Public Act 098-0755
 
SB2634 EnrolledLRB098 15214 RPM 50203 b

    AN ACT concerning regulation.
 
    Be it enacted by the People of the State of Illinois,
represented in the General Assembly:
 
    Section 5. The Illinois Insurance Code is amended by
changing Section 59.1 as follows:
 
    (215 ILCS 5/59.1)
    (Section scheduled to be repealed on January 1, 2017)
    Sec. 59.1. Conversion to stock company.
    (1) Definitions. For the purposes of this Section, the
following terms shall have the meanings indicated:
        (a) "Eligible member" is a member as of the date the
    mutual company's board of directors adopts a plan of
    conversion. A person insured under a group policy is not an
    eligible member, unless:
            (i) the person is insured or covered under a group
        life policy or group annuity contract under which funds
        are accumulated and allocated to the respective
        covered persons;
            (ii) the person has the right to direct the
        application of the funds so allocated;
            (iii) the group policyholder makes no contribution
        to the premiums or deposits for the policy or contract;
        and
            (iv) the mutual company has the names and addresses
        of the persons covered under the group life policy or
        group annuity contract.
        A person whose policy is issued after the board of
    directors adopts the plan but before the plan's effective
    date is not an eligible member but shall have those rights
    set forth in subsection (10) of this Section.
        (b) "Converted stock company" is an Illinois domiciled
    stock company that converted from an Illinois domiciled
    mutual company under this Section.
        (c) "Plan of conversion" or "plan" is a plan adopted by
    an Illinois domestic mutual company's board of directors
    under this Section to convert the mutual company into an
    Illinois domiciled stock company.
        (d) "Policy" includes an annuity contract.
        (e) "Member" means a person who, on the records of the
    mutual company and pursuant to its articles of
    incorporation or bylaws, is deemed to be a holder of a
    membership interest in the mutual company.
    (2) Adoption of the plan of conversion by the board of
directors.
        (a) A mutual company seeking to convert to a stock
    company shall, by the affirmative vote of two-thirds of its
    board of directors, adopt a plan of conversion consistent
    with the requirements of subsection (6) of this Section.
        (b) At any time before approval of a plan by the
    Director, the mutual company by the affirmative vote of
    two-thirds of its board of directors, may amend or withdraw
    the plan.
    (3) Approval of the plan of conversion by the Director of
Insurance.
        (a) Required findings. After adoption by the mutual
    company's board of directors, the plan shall be submitted
    to the Director for review and approval. The Director shall
    approve the plan upon finding that:
            (i) the provisions of this Section have been
        complied with;
            (ii) the plan will not prejudice the interests of
        the members; and
            (iii) the plan's method of allocating subscription
        rights is fair and equitable.
        (b) Documents to be filed.
            (i) Prior to the members' approval of the plan, a
        mutual company seeking the Director's approval of a
        plan shall file the following documents with the
        Director for review and approval:
                (A) the plan of conversion, including the
            independent evaluation of pro forma market value
            required by item (f) of subsection (6) of this
            Section;
                (B) the form of notice required by item (b) of
            subsection (4) of this Section for eligible
            members of the meeting to vote on the plan;
                (C) any proxies to be solicited from eligible
            members pursuant to subitem (ii) of item (c) of
            subsection (4) of this Section;
                (D) the form of notice required by item (a) of
            subsection (10) of this Section for persons whose
            policies are issued after adoption of the plan but
            before its effective date; and
                (E) the proposed articles of incorporation and
            bylaws of the converted stock company.
        Once filed, these documents shall be approved or
        disapproved by the Director within a reasonable time.
            (ii) After the members have approved the plan, the
        converted stock company shall file the following
        documents with the Director:
                (A) the minutes of the meeting of the members
            at which the plan was voted upon; and
                (B) the revised articles of incorporation and
            bylaws of the converted stock company.
        (c) Consultant. The Director may retain, at the mutual
    company's expense, any qualified expert not otherwise a
    part of the Director's staff to assist in reviewing the
    plan and the independent evaluation of the pro forma market
    value which is required by item (f) of subsection (6) of
    this Section.
    (4) Approval of the plan by the members.
        (a) Members entitled to notice of and to vote on the
    plan. All eligible members shall be given notice of and an
    opportunity to vote upon the plan.
        (b) Notice required. All eligible members shall be
    given notice of the members' meeting to vote upon the plan.
    A copy of the plan or a summary of the plan shall accompany
    the notice. The notice shall be mailed to each member's
    last known address, as shown on the mutual company's
    records, within 45 days of the Director's approval of the
    plan. The meeting to vote upon the plan shall not be set
    for a date less than 30 60 days after the date when the
    notice of the meeting is mailed by the mutual company. If
    the meeting to vote upon the plan is held coincident with
    the mutual company's annual meeting of policyholders, only
    one combined notice of meeting is required.
        (c) Vote required for approval.
            (i) After approval by the Director, the plan shall
        be adopted upon receiving the affirmative vote of at
        least two-thirds of the votes cast by eligible members.
            (ii) Members entitled to vote upon the proposed
        plan may vote in person or by proxy. Any proxies to be
        solicited from eligible members shall be filed with and
        approved by the Director.
            (iii) The number of votes each eligible member may
        cast shall be determined by the mutual company's
        bylaws. If the bylaws are silent, each eligible member
        may cast one vote.
    (5) Adoption of revised articles of incorporation.
Adoption of the revised articles of incorporation of the
converted stock company is necessary to implement the plan and
shall be governed by the applicable provisions of Section 57 of
this Code. For a Class 1 mutual company, the members may adopt
the revised articles of incorporation at the same meeting at
which the members approve the plan. For a Class 2 or 3 mutual
company, the revised articles of incorporation may be adopted
solely by the board of directors or trustees, as provided in
Section 57 of this Code.
    (5.5) Prior to the completion of a plan of conversion filed
by a mutual company with the Director, no person shall
knowingly acquire, make any offer, or make any announcement of
an offer for any security issued or to be issued by the
converting mutual company in connection with its plan of
conversion or for any security issued or to be issued by any
other company authorized in item(c)(i) of subsection (6) of
this Section and organized for purposes of effecting the
conversion, except in compliance with the maximum purchase
limitations imposed by item (i) of subsection (6) of this
Section or the terms of the plan of conversion as approved by
the Director.
    (6) Required provisions in a plan of conversion. The
following provisions shall be included in the plan:
        (a) Reasons for conversion. The plan shall set forth
    the reasons for the proposed conversion.
        (b) Effect of conversion on existing policies.
            (i) The plan shall provide that all policies in
        force on the effective date of conversion shall
        continue to remain in force under the terms of those
        policies, except that any voting rights of the
        policyholders provided for under the policies or under
        this Code and any contingent liability policy
        provisions of the type described in Section 55 of this
        Code shall be extinguished on the effective date of the
        conversion.
            (ii) The plan shall further provide that holders of
        participating policies in effect on the date of
        conversion shall continue to have the right to receive
        dividends as provided in the participating policies,
        if any.
            (iii) Except for a mutual company's participating
        life policies, guaranteed renewable accident and
        health policies, and non-cancelable accident and
        health policies, the converted stock company may issue
        the insured a nonparticipating policy as a substitute
        for the participating policy upon the renewal date of a
        participating policy.
        (c) Subscription rights to eligible members.
            (i) The plan shall provide that each eligible
        member is to receive, without payment, nontransferable
        subscription rights to purchase a portion of the
        capital stock of the converted stock company. As an
        alternative to subscription rights in the converted
        stock company, the plan may provide that each eligible
        member is to receive, without payment, nontransferable
        subscription rights to purchase a portion of the
        capital stock of: (A) a corporation organized and owned
        by the mutual company for the purpose of acquiring or
        holding all the stock of the converted stock company;
        or (B) a stock insurance company owned by the mutual
        company into which the mutual company will be merged.
            (ii) The subscription rights shall be allocated in
        whole shares among the eligible members using a fair
        and equitable formula. This formula may but need not
        take into account how the different classes of policies
        of the eligible members contributed to the surplus of
        the mutual company.
        (d) Oversubscription. The plan shall provide a fair and
    equitable means for the allocation of shares of capital
    stock in the event of an oversubscription to shares by
    eligible members exercising subscription rights received
    pursuant to item (c) of subsection (6) of this Section.
        (e) Undersubscription. The plan shall provide that any
    shares of capital stock not subscribed to by eligible
    members exercising subscription rights received under item
    (c) of subsection (6) of this Section shall be sold in a
    public offering through an underwriter. If the number of
    shares of capital stock not subscribed by eligible members
    is so small or the additional time or expense required for
    a public offering of those shares would be otherwise
    unwarranted under the circumstances, the plan of
    conversion may provide for the purchase of the unsubscribed
    shares by a private placement or other alternative method
    approved by the Director that is fair and equitable to the
    eligible members.
        (f) Total price of stock. The plan shall set the total
    price of the capital stock equal to the estimated pro forma
    market value of the converted stock company based upon an
    independent evaluation by a qualified person. The pro forma
    market value may be the value that is estimated to be
    necessary to attract full subscription for the shares as
    indicated by the independent evaluation.
        (g) Purchase price of each share. The plan shall set
    the purchase price of each share of capital stock equal to
    any reasonable amount that will not inhibit the purchase of
    shares by members. The purchase price of each share shall
    be uniform for all purchasers except the price may be
    modified by the Director by reason of his consideration of
    a plan for the purchase of unsubscribed stock pursuant to
    item (e) of subsection (6) of this Section.
        (h) Closed block of business for participating life
    policies of a Class 1 mutual company.
            (i) The plan shall provide that a Class 1 mutual
        company's participating life policies in force on the
        effective date of the conversion shall be operated by
        the converted stock company for dividend purposes as a
        closed block of participating business except that any
        or all classes of group participating policies may be
        excluded from the closed block.
            (ii) The plan shall establish one or more
        segregated accounts for the benefit of the closed block
        of business and shall allocate to those segregated
        accounts enough assets of the mutual company so that
        the assets together with the revenue from the closed
        block of business are sufficient to support the closed
        block including, but not limited to, the payment of
        claims, expenses, taxes, and any dividends that are
        provided for under the terms of the participating
        policies with appropriate adjustments in the dividends
        for experience changes. The plan shall be accompanied
        by an opinion of a qualified actuary or an appointed
        actuary who meets the standards set forth in the
        insurance laws or regulations for the submission of
        actuarial opinions as to the adequacy of reserves or
        assets. The opinion shall relate to the adequacy of the
        assets allocated to the segregated accounts in support
        of the closed block of business. The actuarial opinion
        shall be based on methods of analysis deemed
        appropriate for those purposes by the Actuarial
        Standards Board.
            (iii) The amount of assets allocated to the
        segregated accounts of the closed block shall be based
        upon the mutual company's last annual statement that is
        updated to the effective date of the conversion.
            (iv) The converted stock company shall keep a
        separate accounting for the closed block and shall make
        and include in the annual statement to be filed with
        the Director each year a separate statement showing the
        gains, losses, and expenses properly attributable to
        the closed block.
            (v) Periodically, upon the Director's approval,
        those assets allocated to the closed block as provided
        in subitem (ii) of item (h) of subsection (6) of this
        Section that are in excess of the amount of assets
        necessary to support the remaining policies polices in
        the closed block shall revert to the benefit of the
        converted stock company.
            (vi) The Director may waive the requirement for the
        establishment of a closed block of business if the
        Director deems it to be in the best interests of the
        participating policyholders of the mutual insurer to
        do so.
        (i) Limitations on acquisition of control. The plan
    shall provide that any one person or group of persons
    acting in concert may not acquire, through public offering
    or subscription rights, more than 5% of the capital stock
    of the converted stock company for a period of 5 years from
    the effective date of the plan except with the approval of
    the Director. This limitation does not apply to any entity
    that is to purchase 100% of the capital stock of the
    converted company as part of the plan of conversion
    approved by the Director or to a purchase of stock by a
    tax-qualified employee benefit plan pursuant to
    subscription grants granted to that plan as authorized
    under item (b) of subsection (7) of this Section and to a
    purchase of unsubscribed stock pursuant to item (e) of
    subsection (6) of this Section.
    (7) Optional provisions in a plan of conversion. The
following provisions may be included in the plan:
        (a) Directors and officers subscription rights.
            (i) The plan may provide that the directors and
        officers of the mutual company shall receive, without
        payment, nontransferable subscription rights to
        purchase capital stock of the converted stock company
        or the stock of another corporation that is
        participating in the conversion plan as provided in
        subitem (i) of item (c) of subsection (6) of this
        Section. Those subscription rights shall be allocated
        among the directors and officers by a fair and
        equitable formula.
            (ii) The total number of shares that may be
        purchased under subitem (i) of item (a) of subsection
        (7) of this Section may not exceed 35% of the total
        number of shares to be issued in the case of a mutual
        company with total assets of less than $50 million or
        25% of the total shares to be issued in the case of a
        mutual company with total assets of more than $500
        million. For mutual companies with total assets
        between $50 million and $500 million, the total number
        of shares that may be purchased shall be interpolated.
            (iii) Stock purchased by a director or officer
        under subitem (i) of item (a) of subsection (7) of this
        Section may not be sold within one year following the
        effective date of the conversion.
            (iv) The plan may also provide that a director or
        officer or person acting in concert with a director or
        officer of the mutual company may not acquire any
        capital stock of the converted stock company for 3
        years after the effective date of the plan, except
        through a broker or dealer, without the permission of
        the Director. That provision may not apply to prohibit
        the directors and officers from purchasing stock
        through subscription rights received in the plan under
        subitem (i) of item (a) of subsection (7) of this
        Section.
        (b) Tax-qualified employee stock benefit plan. The
    plan may allocate to a tax-qualified employee benefit plan
    nontransferable subscription rights to purchase up to 10%
    of the capital stock of the converted stock company or the
    stock of another corporation that is participating in the
    conversion plan as provided in subitem (i) of item (c) of
    subsection (6) of this Section. That employee benefit plan
    shall be entitled to exercise its subscription rights
    regardless of the amount of shares purchased by other
    persons.
    (8) Alternative plan of conversion. The board of directors
may adopt a plan of conversion that does not rely in whole or
in part upon the issuance to members of non-transferable
subscription rights to purchase stock of the converted stock
company if the Director finds that the plan does not prejudice
the interests of the members, is fair and equitable, and is
based upon an independent appraisal of the market value of the
mutual company by a qualified person and a fair and equitable
allocation of any consideration to be given eligible members.
The Director may retain, at the mutual company's expense, any
qualified expert not otherwise a part of the Director's staff
to assist in reviewing whether the plan may be approved by the
Director.
    (9) Effective date of the plan. A plan shall become
effective when the Director has approved the plan, the members
have approved the plan, and the revised articles of
incorporation have been adopted.
    (10) Rights of members whose policies are issued after
adoption of the plan and before its effective date.
        (a) Notice. All members whose policies are issued after
    the proposed plan has been adopted by the board of
    directors and before the effective date of the plan shall
    be given written notice of the plan of conversion. The
    notice shall specify the member's right to rescind that
    policy as provided in item (b) of subsection (10) of this
    Section within 45 days after the effective date of the
    plan. A copy of the plan or a summary of the plan shall
    accompany the notice. The form of the notice shall be filed
    with and approved by the Director.
        (b) Option to rescind. Any member entitled to receive
    the notice described in item (a) of subsection (10) of this
    Section shall be entitled to rescind his or her policy and
    receive a full refund of any amounts paid for the policy or
    contract within 10 days after the receipt of the notice.
    (11) Corporate existence.
        (a) Upon the conversion of a mutual company to a
    converted stock company according to the provisions of this
    Section, the corporate existence of the mutual company
    shall be continued in the converted stock company. All the
    rights, franchises, and interests of the mutual company in
    and to every type of property, real, personal, and mixed,
    and things in action thereunto belonging, is deemed
    transferred to and vested in the converted stock company
    without any deed or transfer. Simultaneously, the
    converted stock company is deemed to have assumed all the
    obligations and liabilities of the mutual company.
        (b) The directors and officers of the mutual company,
    unless otherwise specified in the plan of conversion, shall
    serve as directors and officers of the converted stock
    company until new directors and officers of the converted
    stock company are duly elected pursuant to the articles of
    incorporation and bylaws of the converted stock company.
    (12) Conflict of interest. No director, officer, agent, or
employee of the mutual company or any other person shall
receive any fee, commission, or other valuable consideration,
other than his or her usual regular salary and compensation,
for in any manner aiding, promoting, or assisting in the
conversion except as set forth in the plan approved by the
Director. This provision does not prohibit the payment of
reasonable fees and compensation to attorneys, accountants,
and actuaries for services performed in the independent
practice of their professions, even if the attorney,
accountant, or actuary is also a Director of the mutual
company.
    (13) Costs and expenses. All the costs and expenses
connected with a plan of conversion shall be paid for or
reimbursed by the mutual company or the converted stock company
except where the plan provides either for a holding company to
acquire the stock of the converted stock company or for the
merger of the mutual company into a stock insurance company as
provided in subitem (i) of item (c) of subsection (6) of this
Section. In those cases, the acquiring holding company or the
stock insurance company shall pay for or reimburse all the
costs and expenses connected with the plan.
    (14) Failure to give notice. If the mutual company complies
substantially and in good faith with the notice requirements of
this Section, the mutual company's failure to give any member
or members any required notice does not impair the validity of
any action taken under this Section.
    (15) Limitation of actions. Any action challenging the
validity of or arising out of acts taken or proposed to be
taken under this Section shall be commenced within 30 days
after the effective date of the plan.
(Source: P.A. 90-381, eff. 8-14-97.)
 
    Section 99. Effective date. This Act takes effect upon
becoming law.