SB2513 99TH GENERAL ASSEMBLY

LRB099 17058 EGJ 41416 b

99TH GENERAL ASSEMBLY
State of Illinois
2015 and 2016
SB2513

Introduced 2/9/2016, by Sen. William R. Haine

SYNOPSIS AS INTRODUCED:

215 ILCS 5/59.1

Amends the Illinois Insurance Code. Replaces provisions relating to conversion of a mutual property and casualty insurance company to a stock insurance company. Includes provisions governing: the adoption of a plan of conversion; requirements, options, and alternatives of a plan of conversion; rights of members whose policies precede the conversion; conflicts of interest; rules; notice requirements; and limitation on actions. Effective January 1, 2017.

A BILL FOR

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(Section scheduled to be repealed on January 1, 2017)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:

"Capital stock" means common or preferred stock or any hybrid security or other equity security issued by a converted stock company or other company or entity pursuant to the exercise of subscription rights granted pursuant to the provisions of subparagraph (iii) of paragraph (a) of subsection (3).

"Converted stock company" means an Illinois-domiciled stock company that converted from an Illinois-domiciled mutual company under this Section.

"Converting mutual company" means a mutual company that has adopted a plan of conversion under this Section.

(a) "Eligible member" means 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 (7) (10) of this Section.

"Mutual company" means an Illinois-domiciled mutual property and casualty insurance company.

"Participating policy" means a policy that grants a holder the right to receive dividends if, as, and when declared by the mutual company.

(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.

"Standby investor" means any person that has agreed in writing to purchase all or a portion of the capital stock to be sold in a conversion which is not subscribed by eligible members.

"Subscription right" means the nontransferable right to purchase, for a period of not less than 45 days, the stock of the converted stock company or an unaffiliated stock insurance company or other corporation or entity that will acquire the stock of the converted stock company.

"Voting member" means a member who is an eligible member and is also a member of the converting mutual company as of a date not more than 90 days before the date of the meeting at which the plan of conversion must be voted upon by members.

(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 plan of conversion does not become effective unless the converting mutual company seeking to become a converted stock company adopted, by the affirmative vote of not less than two-thirds of its governing body, a plan of conversion consistent with the requirements of subsections (3) and (4) of this Section, or the requirements of subsection (5) of this Section. At any time before approval of a plan of conversion by the Director, the converting mutual company, by the affirmative vote of not less than two-thirds of its governing body, may amend or withdraw the plan. 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) Before the eligible members of a converting mutual company may vote on approval of a plan of conversion, a converting mutual company whose governing body has adopted a plan shall file all of the following documents with the Director within 90 days after adoption of the plan of conversion together with the application fee: 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.

(i) the plan of conversion, including the independent evaluation required by paragraph (d) of subsection (3);

(ii) the form of notice and proxy required by paragraph (g) of this subsection (2);

(iii) the form of notice required by subsection (7) to persons whose policies are issued after adoption of the plan of conversion but before the plan of conversion's effective date;

(iv) the proposed certificate of incorporation and bylaws of the converted stock company;

(v) the acquisition of control statement, as required by subsection (3);

(vi) the application fee, equal to the greater of $10,000 or an amount equal to one-tenth of 1% of the estimated pro forma market value of the converted stock company as determined in accordance with paragraph (d) of subsection (3); if such value is expressed as a range of values, the application fee must be based upon the midpoint of the range; the application fee is in addition to other direct costs incurred by the Director in reviewing the proposed plan of conversion; for good cause shown, the Director may waive the application fee, in whole or in part, or permit a portion of the application fee to be deferred until completion of the conversion; and

(vii) other information as the Director may request.

(c) Upon filing with the Director the documents required under paragraph (b) of this subsection (2), the converting mutual company shall send to eligible members a notice advising eligible members of the adoption and filing of the plan of conversion, the ability of the eligible members to provide the Director and the converting mutual company with comments on the plan of conversion within 30 days after the date of such notice, and the procedure of providing such comments.

(d) The Director shall approve the plan if the Director finds:

(i) the plan complies with this Section;

(ii) the plan is fair and equitable to the converting mutual company, the members of the converting mutual company, and the eligible members of the converting mutual company;

(iii) the plan's method of allocating subscription rights is fair and equitable;

(iv) the plan will not otherwise prejudice the interests of the members; and

(v) the converted stock company will have the amount of capital and surplus deemed by the Director to be reasonable for its future solvency.

(e) At the expense of the converting mutual company, the Director may retain any qualified expert not otherwise a part of the Director's staff, including counsel and financial advisors, to assist in reviewing the plan of conversion and the independent valuation required under paragraph (d) of subsection (3).

(f) The Director shall order a hearing on whether the terms of the plan of conversion comply with this Section after giving written notice by mail or publication to the converting mutual company and other interested persons, all of whom have the right to appear at the hearing.

(g) The Director shall give written notice of any decision to the converting mutual company and, in the event of disapproval, a detailed statement of the reasons for the decision.

(h) All voting members must be sent notice of the members' meeting to vote on the plan of conversion no later than 45 days before the meeting. The notice must describe the proposed plan of conversion, must inform the member how the proposed plan of conversion will affect the member's membership rights, must inform the voting member of the voting member's right to vote upon the plan of conversion, and must be sent to each voting member's last-known address, as shown on the records of the converting mutual company. The notice must provide instructions on how the member can obtain, either by mail or electronically, a full copy of the proposed plan of conversion. If the meeting to vote upon the plan of conversion is held during the annual meeting of policyholders, only a combined notice of meeting is required.

(i) The plan of conversion must be voted upon by voting members and must be adopted upon receiving the affirmative vote of at least two-thirds of the votes cast by voting members at the meeting. Voting members entitled to vote upon the proposed plan of conversion may vote in person or by proxy. The number of votes each voting member may cast must be determined by the bylaws of the converting mutual company. If the bylaws are silent, each voting member may cast one vote.

(j) The certificate of incorporation of the converted stock company must be considered at the meeting of the voting members called for the purpose of adopting the plan of conversion and must require for adoption the affirmative vote of at least two-thirds of the votes cast by voting members.

(k) Within 30 days after the voting members have approved the plan of conversion in accordance with the requirements of this subsection, the converted stock company shall file with the Director:

(i) the minutes of the meeting of the voting members at which the plan of conversion was approved, which must include the record of total votes cast in favor of the plan; and

(ii) the certificate of incorporation and bylaws of the converted stock company.

(3) Required provisions of the plan of conversion. Approval of the plan of conversion by the Director of Insurance.

(a) The following provisions must be included in the plan of conversion 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 reasons for proposed conversion. the provisions of this Section have been complied with;

(ii) the effect of conversion on existing policies, including all of the following: the plan will not prejudice the interests of the members; and

(A) a provision that all policies in force on the effective date of conversion continue to remain in force under the terms of the policies, except that the following rights, to the extent the rights existed in the converting mutual company, must be extinguished on the effective date of the conversion:

(1) any voting rights of the policyholders provided under the policies.

(2) except as provided under item (B) of this subparagraph (ii), any right to share in the surplus of the converting mutual company, unless such right is expressly provided for under the provisions of the existing policy.

(3) any assessment provisions provided for under certain types of policies.

(B) a provision that holders of participating policies in effect on the date of conversion continue to have a right to receive dividends as provided in the participating policies, if any.

(iii) the grant of subscription rights to eligible members. the plan's method of allocating subscription rights is fair and equitable.

(A) for purposes of any plan, the transfer of subscription rights from any of the following may not be deemed an unpermitted transfer for purposes of this Section:

(1) an individual to such individual and the individual's spouse or children or to a trust or other estate or wealth planning entity established for the benefit of such individual or the individual's spouse or children;

(2) an individual to such individual's individual or joint individual retirement account or other tax-qualified retirement plan;

(3) an entity to the shareholders, partners, or members of such entity; or

(4) the holder of such rights back to the converting mutual company or an unaffiliated corporation or entity that will purchase the stock of the converted stock company as provided in subitem (c) of item (1) of subdivision (B) of this subparagraph (iii).

(B) the grant of subscription rights to eligible members must include:

(1) a provision that each eligible member is to receive, without payment, nontransferable subscription rights to purchase the capital stock of the converted stock company and that, in the aggregate, all eligible members have the right, before the right of any other party, to purchase 100% of the capital stock of the converted stock company, exclusive of any shares of capital stock required to be sold or distributed to the holders of surplus notes, if any, and any capital stock purchased by the company's tax-qualified employee stock benefit plan which is in excess of the pro-forma market value of the capital stock established under paragraph (d) of this subsection (3). As an alternative to subscription rights in the converting mutual company, the plan of conversion may provide that each eligible member is to receive, without payment, nontransferable subscription rights to purchase a portion of the capital stock of one of the following:

(a) a corporation or entity organized for the purpose of becoming a holding company for the converted stock company;

(b) a stock insurance company owned by the mutual company into which the mutual company will be merged; or

(c) an unaffiliated stock insurer or other corporation or entity that will purchase the stock of the converted stock company.

(2) a provision that subscription rights must be allocated in whole shares among the eligible members using a fair and equitable formula. The formula need not allocate subscription rights to eligible members on a pro rata basis based on premium payments or contributions to surplus, but may take into account how the different classes of policies of the eligible members contributed to the surplus of the mutual company or any other factors that may be fair or equitable. Allocation of subscription rights on a per capita basis are entitled to a presumption that such method is fair, subject to a rebuttal of fairness by clear and convincing evidence. In accordance with paragraph (e) of subsection (2), the Director may retain an independent consultant to assist in the determination that the allocation of subscription rights is fair and equitable.

(b) The plan must provide a fair and equitable means for allocating shares of capital stock in the event of an oversubscription to shares by eligible members exercising subscription rights received under subparagraph (iii) of paragraph (a) of this subsection (3). 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) The plan must provide any shares of capital stock not subscribed to by eligible members exercising subscription rights received under subparagraph (iii) of paragraph (a) of this subsection (3) or any other individuals or entities granted subscription rights pursuant to subsection (4) must be sold: 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.

(i) in a public offering; however, if the number of shares of capital stock not subscribed by eligible members is so small in number or other factors exist that do not warrant the time or expense of a public offering, the plan of conversion may provide for sale of the unsubscribed shares through a private placement or other alternative method approved by the Director which is fair and equitable to eligible members; or

(ii) to a standby investor or to another corporation or entity that is participating in the plan of conversion, as provided in subdivision (B) of subparagraph (iii) of paragraph (a) of this subsection (3).

(d) The plan must provide for the preparation of a valuation by a qualified independent expert which establishes the dollar value of the capital stock for which subscription rights must be granted pursuant to subparagraph (iii) of paragraph (a) of this subsection (3) which must be equal to the estimated pro forma market value of the converted stock company. The qualified independent expert may, to the extent feasible, determine the pro forma market value by reference to a peer group of stock companies and the application of generally accepted valuation techniques; state the pro forma market value of the converted stock company as a range of value; and establish the value as the value estimated to be necessary to attract full subscription for the shares.

(e) The dollar value of a subscription right based upon the application of the Black-Scholes option pricing model or another generally accepted option pricing model. In connection with the determination of stock price volatility or other valuation inputs used in option pricing models, the qualified independent expert may assume that the attributes of the converted stock company will be substantially similar to the attributes of the stock of the peer companies used to determine the estimated pro forma market value of the converted stock company. The term of a subscription right is a minimum of 90 days for the sole purpose of determining the value of a subscription right.

(f) The plan must provide that each eligible member has the right to require the mutual company to redeem such subscription rights, in lieu of exercising the subscription rights allocated to each eligible member, at a price equal to the number of subscription rights allocated to each eligible member multiplied by the dollar value of the subscription right as determined by the qualified independent expert pursuant to paragraph (d) of this subsection (3). The obligation of the mutual company to redeem subscription rights arises only upon the effective date of the plan. The redemption price payable to each eligible member must be paid to the member within 30 days after the effective date of the plan. Alternatively, the converted stock company may offer each eligible member the option of receiving the redemption amount in cash or having the redemption amount credited against future premium payments. An eligible member that does not exercise the member's subscription rights, and which also fails to affirmatively request redemption of the member's subscription rights before the expiration of the subscription offering, nevertheless is deemed to have requested redemption of the member's subscription rights and shall receive the redemption amount in cash in the manner otherwise provided in this paragraph.

(g) The plan must set the purchase price per share of capital stock equal to any reasonable amount. However, the minimum subscription amount required of any eligible member may not exceed $500, but the plan may provide that the minimum number of shares any person may purchase pursuant to the plan is 25 shares. The purchase price per share at which capital stock is offered to persons that are not eligible members may be greater than but not less than the purchase price per share at which capital stock is offered to eligible members.

(h) The plan must provide that any person or group of persons acting in concert may not acquire, in the public offering or pursuant to the exercise of subscription rights, more than 5% of the capital stock of the converted stock company or the stock of another corporation that is participating in the plan of conversion, as provided in subitem (c) of item (1) of subdivision (B) of subparagraph (iii) of paragraph (a), 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 stock company as part of the plan of conversion approved by the Director or to any person that acts as a standby investor for the capital stock of the converted stock company for an amount equal to 10% or more of the capital stock of the converted stock company, if in each case such purchase is approved by the Director in accordance with the provisions of Illinois law following the filing of an acquisition of control statement under subsection (3).

(i) The plan must 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 or the stock of another corporation that is participating in the plan of conversion, as provided in subitem (c) of item (1) of subdivision (B) of subparagraph (iii) of paragraph (a), for 3 years after the effective date of the plan of conversion, except through a broker-dealer, without the permission of the Director. This provision does not prohibit the directors and officers from:

(i) making block purchases of 1% or more of the outstanding common stock other than through a broker-dealer if approved in writing by the Department;

(ii) exercising subscription rights received under the plan; or

(iii) participating in a stock benefit plan approved by shareholders pursuant to paragraph (b) of subsection (9).

(j) The plan must provide that a director or officer may not sell stock purchased pursuant to this subsection or paragraph (a) of subsection (4) within one year after the effective date of the conversion, except that nothing contained in this Section may be deemed to restrict a transfer of stock by such director or officer if the stock is the stock of an unaffiliated corporation that is participating in the plan of conversion as provided in subitem (c) of item (1) of subdivision (B) of subparagraph (iii) of paragraph (a) and has a class of stock registered under the federal Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.), or if the transfer is to the spouse or minor children of such director or officer, or to a trust or other estate or wealth planning entity established for the benefit of such director or officer, or the spouse or minor children of such director or officer.

(k) The plan of conversion must provide the rights, if any, of a holder of a surplus note to participate in the conversion are governed by the terms of the surplus note.

(l) The plan of conversion must provide that without the prior approval of the Director, for a period of 2 years from the date of the completion of the conversion, a converted stock company or any corporation participating in the plan of conversion pursuant to subitem (a) or (b) of item (1) of subdivision (B) of subparagraph (iii) of paragraph (a), may not repurchase any of its capital stock from any person. However, this restriction does not apply to a:

(i) repurchase on a pro rata basis pursuant to an offer made to all shareholders of the converted stock company or any corporation participating in the plan of conversion pursuant to, or subitem (a) or (b) of item (1) of subdivision (B) of subparagraph (iii) of paragraph (a); or

(ii) purchase in the open market by a tax-qualified or nontax-qualified employee stock benefit plan in an amount reasonable and appropriate to fund the plan.

(4) Optional provisions of the plan of conversion. Approval of the plan by the members.

(a) The plan of conversion may allocate to a tax-qualified employee benefit plan nontransferable subscription rights to purchase up to 10% of the capital stock of the converting mutual company or the stock of another corporation that is participating in the plan of conversion, as provided in subitem (c) of item (1) of subdivision (B) of subparagraph (iii) of paragraph (a) of subsection (3). A tax-qualified employee benefit plan may exercise subscription rights granted under this subsection regardless of the total number of shares purchased by eligible members. If eligible members purchase shares sufficient to yield gross proceeds equal to the maximum of the valuation range established by paragraph (d) of subsection (3), then the tax-qualified employee benefit plan may purchase additional shares of capital stock of the converting mutual company or the stock of another corporation that is participating in the plan of conversion, as provided in subitem (c) of item (1) of subdivision (B) of subparagraph (iii) of paragraph (a) of subsection (3) in an amount sufficient to equal 10% of the total shares of capital stock of the converted stock company outstanding. 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) The plan may provide that other classes of subscribers approved by the Director shall receive nontransferable subscription rights to purchase capital stock of the converting stock company or the stock of another corporation that is participating in the plan of conversion, as provided in subitem (c) of item (1) of subdivision (B) of subparagraph (iii) of paragraph (a) of subsection (3) provided that such subscription rights are subordinate to the subscription rights of eligible members. Other classes of subscribers that may be approved by the Director include: 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 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.

(i) members of the converting mutual company which became members after the date fixed for establishing eligible members;

(ii) the shareholders of another corporation that is participating in the plan of conversion, as provided in subitem (c) of item (1) of subdivision (B) of subparagraph (iii) of paragraph (a) of subsection (3); or

(iii) the shareholders of another corporation that is a party to an acquisition, merger, consolidation, or other similar transaction with the converting mutual company.

(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) Alternative plan of conversion. The governing body of the converting mutual company may adopt a plan of conversion that does not rely in whole or in part upon issuing nontransferable subscription rights to members to purchase stock of the converting stock company if the Director finds the plan of conversion does not prejudice the interests of the members, is fair and equitable, and is not inconsistent with the purpose and intent of this Section. Subject to a finding of the Director that an alternative plan of conversion is fair and equitable and is not inconsistent with the purpose and intent of this Section, an alternative plan of conversion may:

(a) include the merger of a domestic mutual insurance company into a domestic or foreign stock insurance company;

(b) provide for the issuance of transferable or redeemable subscription rights;

(c) provide for issuing stock, cash, policyholder credits, or other consideration, or any combination of the foregoing, to policyholders instead of subscription rights;

(d) set forth another plan of conversion containing any other provisions approved by the Director.

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) Effective date of the plan of conversion. A plan of conversion is effective when the Director has approved the plan of conversion, the voting members have approved the plan of conversion and adopted the certificate of incorporation of the converted stock company, and the certificate of incorporation is filed with the Illinois Secretary of State. 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 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) Rights of members whose policies are issued after adoption of the plan of conversion and before effective date. Optional provisions in a plan of conversion. The following provisions may be included in the plan:

(a) All members whose policies are issued after the proposed plan of conversion has been adopted by the governing body and before the effective date of the plan of conversion must be sent a written notice regarding the plan of conversion upon issuance of such policy.

(b) Except as provided in paragraph (c) of this subsection (7), each member of a property or casualty insurance company entitled to receive the notice provided for in paragraph (a) of this subsection (7) must be advised of the member's right of cancellation and to a pro rata refund of unearned premiums.

(c) A member of a property or casualty insurance company who has made or filed a claim under such member's insurance policy is not entitled to any right to receive any refund under paragraph (b) of this subsection (7). A person that has exercised the rights provided by paragraph (b) of this subsection (7) is not entitled to make or file any claim under such person's insurance policy.

(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) Corporate existence. 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.

(a) On the effective date of the conversion, the corporate existence of the converting mutual company continues in the converted stock company. On the effective date of the conversion, all the assets, rights, franchises, and interests of the converting mutual company in and to every species of property, real, personal, and mixed, and any accompanying things in action, are vested in the converted stock company without any deed or transfer and the converted stock company assumes all the obligations and liabilities of the converting mutual company.

(b) Unless otherwise specified in the plan of conversion, the individuals who are directors and officers of the converting mutual company on the effective date of the conversion shall serve as directors and officers of the converted stock company until new directors and officers of the converted stock company are elected pursuant to the certificate of incorporation and bylaws of the converted stock company.

(9) Conflict of interest. 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.

(a) A director, officer, agent, or employee of the converting mutual company may not receive any fee, commission, or other valuable consideration, other than such person's usual regular salary or compensation, for aiding, promoting, or assisting in a conversion under this Section. This provision does not prohibit the payment of reasonable fees and compensation to attorneys, accountants, financial advisors, and actuaries for services performed in the independent practice of their professions, even if the attorney, accountant, financial advisor, or actuary is also a director or officer of the converting mutual company.

(b) For a period of 2 years after the effective date of the conversion, a converted stock company may not implement any nontax-qualified stock benefit plan unless the plan is approved by a majority of votes cast at a duly convened meeting of shareholders held not less than 6 months after the effective date of the conversion.

(c) All the costs and expenses connected with a plan of conversion must be paid for or reimbursed by the converting mutual company or the converted stock company. However, if the plan of conversion provides for participation by another entity in the plan pursuant to item (1) of subdivision (B) of subparagraph (iii) of paragraph (a) of subsection (3), such entity may pay for or reimburse all or a portion of the costs and expenses connected with the plan of conversion.

(10) Failure to give notice. If the converting mutual company complies substantially and in good faith with the notice requirements of this Section, the failure of the converting mutual company to send a member the required notice does not impair the validity of any action taken under this Section. 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) Limitation on actions. Any action challenging the validity of or arising out of acts taken or proposed to be taken under this Section must be commenced on or before the later of: Corporate existence.

(a) Sixty days after the approval of the plan of conversion by the Director; or 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) Thirty days after notice of the meeting of voting members to approve the plan of conversion is first mailed or delivered to voting members or posted on the website of the converting mutual company. 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) Converting mutual company insolvent or in hazardous financial condition. 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.

(a) If a converting mutual company seeking to convert under this Section is insolvent or is in hazardous financial condition according to information supplied in the mutual company's most recent annual or quarterly statement filed with the Department or as determined by a financial examination performed by the Department, the requirements of this Section, including notice to and policyholder approval of the plan of conversion, may be waived at the discretion of the Director. If a waiver under this Section is ordered by the Director, the converting mutual company shall specify in the mutual company's plan of conversion:

(i) the method and basis for the issuance of the converted stock company's shares of its capital stock to an independent party in connection with an investment by the independent party in an amount sufficient to restore the converted stock company to a sound financial condition.

(ii) that the conversion must be accomplished without granting subscription rights or other consideration to policyholders.

(b) This subsection (12) does not alter or limit the authority of the Director under any other provisions of law, including receivership and liquidation provisions applicable to insurance companies.

(13) Rules. The Director may adopt rules to administer and enforce this Section. 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) Laws applicable to converted stock company. 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.

(a) A converting mutual company is not permitted to convert under this Section if, as a direct result of the conversion, any person or any affiliate thereof acquires control of the converted stock company, unless that person and such person's affiliates comply with the provisions of state law regarding the acquisition of control of an insurance company.

(b) Except as otherwise specified in this Section, a converted stock company has and may exercise all the rights and privileges and is subject to all of the requirements and regulations imposed on stock insurance companies under state law relating to the regulation and supervision of insurance companies, but the converting stock company may not exercise rights or privileges that other stock insurance companies may not exercise.

(15) Commencement of business as a stock insurance company. A converting mutual company may not engage in the business of insurance as a stock company until the converting stock company complies with all provisions of this Section. 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.

(16) Amendment of policies. A mutual company, by endorsement or rider approved by the Director and sent to the policyholder, may simultaneously with or at any time after the effective date of the conversion amend any outstanding insurance policy for the purpose of extinguishing the membership rights of such policyholder.

(17) Prohibition on acquisitions of control. Except as otherwise specifically provided in subsection (3), from the date a plan of conversion is adopted by the governing body of a converting mutual company until 3 years after the effective date of the plan of conversion, a person may not directly or indirectly offer to acquire, make any announcement to acquire, or acquire in any manner, including making a filing with the Department for such acquisition under a statute or regulation of this state, the beneficial ownership of 10% or more of a class of a voting security of the converted stock company or of a person that controls the voting securities of the converted stock company, unless the converted stock company or a person that controls the voting securities of the converted stock company consents to such acquisition and such acquisition is otherwise approved by the Director.

(Source: P.A. 98-755, eff. 7-16-14.)

Section 99. Effective date. This Act takes effect January 1, 2017.