loaned or sold to, or purchased from, any one business entity counterparty under this Section would exceed 5% of its admitted assets. In calculating the amount sold to or purchased from a business entity counterparty under repurchase or reverse repurchase transactions, effect may be given to netting provisions under a master written agreement; or
(2) The aggregate amount of all securities then loaned, sold to or purchased from all business entities under this Section would exceed 40% of its admitted assets but the limitation of this subsection shall not apply to reverse repurchase transactions for so long as the borrowing is used to meet operational liquidity requirements resulting from an officially declared catastrophe and subject to a plan approved by the Director.

(Source: P.A. 90-418, eff. 8-15-97.)

(215 ILCS 5/126.30)

Sec. 126.30.
Foreign investments and foreign currency exposure.

A. Subject to the limitations of Section 126.23, an insurer may acquire
directly or indirectly through an investment subsidiary, foreign investments,
or engage in investment practices with persons of or in foreign jurisdictions,
of substantially the same types as those that an insurer is permitted to
acquire under this Article, other than of the type permitted under Section
126.25, if, as a result and after giving effect to the investment:

(1) the aggregate amount of foreign investments then held by the insurer under this subsection does not exceed 20% of its admitted assets; and
(2) the aggregate amount of foreign investments then held by the insurer under this subsection in a single foreign jurisdiction does not exceed 10% of its admitted assets as to a foreign jurisdiction that has a sovereign debt rating of SVO 1 or 5% of its admitted assets as to any other foreign jurisdiction.

B. Subject to the limitations of Section 126.23, an insurer may acquire
investments, or engage in investment practices denominated in foreign
currencies, whether or not they are foreign investments acquired under
subsection A of this Section, or additional foreign currency exposure as a
result of the termination or expiration of a hedging transaction with respect
to investments denominated in a foreign currency, if, as a result of and after
giving effect to the transaction:

(1) the aggregate amount of investments then held by the insurer under this subsection denominated in foreign currencies does not exceed 15% of its admitted assets; and
(2) the aggregate amount of investments then held by the insurer under this subsection denominated in the foreign currency of a single foreign jurisdiction does not exceed 10% of its admitted assets as to a foreign jurisdiction that has a sovereign debt rating of SVO 1 or 5% of its admitted assets as to any other foreign jurisdiction.

However, an investment shall not be considered denominated in a
foreign currency if the acquiring insurer enters into one or more contracts in
transactions permitted under Section 126.31 in which the business entity
counterparty agrees to exchange, or grants to the insurer the option to
exchange, all payments made on the foreign currency denominated
investment (or amounts equivalent to the payments that are or will be due
to the insurer in accordance with the terms of such investment) for United
States currency during the period the contract or contracts are in effect to
insulate the insurer against loss caused by diminution of the value of
payments owed to the insurer due to future changes in currency exchange
rates.

C. In addition to investments permitted under subsections A and B of this
Section, an insurer that is authorized to do business in a foreign
jurisdiction, and that has outstanding insurance, annuity or reinsurance
contracts on lives or risks resident or located in that foreign jurisdiction
and denominated in foreign currency of that jurisdiction, may acquire foreign
investments respecting that foreign jurisdiction, and may acquire investments
denominated in the currency of that jurisdiction, subject to the limitations of
Section 126.23. However, investments made under this subsection in obligations
of foreign governments, their political subdivisions and government sponsored
enterprises shall not be subject to the limitations of Section 126.23 if those
investments carry an SVO rating of 1 or 2. The aggregate amount of investments
acquired by the insurer under this subsection shall not exceed the
greater of:

(1) the amount the insurer is required by law to invest in the foreign jurisdiction; or
(2) 125% of the amount of its reserves, net of reinsurance, and other obligations under the contracts.

D. In addition to investments permitted under subsections A and B of this
Section, an insurer that is not authorized to do business in a foreign
jurisdiction but which has outstanding insurance, annuity or reinsurance
contracts on lives or risks resident or located in a foreign jurisdiction and
denominated in foreign currency of that jurisdiction, may acquire foreign
investments respecting that foreign jurisdiction, and may acquire investments
denominated in the currency of that jurisdiction subject to the limitations set
forth of Section 126.24. However, investments made under this subsection in
obligations of foreign governments, their political subdivisions and government
sponsored enterprises shall not be subject to the limitations of Section 126.23
if those investments carry an SVO rating of 1 or 2. The aggregate amount of
investments acquired by the insurer under this subsection shall not exceed 105%
of the amount of its reserves, net of reinsurance, and other obligations under
the contracts on risks resident or located in the foreign
jurisdiction.

E. Investments acquired under this Section shall be aggregated with
investments of the same types made under all other Sections of this Article,
and in a similar manner, for purposes of determining compliance with the
limitations, if any, contained in the other Sections. Investments in
obligations of foreign governments, their political subdivisions and government
sponsored enterprises of these persons, except for those exempted under
subsections C and D of this Section, shall be subject to the limitations of
Section 126.23.

(Source: P.A. 90-418, eff. 8-15-97; 91-357, eff. 7-29-99.)

(215 ILCS 5/126.31)

Sec. 126.31.
Derivative transactions.
An insurer may, directly or indirectly through an investment subsidiary,
engage in derivative transactions under this Section under the following
conditions:

A. General conditions.

(1) An insurer may use derivative instruments under this Section to engage in hedging transactions and income generation transactions.
(2) An insurer may use derivative instruments for replication transactions only after the Director promulgates reasonable rules that set forth methods of disclosure, reserving for risk-based capital, and determining the asset valuation reserve for these investments. Any asset being replicated is subject to all the provisions and limitations on the making thereof specified in this Article with respect to investments by the insurer as if the transaction constituted a direct investment by the insurer in the replicated asset.
(3) With respect to all hedging transactions, an insurer shall be able to demonstrate to the Director the intended hedging characteristics and the ongoing effectiveness of the derivative transaction or combination of transactions through cash flow testing or other appropriate analyses.
(4) The Director may promulgate reasonable rules for investments and transactions under this Section including, but not limited to, rules which impose financial solvency standards, valuation standards, and reporting requirements.

B. Limitations on hedging transactions.
An insurer may enter into hedging transactions under this Section if, as a
result of and after giving effect to the transaction:

(1) The aggregate statement value of options, caps, floors and warrants not attached to another financial instrument purchased and used in hedging transactions then engaged in by the insurer does not exceed 7.5% of its admitted assets;
(2) The aggregate statement value of options, caps and floors written in hedging transactions then engaged in by the insurer does not exceed 3% of its admitted assets; and
(3) The aggregate potential exposure of collars, swaps, forwards and futures used in hedging transactions then engaged in by the insurer does not exceed 6.5% of its admitted assets.

C. Limitations on income generation transactions.
An insurer may enter into the following types of income generation
transactions subject to the quantitative limits of subsection C(4):

(1) Sales of covered call options on noncallable fixed income securities, callable fixed income securities if the option expires by its terms prior to the end of the noncallable period or derivative instruments based on fixed income securities;
(2) Sales of covered call options on equity securities, if the insurer holds in its portfolio, or can immediately acquire through the exercise of options, warrants or conversion rights already owned, the equity securities subject to call during the complete term of the call option sold; or
(3) Sales of covered puts on investments that the insurer is permitted to acquire under this Article, if the insurer has escrowed, or entered into a custodian agreement segregating, cash or cash equivalents with a market value equal to the amount of its purchase obligations under the put during the complete term of the put option sold.
(4) If as a result of and after giving effect to the transactions, the aggregate statement value of the fixed income assets that are subject to call plus the face value of fixed income securities underlying a derivative instrument subject to call, plus the amount of the purchase obligations under the puts, does not exceed 10% of its admitted assets.

D. Counterparty exposure.
An insurer shall include all counterparty exposure amounts in determining
compliance with the limitations of Section 126.23.

E. Additional transactions.
Pursuant to rules promulgated under Section 126.8, the Director may
approve additional transactions involving the use of derivative instruments in
excess of the limits of subsection B of this Section or for other risk
management purposes.

(Source: P.A. 90-418, eff. 8-15-97.)

(215 ILCS 5/126.32)

Sec. 126.32.
Additional investment authority.

A. Under this Section, an insurer may acquire investments or engage in
investment practices of any kind that are not specifically prohibited by
Section 126.5 and are not derivative instruments without regard to any
limitation in Sections 126.23 through 126.30, but an insurer shall not acquire
an investment or engage in an investment practice under this Section if, as a
result of and after giving effect to the transaction, the aggregate amount of
the investments then held by the insurer under this Section would exceed the
greater of:

(1) Its unrestricted surplus; or
(2) The lesser of:

(a) 10% of its admitted assets; or
(b) 50% of its surplus as regards policyholders.

B. An insurer shall not acquire any investment or engage in any investment
practice under subsection A(2) of this Section if, as a result of and after
giving effect to the transaction the aggregate amount of all investments in any
one person then held by the insurer under that subsection would exceed 5% of
its admitted assets.

(Source: P.A. 90-418, eff. 8-15-97.)

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Article VIII – Investments Of Domestic Companies

Article VIII – Investments Of Domestic Companies

Article VIII – Investments Of Domestic Companies

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