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.


LRB099 17058 EGJ 41416 b

 

 

A BILL FOR

 

SB2513LRB099 17058 EGJ 41416 b

1    AN ACT concerning regulation.
 
2    Be it enacted by the People of the State of Illinois,
3represented in the General Assembly:
 
4    Section 5. The Illinois Insurance Code is amended by
5changing Section 59.1 as follows:
 
6    (215 ILCS 5/59.1)
7    (Section scheduled to be repealed on January 1, 2017)
8    Sec. 59.1. Conversion to stock company.
9    (1) Definitions. For the purposes of this Section, the
10following terms shall have the meanings indicated:
11    "Capital stock" means common or preferred stock or any
12hybrid security or other equity security issued by a converted
13stock company or other company or entity pursuant to the
14exercise of subscription rights granted pursuant to the
15provisions of subparagraph (iii) of paragraph (a) of subsection
16(3).
17    "Converted stock company" means an Illinois-domiciled
18stock company that converted from an Illinois-domiciled mutual
19company under this Section.
20    "Converting mutual company" means a mutual company that has
21adopted a plan of conversion under this Section.
22    (a) "Eligible member" means is a member as of the date the
23mutual company's board of directors adopts a plan of

 

 

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1conversion. A person insured under a group policy is not an
2eligible member, unless:
3            (i) the person is insured or covered under a group
4    life policy or group annuity contract under which funds are
5    accumulated and allocated to the respective covered
6    persons;
7            (ii) the person has the right to direct the
8    application of the funds so allocated;
9            (iii) the group policyholder makes no contribution
10    to the premiums or deposits for the policy or contract; and
11            (iv) the mutual company has the names and addresses
12    of the persons covered under the group life policy or group
13    annuity contract.
14    A person whose policy is issued after the board of
15directors adopts the plan but before the plan's effective date
16is not an eligible member but shall have those rights set forth
17in subsection (7) (10) of this Section.
18    "Mutual company" means an Illinois-domiciled mutual
19property and casualty insurance company.
20    "Participating policy" means a policy that grants a holder
21the right to receive dividends if, as, and when declared by the
22mutual company.
23        (b) "Converted stock company" is an Illinois domiciled
24    stock company that converted from an Illinois domiciled
25    mutual company under this Section.
26    (c) "Plan of conversion" or "plan" is a plan adopted by an

 

 

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1Illinois domestic mutual company's board of directors under
2this Section to convert the mutual company into an Illinois
3domiciled stock company.
4    (d) "Policy" includes an annuity contract.
5    "Standby investor" means any person that has agreed in
6writing to purchase all or a portion of the capital stock to be
7sold in a conversion which is not subscribed by eligible
8members.
9    "Subscription right" means the nontransferable right to
10purchase, for a period of not less than 45 days, the stock of
11the converted stock company or an unaffiliated stock insurance
12company or other corporation or entity that will acquire the
13stock of the converted stock company.
14    "Voting member" means a member who is an eligible member
15and is also a member of the converting mutual company as of a
16date not more than 90 days before the date of the meeting at
17which the plan of conversion must be voted upon by members.
18    (e) "Member" means a person who, on the records of the
19mutual company and pursuant to its articles of incorporation or
20bylaws, is deemed to be a holder of a membership interest in
21the mutual company.
22    (2) Adoption of the plan of conversion by the board of
23directors.
24         (a) A plan of conversion does not become effective
25    unless the converting mutual company seeking to become a
26    converted stock company adopted, by the affirmative vote of

 

 

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1    not less than two-thirds of its governing body, a plan of
2    conversion consistent with the requirements of subsections
3    (3) and (4) of this Section, or the requirements of
4    subsection (5) of this Section. At any time before approval
5    of a plan of conversion by the Director, the converting
6    mutual company, by the affirmative vote of not less than
7    two-thirds of its governing body, may amend or withdraw the
8    plan. A mutual company seeking to convert to a stock
9    company shall, by the affirmative vote of two-thirds of its
10    board of directors, adopt a plan of conversion consistent
11    with the requirements of subsection (6) of this Section.
12        (b) Before the eligible members of a converting mutual
13    company may vote on approval of a plan of conversion, a
14    converting mutual company whose governing body has adopted
15    a plan shall file all of the following documents with the
16    Director within 90 days after adoption of the plan of
17    conversion together with the application fee: At any time
18    before approval of a plan by the Director, the mutual
19    company by the affirmative vote of two-thirds of its board
20    of directors, may amend or withdraw the plan.
21            (i) the plan of conversion, including the
22        independent evaluation required by paragraph (d) of
23        subsection (3);
24            (ii) the form of notice and proxy required by
25        paragraph (g) of this subsection (2);
26            (iii) the form of notice required by subsection (7)

 

 

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1        to persons whose policies are issued after adoption of
2        the plan of conversion but before the plan of
3        conversion's effective date;
4            (iv) the proposed certificate of incorporation and
5        bylaws of the converted stock company;
6            (v) the acquisition of control statement, as
7        required by subsection (3);
8            (vi) the application fee, equal to the greater of
9        $10,000 or an amount equal to one-tenth of 1% of the
10        estimated pro forma market value of the converted stock
11        company as determined in accordance with paragraph (d)
12        of subsection (3); if such value is expressed as a
13        range of values, the application fee must be based upon
14        the midpoint of the range; the application fee is in
15        addition to other direct costs incurred by the Director
16        in reviewing the proposed plan of conversion; for good
17        cause shown, the Director may waive the application
18        fee, in whole or in part, or permit a portion of the
19        application fee to be deferred until completion of the
20        conversion; and
21            (vii) other information as the Director may
22        request.
23        (c) Upon filing with the Director the documents
24    required under paragraph (b) of this subsection (2), the
25    converting mutual company shall send to eligible members a
26    notice advising eligible members of the adoption and filing

 

 

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1    of the plan of conversion, the ability of the eligible
2    members to provide the Director and the converting mutual
3    company with comments on the plan of conversion within 30
4    days after the date of such notice, and the procedure of
5    providing such comments.
6        (d) The Director shall approve the plan if the Director
7    finds:
8            (i) the plan complies with this Section;
9            (ii) the plan is fair and equitable to the
10        converting mutual company, the members of the
11        converting mutual company, and the eligible members of
12        the converting mutual company;
13            (iii) the plan's method of allocating subscription
14        rights is fair and equitable;
15            (iv) the plan will not otherwise prejudice the
16        interests of the members; and
17            (v) the converted stock company will have the
18        amount of capital and surplus deemed by the Director to
19        be reasonable for its future solvency.
20        (e) At the expense of the converting mutual company,
21    the Director may retain any qualified expert not otherwise
22    a part of the Director's staff, including counsel and
23    financial advisors, to assist in reviewing the plan of
24    conversion and the independent valuation required under
25    paragraph (d) of subsection (3).
26        (f) The Director shall order a hearing on whether the

 

 

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1    terms of the plan of conversion comply with this Section
2    after giving written notice by mail or publication to the
3    converting mutual company and other interested persons,
4    all of whom have the right to appear at the hearing.
5        (g) The Director shall give written notice of any
6    decision to the converting mutual company and, in the event
7    of disapproval, a detailed statement of the reasons for the
8    decision.
9        (h) All voting members must be sent notice of the
10    members' meeting to vote on the plan of conversion no later
11    than 45 days before the meeting. The notice must describe
12    the proposed plan of conversion, must inform the member how
13    the proposed plan of conversion will affect the member's
14    membership rights, must inform the voting member of the
15    voting member's right to vote upon the plan of conversion,
16    and must be sent to each voting member's last-known
17    address, as shown on the records of the converting mutual
18    company. The notice must provide instructions on how the
19    member can obtain, either by mail or electronically, a full
20    copy of the proposed plan of conversion. If the meeting to
21    vote upon the plan of conversion is held during the annual
22    meeting of policyholders, only a combined notice of meeting
23    is required.
24        (i) The plan of conversion must be voted upon by voting
25    members and must be adopted upon receiving the affirmative
26    vote of at least two-thirds of the votes cast by voting

 

 

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1    members at the meeting. Voting members entitled to vote
2    upon the proposed plan of conversion may vote in person or
3    by proxy. The number of votes each voting member may cast
4    must be determined by the bylaws of the converting mutual
5    company. If the bylaws are silent, each voting member may
6    cast one vote.
7        (j) The certificate of incorporation of the converted
8    stock company must be considered at the meeting of the
9    voting members called for the purpose of adopting the plan
10    of conversion and must require for adoption the affirmative
11    vote of at least two-thirds of the votes cast by voting
12    members.
13        (k) Within 30 days after the voting members have
14    approved the plan of conversion in accordance with the
15    requirements of this subsection, the converted stock
16    company shall file with the Director:
17            (i) the minutes of the meeting of the voting
18        members at which the plan of conversion was approved,
19        which must include the record of total votes cast in
20        favor of the plan; and
21            (ii) the certificate of incorporation and bylaws
22        of the converted stock company.
23    (3) Required provisions of the plan of conversion. Approval
24of the plan of conversion by the Director of Insurance.
25        (a) The following provisions must be included in the
26    plan of conversion Required findings. After adoption by the

 

 

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1    mutual company's board of directors, the plan shall be
2    submitted to the Director for review and approval. The
3    Director shall approve the plan upon finding that:
4            (i) the reasons for proposed conversion. the
5        provisions of this Section have been complied with;
6            (ii) the effect of conversion on existing
7        policies, including all of the following: the plan will
8        not prejudice the interests of the members; and
9                (A) a provision that all policies in force on
10            the effective date of conversion continue to
11            remain in force under the terms of the policies,
12            except that the following rights, to the extent the
13            rights existed in the converting mutual company,
14            must be extinguished on the effective date of the
15            conversion:
16                    (1) any voting rights of the policyholders
17                provided under the policies.
18                    (2) except as provided under item (B) of
19                this subparagraph (ii), any right to share in
20                the surplus of the converting mutual company,
21                unless such right is expressly provided for
22                under the provisions of the existing policy.
23                    (3) any assessment provisions provided for
24                under certain types of policies.
25                (B) a provision that holders of participating
26            policies in effect on the date of conversion

 

 

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1            continue to have a right to receive dividends as
2            provided in the participating policies, if any.
3            (iii) the grant of subscription rights to eligible
4        members. the plan's method of allocating subscription
5        rights is fair and equitable.
6                (A) for purposes of any plan, the transfer of
7            subscription rights from any of the following may
8            not be deemed an unpermitted transfer for purposes
9            of this Section:
10                    (1) an individual to such individual and
11                the individual's spouse or children or to a
12                trust or other estate or wealth planning entity
13                established for the benefit of such individual
14                or the individual's spouse or children;
15                    (2) an individual to such individual's
16                individual or joint individual retirement
17                account or other tax-qualified retirement
18                plan;
19                    (3) an entity to the shareholders,
20                partners, or members of such entity; or
21                    (4) the holder of such rights back to the
22                converting mutual company or an unaffiliated
23                corporation or entity that will purchase the
24                stock of the converted stock company as
25                provided in subitem (c) of item (1) of
26                subdivision (B) of this subparagraph (iii).

 

 

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1                (B) the grant of subscription rights to
2            eligible members must include:
3                    (1) a provision that each eligible member
4                is to receive, without payment,
5                nontransferable subscription rights to
6                purchase the capital stock of the converted
7                stock company and that, in the aggregate, all
8                eligible members have the right, before the
9                right of any other party, to purchase 100% of
10                the capital stock of the converted stock
11                company, exclusive of any shares of capital
12                stock required to be sold or distributed to the
13                holders of surplus notes, if any, and any
14                capital stock purchased by the company's
15                tax-qualified employee stock benefit plan
16                which is in excess of the pro-forma market
17                value of the capital stock established under
18                paragraph (d) of this subsection (3). As an
19                alternative to subscription rights in the
20                converting mutual company, the plan of
21                conversion may provide that each eligible
22                member is to receive, without payment,
23                nontransferable subscription rights to
24                purchase a portion of the capital stock of one
25                of the following:
26                        (a) a corporation or entity organized

 

 

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1                    for the purpose of becoming a holding
2                    company for the converted stock company;
3                        (b) a stock insurance company owned by
4                    the mutual company into which the mutual
5                    company will be merged; or
6                        (c) an unaffiliated stock insurer or
7                    other corporation or entity that will
8                    purchase the stock of the converted stock
9                    company.
10                    (2) a provision that subscription rights
11                must be allocated in whole shares among the
12                eligible members using a fair and equitable
13                formula. The formula need not allocate
14                subscription rights to eligible members on a
15                pro rata basis based on premium payments or
16                contributions to surplus, but may take into
17                account how the different classes of policies
18                of the eligible members contributed to the
19                surplus of the mutual company or any other
20                factors that may be fair or equitable.
21                Allocation of subscription rights on a per
22                capita basis are entitled to a presumption that
23                such method is fair, subject to a rebuttal of
24                fairness by clear and convincing evidence. In
25                accordance with paragraph (e) of subsection
26                (2), the Director may retain an independent

 

 

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1                consultant to assist in the determination that
2                the allocation of subscription rights is fair
3                and equitable.
4        (b) The plan must provide a fair and equitable means
5    for allocating shares of capital stock in the event of an
6    oversubscription to shares by eligible members exercising
7    subscription rights received under subparagraph (iii) of
8    paragraph (a) of this subsection (3). Documents to be
9    filed.
10            (i) Prior to the members' approval of the plan, a
11        mutual company seeking the Director's approval of a
12        plan shall file the following documents with the
13        Director for review and approval:
14                (A) the plan of conversion, including the
15            independent evaluation of pro forma market value
16            required by item (f) of subsection (6) of this
17            Section;
18                (B) the form of notice required by item (b) of
19            subsection (4) of this Section for eligible
20            members of the meeting to vote on the plan;
21                (C) any proxies to be solicited from eligible
22            members pursuant to subitem (ii) of item (c) of
23            subsection (4) of this Section;
24                (D) the form of notice required by item (a) of
25            subsection (10) of this Section for persons whose
26            policies are issued after adoption of the plan but

 

 

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1            before its effective date; and
2                (E) the proposed articles of incorporation and
3            bylaws of the converted stock company.
4        Once filed, these documents shall be approved or
5        disapproved by the Director within a reasonable time.
6            (ii) After the members have approved the plan, the
7        converted stock company shall file the following
8        documents with the Director:
9                (A) the minutes of the meeting of the members
10            at which the plan was voted upon; and
11                (B) the revised articles of incorporation and
12            bylaws of the converted stock company.
13        (c) The plan must provide any shares of capital stock
14    not subscribed to by eligible members exercising
15    subscription rights received under subparagraph (iii) of
16    paragraph (a) of this subsection (3) or any other
17    individuals or entities granted subscription rights
18    pursuant to subsection (4) must be sold: Consultant. The
19    Director may retain, at the mutual company's expense, any
20    qualified expert not otherwise a part of the Director's
21    staff to assist in reviewing the plan and the independent
22    evaluation of the pro forma market value which is required
23    by item (f) of subsection (6) of this Section.
24            (i) in a public offering; however, if the number of
25        shares of capital stock not subscribed by eligible
26        members is so small in number or other factors exist

 

 

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1        that do not warrant the time or expense of a public
2        offering, the plan of conversion may provide for sale
3        of the unsubscribed shares through a private placement
4        or other alternative method approved by the Director
5        which is fair and equitable to eligible members; or
6            (ii) to a standby investor or to another
7        corporation or entity that is participating in the plan
8        of conversion, as provided in subdivision (B) of
9        subparagraph (iii) of paragraph (a) of this subsection
10        (3).
11    (d) The plan must provide for the preparation of a
12valuation by a qualified independent expert which establishes
13the dollar value of the capital stock for which subscription
14rights must be granted pursuant to subparagraph (iii) of
15paragraph (a) of this subsection (3) which must be equal to the
16estimated pro forma market value of the converted stock
17company. The qualified independent expert may, to the extent
18feasible, determine the pro forma market value by reference to
19a peer group of stock companies and the application of
20generally accepted valuation techniques; state the pro forma
21market value of the converted stock company as a range of
22value; and establish the value as the value estimated to be
23necessary to attract full subscription for the shares.
24    (e) The dollar value of a subscription right based upon the
25application of the Black-Scholes option pricing model or
26another generally accepted option pricing model. In connection

 

 

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1with the determination of stock price volatility or other
2valuation inputs used in option pricing models, the qualified
3independent expert may assume that the attributes of the
4converted stock company will be substantially similar to the
5attributes of the stock of the peer companies used to determine
6the estimated pro forma market value of the converted stock
7company. The term of a subscription right is a minimum of 90
8days for the sole purpose of determining the value of a
9subscription right.
10    (f) The plan must provide that each eligible member has the
11right to require the mutual company to redeem such subscription
12rights, in lieu of exercising the subscription rights allocated
13to each eligible member, at a price equal to the number of
14subscription rights allocated to each eligible member
15multiplied by the dollar value of the subscription right as
16determined by the qualified independent expert pursuant to
17paragraph (d) of this subsection (3). The obligation of the
18mutual company to redeem subscription rights arises only upon
19the effective date of the plan. The redemption price payable to
20each eligible member must be paid to the member within 30 days
21after the effective date of the plan. Alternatively, the
22converted stock company may offer each eligible member the
23option of receiving the redemption amount in cash or having the
24redemption amount credited against future premium payments. An
25eligible member that does not exercise the member's
26subscription rights, and which also fails to affirmatively

 

 

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1request redemption of the member's subscription rights before
2the expiration of the subscription offering, nevertheless is
3deemed to have requested redemption of the member's
4subscription rights and shall receive the redemption amount in
5cash in the manner otherwise provided in this paragraph.
6    (g) The plan must set the purchase price per share of
7capital stock equal to any reasonable amount. However, the
8minimum subscription amount required of any eligible member may
9not exceed $500, but the plan may provide that the minimum
10number of shares any person may purchase pursuant to the plan
11is 25 shares. The purchase price per share at which capital
12stock is offered to persons that are not eligible members may
13be greater than but not less than the purchase price per share
14at which capital stock is offered to eligible members.
15    (h) The plan must provide that any person or group of
16persons acting in concert may not acquire, in the public
17offering or pursuant to the exercise of subscription rights,
18more than 5% of the capital stock of the converted stock
19company or the stock of another corporation that is
20participating in the plan of conversion, as provided in subitem
21(c) of item (1) of subdivision (B) of subparagraph (iii) of
22paragraph (a), except with the approval of the Director. This
23limitation does not apply to any entity that is to purchase
24100% of the capital stock of the converted stock company as
25part of the plan of conversion approved by the Director or to
26any person that acts as a standby investor for the capital

 

 

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1stock of the converted stock company for an amount equal to 10%
2or more of the capital stock of the converted stock company, if
3in each case such purchase is approved by the Director in
4accordance with the provisions of Illinois law following the
5filing of an acquisition of control statement under subsection
6(3).
7    (i) The plan must provide that a director or officer or
8person acting in concert with a director or officer of the
9mutual company may not acquire any capital stock of the
10converted stock company or the stock of another corporation
11that is participating in the plan of conversion, as provided in
12subitem (c) of item (1) of subdivision (B) of subparagraph
13(iii) of paragraph (a), for 3 years after the effective date of
14the plan of conversion, except through a broker-dealer, without
15the permission of the Director. This provision does not
16prohibit the directors and officers from:
17        (i) making block purchases of 1% or more of the
18    outstanding common stock other than through a
19    broker-dealer if approved in writing by the Department;
20        (ii) exercising subscription rights received under the
21    plan; or
22        (iii) participating in a stock benefit plan approved by
23    shareholders pursuant to paragraph (b) of subsection (9).
24    (j) The plan must provide that a director or officer may
25not sell stock purchased pursuant to this subsection or
26paragraph (a) of subsection (4) within one year after the

 

 

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1effective date of the conversion, except that nothing contained
2in this Section may be deemed to restrict a transfer of stock
3by such director or officer if the stock is the stock of an
4unaffiliated corporation that is participating in the plan of
5conversion as provided in subitem (c) of item (1) of
6subdivision (B) of subparagraph (iii) of paragraph (a) and has
7a class of stock registered under the federal Securities
8Exchange Act of 1934 (15 U.S.C. 78a et seq.), or if the
9transfer is to the spouse or minor children of such director or
10officer, or to a trust or other estate or wealth planning
11entity established for the benefit of such director or officer,
12or the spouse or minor children of such director or officer.
13    (k) The plan of conversion must provide the rights, if any,
14of a holder of a surplus note to participate in the conversion
15are governed by the terms of the surplus note.
16    (l) The plan of conversion must provide that without the
17prior approval of the Director, for a period of 2 years from
18the date of the completion of the conversion, a converted stock
19company or any corporation participating in the plan of
20conversion pursuant to subitem (a) or (b) of item (1) of
21subdivision (B) of subparagraph (iii) of paragraph (a), may not
22repurchase any of its capital stock from any person. However,
23this restriction does not apply to a:
24        (i) repurchase on a pro rata basis pursuant to an offer
25    made to all shareholders of the converted stock company or
26    any corporation participating in the plan of conversion

 

 

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1    pursuant to, or subitem (a) or (b) of item (1) of
2    subdivision (B) of subparagraph (iii) of paragraph (a); or
3        (ii) purchase in the open market by a tax-qualified or
4    nontax-qualified employee stock benefit plan in an amount
5    reasonable and appropriate to fund the plan.
6    (4) Optional provisions of the plan of conversion. Approval
7of the plan by the members.
8        (a) The plan of conversion may allocate to a
9    tax-qualified employee benefit plan nontransferable
10    subscription rights to purchase up to 10% of the capital
11    stock of the converting mutual company or the stock of
12    another corporation that is participating in the plan of
13    conversion, as provided in subitem (c) of item (1) of
14    subdivision (B) of subparagraph (iii) of paragraph (a) of
15    subsection (3). A tax-qualified employee benefit plan may
16    exercise subscription rights granted under this subsection
17    regardless of the total number of shares purchased by
18    eligible members. If eligible members purchase shares
19    sufficient to yield gross proceeds equal to the maximum of
20    the valuation range established by paragraph (d) of
21    subsection (3), then the tax-qualified employee benefit
22    plan may purchase additional shares of capital stock of the
23    converting mutual company or the stock of another
24    corporation that is participating in the plan of
25    conversion, as provided in subitem (c) of item (1) of
26    subdivision (B) of subparagraph (iii) of paragraph (a) of

 

 

SB2513- 21 -LRB099 17058 EGJ 41416 b

1    subsection (3) in an amount sufficient to equal 10% of the
2    total shares of capital stock of the converted stock
3    company outstanding. Members entitled to notice of and to
4    vote on the plan. All eligible members shall be given
5    notice of and an opportunity to vote upon the plan.
6        (b) The plan may provide that other classes of
7    subscribers approved by the Director shall receive
8    nontransferable subscription rights to purchase capital
9    stock of the converting stock company or the stock of
10    another corporation that is participating in the plan of
11    conversion, as provided in subitem (c) of item (1) of
12    subdivision (B) of subparagraph (iii) of paragraph (a) of
13    subsection (3) provided that such subscription rights are
14    subordinate to the subscription rights of eligible
15    members. Other classes of subscribers that may be approved
16    by the Director include: Notice required. All eligible
17    members shall be given notice of the members' meeting to
18    vote upon the plan. A copy of the plan or a summary of the
19    plan shall accompany the notice. The notice shall be mailed
20    to each member's last known address, as shown on the mutual
21    company's records, within 45 days of the Director's
22    approval of the plan. The meeting to vote upon the plan
23    shall not be set for a date less than 30 days after the
24    date when the notice of the meeting is mailed by the mutual
25    company. If the meeting to vote upon the plan is held
26    coincident with the mutual company's annual meeting of

 

 

SB2513- 22 -LRB099 17058 EGJ 41416 b

1    policyholders, only one combined notice of meeting is
2    required.
3            (i) members of the converting mutual company which
4        became members after the date fixed for establishing
5        eligible members;
6            (ii) the shareholders of another corporation that
7        is participating in the plan of conversion, as provided
8        in subitem (c) of item (1) of subdivision (B) of
9        subparagraph (iii) of paragraph (a) of subsection (3);
10        or
11            (iii) the shareholders of another corporation that
12        is a party to an acquisition, merger, consolidation, or
13        other similar transaction with the converting mutual
14        company.
15        (c) Vote required for approval.
16            (i) After approval by the Director, the plan shall
17        be adopted upon receiving the affirmative vote of at
18        least two-thirds of the votes cast by eligible members.
19            (ii) Members entitled to vote upon the proposed
20        plan may vote in person or by proxy. Any proxies to be
21        solicited from eligible members shall be filed with and
22        approved by the Director.
23            (iii) The number of votes each eligible member may
24        cast shall be determined by the mutual company's
25        bylaws. If the bylaws are silent, each eligible member
26        may cast one vote.

 

 

SB2513- 23 -LRB099 17058 EGJ 41416 b

1    (5) Alternative plan of conversion. The governing body of
2the converting mutual company may adopt a plan of conversion
3that does not rely in whole or in part upon issuing
4nontransferable subscription rights to members to purchase
5stock of the converting stock company if the Director finds the
6plan of conversion does not prejudice the interests of the
7members, is fair and equitable, and is not inconsistent with
8the purpose and intent of this Section. Subject to a finding of
9the Director that an alternative plan of conversion is fair and
10equitable and is not inconsistent with the purpose and intent
11of this Section, an alternative plan of conversion may:
12            (a) include the merger of a domestic mutual
13        insurance company into a domestic or foreign stock
14        insurance company;
15            (b) provide for the issuance of transferable or
16        redeemable subscription rights;
17            (c) provide for issuing stock, cash, policyholder
18        credits, or other consideration, or any combination of
19        the foregoing, to policyholders instead of
20        subscription rights;
21            (d) set forth another plan of conversion
22        containing any other provisions approved by the
23        Director.
24Adoption of revised articles of incorporation. Adoption of the
25revised articles of incorporation of the converted stock
26company is necessary to implement the plan and shall be

 

 

SB2513- 24 -LRB099 17058 EGJ 41416 b

1governed by the applicable provisions of Section 57 of this
2Code. For a Class 1 mutual company, the members may adopt the
3revised articles of incorporation at the same meeting at which
4the members approve the plan. For a Class 2 or 3 mutual
5company, the revised articles of incorporation may be adopted
6solely by the board of directors or trustees, as provided in
7Section 57 of this Code.
8    (5.5) Prior to the completion of a plan of conversion filed
9by a mutual company with the Director, no person shall
10knowingly acquire, make any offer, or make any announcement of
11an offer for any security issued or to be issued by the
12converting mutual company in connection with its plan of
13conversion or for any security issued or to be issued by any
14other company authorized in item(c)(i) of subsection (6) of
15this Section and organized for purposes of effecting the
16conversion, except in compliance with the maximum purchase
17limitations imposed by item (i) of subsection (6) of this
18Section or the terms of the plan of conversion as approved by
19the Director.
20    (6) Effective date of the plan of conversion. A plan of
21conversion is effective when the Director has approved the plan
22of conversion, the voting members have approved the plan of
23conversion and adopted the certificate of incorporation of the
24converted stock company, and the certificate of incorporation
25is filed with the Illinois Secretary of State. Required
26provisions in a plan of conversion. The following provisions

 

 

SB2513- 25 -LRB099 17058 EGJ 41416 b

1shall be included in the plan:
2        (a) Reasons for conversion. The plan shall set forth
3    the reasons for the proposed conversion.
4        (b) Effect of conversion on existing policies.
5            (i) The plan shall provide that all policies in
6        force on the effective date of conversion shall
7        continue to remain in force under the terms of those
8        policies, except that any voting rights of the
9        policyholders provided for under the policies or under
10        this Code and any contingent liability policy
11        provisions of the type described in Section 55 of this
12        Code shall be extinguished on the effective date of the
13        conversion.
14            (ii) The plan shall further provide that holders of
15        participating policies in effect on the date of
16        conversion shall continue to have the right to receive
17        dividends as provided in the participating policies,
18        if any.
19            (iii) Except for a mutual company's participating
20        life policies, guaranteed renewable accident and
21        health policies, and non-cancelable accident and
22        health policies, the converted stock company may issue
23        the insured a nonparticipating policy as a substitute
24        for the participating policy upon the renewal date of a
25        participating policy.
26        (c) Subscription rights to eligible members.

 

 

SB2513- 26 -LRB099 17058 EGJ 41416 b

1            (i) The plan shall provide that each eligible
2        member is to receive, without payment, nontransferable
3        subscription rights to purchase a portion of the
4        capital stock of the converted stock company. As an
5        alternative to subscription rights in the converted
6        stock company, the plan may provide that each eligible
7        member is to receive, without payment, nontransferable
8        subscription rights to purchase a portion of the
9        capital stock of: (A) a corporation organized and owned
10        by the mutual company for the purpose of acquiring or
11        holding all the stock of the converted stock company;
12        or (B) a stock insurance company owned by the mutual
13        company into which the mutual company will be merged.
14            (ii) The subscription rights shall be allocated in
15        whole shares among the eligible members using a fair
16        and equitable formula. This formula may but need not
17        take into account how the different classes of policies
18        of the eligible members contributed to the surplus of
19        the mutual company.
20        (d) Oversubscription. The plan shall provide a fair and
21    equitable means for the allocation of shares of capital
22    stock in the event of an oversubscription to shares by
23    eligible members exercising subscription rights received
24    pursuant to item (c) of subsection (6) of this Section.
25        (e) Undersubscription. The plan shall provide that any
26    shares of capital stock not subscribed to by eligible

 

 

SB2513- 27 -LRB099 17058 EGJ 41416 b

1    members exercising subscription rights received under item
2    (c) of subsection (6) of this Section shall be sold in a
3    public offering through an underwriter. If the number of
4    shares of capital stock not subscribed by eligible members
5    is so small or the additional time or expense required for
6    a public offering of those shares would be otherwise
7    unwarranted under the circumstances, the plan of
8    conversion may provide for the purchase of the unsubscribed
9    shares by a private placement or other alternative method
10    approved by the Director that is fair and equitable to the
11    eligible members.
12        (f) Total price of stock. The plan shall set the total
13    price of the capital stock equal to the estimated pro forma
14    market value of the converted stock company based upon an
15    independent evaluation by a qualified person. The pro forma
16    market value may be the value that is estimated to be
17    necessary to attract full subscription for the shares as
18    indicated by the independent evaluation.
19        (g) Purchase price of each share. The plan shall set
20    the purchase price of each share of capital stock equal to
21    any reasonable amount that will not inhibit the purchase of
22    shares by members. The purchase price of each share shall
23    be uniform for all purchasers except the price may be
24    modified by the Director by reason of his consideration of
25    a plan for the purchase of unsubscribed stock pursuant to
26    item (e) of subsection (6) of this Section.

 

 

SB2513- 28 -LRB099 17058 EGJ 41416 b

1        (h) Closed block of business for participating life
2    policies of a Class 1 mutual company.
3            (i) The plan shall provide that a Class 1 mutual
4        company's participating life policies in force on the
5        effective date of the conversion shall be operated by
6        the converted stock company for dividend purposes as a
7        closed block of participating business except that any
8        or all classes of group participating policies may be
9        excluded from the closed block.
10            (ii) The plan shall establish one or more
11        segregated accounts for the benefit of the closed block
12        of business and shall allocate to those segregated
13        accounts enough assets of the mutual company so that
14        the assets together with the revenue from the closed
15        block of business are sufficient to support the closed
16        block including, but not limited to, the payment of
17        claims, expenses, taxes, and any dividends that are
18        provided for under the terms of the participating
19        policies with appropriate adjustments in the dividends
20        for experience changes. The plan shall be accompanied
21        by an opinion of a qualified actuary or an appointed
22        actuary who meets the standards set forth in the
23        insurance laws or regulations for the submission of
24        actuarial opinions as to the adequacy of reserves or
25        assets. The opinion shall relate to the adequacy of the
26        assets allocated to the segregated accounts in support

 

 

SB2513- 29 -LRB099 17058 EGJ 41416 b

1        of the closed block of business. The actuarial opinion
2        shall be based on methods of analysis deemed
3        appropriate for those purposes by the Actuarial
4        Standards Board.
5            (iii) The amount of assets allocated to the
6        segregated accounts of the closed block shall be based
7        upon the mutual company's last annual statement that is
8        updated to the effective date of the conversion.
9            (iv) The converted stock company shall keep a
10        separate accounting for the closed block and shall make
11        and include in the annual statement to be filed with
12        the Director each year a separate statement showing the
13        gains, losses, and expenses properly attributable to
14        the closed block.
15            (v) Periodically, upon the Director's approval,
16        those assets allocated to the closed block as provided
17        in subitem (ii) of item (h) of subsection (6) of this
18        Section that are in excess of the amount of assets
19        necessary to support the remaining policies in the
20        closed block shall revert to the benefit of the
21        converted stock company.
22            (vi) The Director may waive the requirement for the
23        establishment of a closed block of business if the
24        Director deems it to be in the best interests of the
25        participating policyholders of the mutual insurer to
26        do so.

 

 

SB2513- 30 -LRB099 17058 EGJ 41416 b

1        (i) Limitations on acquisition of control. The plan
2    shall provide that any one person or group of persons
3    acting in concert may not acquire, through public offering
4    or subscription rights, more than 5% of the capital stock
5    of the converted stock company for a period of 5 years from
6    the effective date of the plan except with the approval of
7    the Director. This limitation does not apply to any entity
8    that is to purchase 100% of the capital stock of the
9    converted company as part of the plan of conversion
10    approved by the Director or to a purchase of stock by a
11    tax-qualified employee benefit plan pursuant to
12    subscription grants granted to that plan as authorized
13    under item (b) of subsection (7) of this Section and to a
14    purchase of unsubscribed stock pursuant to item (e) of
15    subsection (6) of this Section.
16    (7) Rights of members whose policies are issued after
17adoption of the plan of conversion and before effective date.
18Optional provisions in a plan of conversion. The following
19provisions may be included in the plan:
20        (a) All members whose policies are issued after the
21    proposed plan of conversion has been adopted by the
22    governing body and before the effective date of the plan of
23    conversion must be sent a written notice regarding the plan
24    of conversion upon issuance of such policy.
25        (b) Except as provided in paragraph (c) of this
26    subsection (7), each member of a property or casualty

 

 

SB2513- 31 -LRB099 17058 EGJ 41416 b

1    insurance company entitled to receive the notice provided
2    for in paragraph (a) of this subsection (7) must be advised
3    of the member's right of cancellation and to a pro rata
4    refund of unearned premiums.
5        (c) A member of a property or casualty insurance
6    company who has made or filed a claim under such member's
7    insurance policy is not entitled to any right to receive
8    any refund under paragraph (b) of this subsection (7). A
9    person that has exercised the rights provided by paragraph
10    (b) of this subsection (7) is not entitled to make or file
11    any claim under such person's insurance policy.
12        (a) Directors and officers subscription rights.
13            (i) The plan may provide that the directors and
14        officers of the mutual company shall receive, without
15        payment, nontransferable subscription rights to
16        purchase capital stock of the converted stock company
17        or the stock of another corporation that is
18        participating in the conversion plan as provided in
19        subitem (i) of item (c) of subsection (6) of this
20        Section. Those subscription rights shall be allocated
21        among the directors and officers by a fair and
22        equitable formula.
23            (ii) The total number of shares that may be
24        purchased under subitem (i) of item (a) of subsection
25        (7) of this Section may not exceed 35% of the total
26        number of shares to be issued in the case of a mutual

 

 

SB2513- 32 -LRB099 17058 EGJ 41416 b

1        company with total assets of less than $50 million or
2        25% of the total shares to be issued in the case of a
3        mutual company with total assets of more than $500
4        million. For mutual companies with total assets
5        between $50 million and $500 million, the total number
6        of shares that may be purchased shall be interpolated.
7            (iii) Stock purchased by a director or officer
8        under subitem (i) of item (a) of subsection (7) of this
9        Section may not be sold within one year following the
10        effective date of the conversion.
11            (iv) The plan may also provide that a director or
12        officer or person acting in concert with a director or
13        officer of the mutual company may not acquire any
14        capital stock of the converted stock company for 3
15        years after the effective date of the plan, except
16        through a broker or dealer, without the permission of
17        the Director. That provision may not apply to prohibit
18        the directors and officers from purchasing stock
19        through subscription rights received in the plan under
20        subitem (i) of item (a) of subsection (7) of this
21        Section.
22        (b) Tax-qualified employee stock benefit plan. The
23    plan may allocate to a tax-qualified employee benefit plan
24    nontransferable subscription rights to purchase up to 10%
25    of the capital stock of the converted stock company or the
26    stock of another corporation that is participating in the

 

 

SB2513- 33 -LRB099 17058 EGJ 41416 b

1    conversion plan as provided in subitem (i) of item (c) of
2    subsection (6) of this Section. That employee benefit plan
3    shall be entitled to exercise its subscription rights
4    regardless of the amount of shares purchased by other
5    persons.
6    (8) Corporate existence. Alternative plan of conversion.
7The board of directors may adopt a plan of conversion that does
8not rely in whole or in part upon the issuance to members of
9non-transferable subscription rights to purchase stock of the
10converted stock company if the Director finds that the plan
11does not prejudice the interests of the members, is fair and
12equitable, and is based upon an independent appraisal of the
13market value of the mutual company by a qualified person and a
14fair and equitable allocation of any consideration to be given
15eligible members. The Director may retain, at the mutual
16company's expense, any qualified expert not otherwise a part of
17the Director's staff to assist in reviewing whether the plan
18may be approved by the Director.
19        (a) On the effective date of the conversion, the
20    corporate existence of the converting mutual company
21    continues in the converted stock company. On the effective
22    date of the conversion, all the assets, rights, franchises,
23    and interests of the converting mutual company in and to
24    every species of property, real, personal, and mixed, and
25    any accompanying things in action, are vested in the
26    converted stock company without any deed or transfer and

 

 

SB2513- 34 -LRB099 17058 EGJ 41416 b

1    the converted stock company assumes all the obligations and
2    liabilities of the converting mutual company.
3        (b) Unless otherwise specified in the plan of
4    conversion, the individuals who are directors and officers
5    of the converting mutual company on the effective date of
6    the conversion shall serve as directors and officers of the
7    converted stock company until new directors and officers of
8    the converted stock company are elected pursuant to the
9    certificate of incorporation and bylaws of the converted
10    stock company.
11    (9) Conflict of interest. Effective date of the plan. A
12plan shall become effective when the Director has approved the
13plan, the members have approved the plan, and the revised
14articles of incorporation have been adopted.
15        (a) A director, officer, agent, or employee of the
16    converting mutual company may not receive any fee,
17    commission, or other valuable consideration, other than
18    such person's usual regular salary or compensation, for
19    aiding, promoting, or assisting in a conversion under this
20    Section. This provision does not prohibit the payment of
21    reasonable fees and compensation to attorneys,
22    accountants, financial advisors, and actuaries for
23    services performed in the independent practice of their
24    professions, even if the attorney, accountant, financial
25    advisor, or actuary is also a director or officer of the
26    converting mutual company.

 

 

SB2513- 35 -LRB099 17058 EGJ 41416 b

1        (b) For a period of 2 years after the effective date of
2    the conversion, a converted stock company may not implement
3    any nontax-qualified stock benefit plan unless the plan is
4    approved by a majority of votes cast at a duly convened
5    meeting of shareholders held not less than 6 months after
6    the effective date of the conversion.
7        (c) All the costs and expenses connected with a plan of
8    conversion must be paid for or reimbursed by the converting
9    mutual company or the converted stock company. However, if
10    the plan of conversion provides for participation by
11    another entity in the plan pursuant to item (1) of
12    subdivision (B) of subparagraph (iii) of paragraph (a) of
13    subsection (3), such entity may pay for or reimburse all or
14    a portion of the costs and expenses connected with the plan
15    of conversion.
16    (10) Failure to give notice. If the converting mutual
17company complies substantially and in good faith with the
18notice requirements of this Section, the failure of the
19converting mutual company to send a member the required notice
20does not impair the validity of any action taken under this
21Section. Rights of members whose policies are issued after
22adoption of the plan and before its effective date.
23        (a) Notice. All members whose policies are issued after
24    the proposed plan has been adopted by the board of
25    directors and before the effective date of the plan shall
26    be given written notice of the plan of conversion. The

 

 

SB2513- 36 -LRB099 17058 EGJ 41416 b

1    notice shall specify the member's right to rescind that
2    policy as provided in item (b) of subsection (10) of this
3    Section within 45 days after the effective date of the
4    plan. A copy of the plan or a summary of the plan shall
5    accompany the notice. The form of the notice shall be filed
6    with and approved by the Director.
7        (b) Option to rescind. Any member entitled to receive
8    the notice described in item (a) of subsection (10) of this
9    Section shall be entitled to rescind his or her policy and
10    receive a full refund of any amounts paid for the policy or
11    contract within 10 days after the receipt of the notice.
12    (11) Limitation on actions. Any action challenging the
13validity of or arising out of acts taken or proposed to be
14taken under this Section must be commenced on or before the
15later of: Corporate existence.
16        (a) Sixty days after the approval of the plan of
17    conversion by the Director; or Upon the conversion of a
18    mutual company to a converted stock company according to
19    the provisions of this Section, the corporate existence of
20    the mutual company shall be continued in the converted
21    stock company. All the rights, franchises, and interests of
22    the mutual company in and to every type of property, real,
23    personal, and mixed, and things in action thereunto
24    belonging, is deemed transferred to and vested in the
25    converted stock company without any deed or transfer.
26    Simultaneously, the converted stock company is deemed to

 

 

SB2513- 37 -LRB099 17058 EGJ 41416 b

1    have assumed all the obligations and liabilities of the
2    mutual company.
3        (b) Thirty days after notice of the meeting of voting
4    members to approve the plan of conversion is first mailed
5    or delivered to voting members or posted on the website of
6    the converting mutual company. The directors and officers
7    of the mutual company, unless otherwise specified in the
8    plan of conversion, shall serve as directors and officers
9    of the converted stock company until new directors and
10    officers of the converted stock company are duly elected
11    pursuant to the articles of incorporation and bylaws of the
12    converted stock company.
13    (12) Converting mutual company insolvent or in hazardous
14financial condition. Conflict of interest. No director,
15officer, agent, or employee of the mutual company or any other
16person shall receive any fee, commission, or other valuable
17consideration, other than his or her usual regular salary and
18compensation, for in any manner aiding, promoting, or assisting
19in the conversion except as set forth in the plan approved by
20the Director. This provision does not prohibit the payment of
21reasonable fees and compensation to attorneys, accountants,
22and actuaries for services performed in the independent
23practice of their professions, even if the attorney,
24accountant, or actuary is also a Director of the mutual
25company.
26        (a) If a converting mutual company seeking to convert

 

 

SB2513- 38 -LRB099 17058 EGJ 41416 b

1    under this Section is insolvent or is in hazardous
2    financial condition according to information supplied in
3    the mutual company's most recent annual or quarterly
4    statement filed with the Department or as determined by a
5    financial examination performed by the Department, the
6    requirements of this Section, including notice to and
7    policyholder approval of the plan of conversion, may be
8    waived at the discretion of the Director. If a waiver under
9    this Section is ordered by the Director, the converting
10    mutual company shall specify in the mutual company's plan
11    of conversion:
12            (i) the method and basis for the issuance of the
13        converted stock company's shares of its capital stock
14        to an independent party in connection with an
15        investment by the independent party in an amount
16        sufficient to restore the converted stock company to a
17        sound financial condition.
18            (ii) that the conversion must be accomplished
19        without granting subscription rights or other
20        consideration to policyholders.
21        (b) This subsection (12) does not alter or limit the
22    authority of the Director under any other provisions of
23    law, including receivership and liquidation provisions
24    applicable to insurance companies.
25    (13) Rules. The Director may adopt rules to administer and
26enforce this Section. Costs and expenses. All the costs and

 

 

SB2513- 39 -LRB099 17058 EGJ 41416 b

1expenses connected with a plan of conversion shall be paid for
2or reimbursed by the mutual company or the converted stock
3company except where the plan provides either for a holding
4company to acquire the stock of the converted stock company or
5for the merger of the mutual company into a stock insurance
6company as provided in subitem (i) of item (c) of subsection
7(6) of this Section. In those cases, the acquiring holding
8company or the stock insurance company shall pay for or
9reimburse all the costs and expenses connected with the plan.
10    (14) Laws applicable to converted stock company. Failure to
11give notice. If the mutual company complies substantially and
12in good faith with the notice requirements of this Section, the
13mutual company's failure to give any member or members any
14required notice does not impair the validity of any action
15taken under this Section.
16        (a) A converting mutual company is not permitted to
17    convert under this Section if, as a direct result of the
18    conversion, any person or any affiliate thereof acquires
19    control of the converted stock company, unless that person
20    and such person's affiliates comply with the provisions of
21    state law regarding the acquisition of control of an
22    insurance company.
23        (b) Except as otherwise specified in this Section, a
24    converted stock company has and may exercise all the rights
25    and privileges and is subject to all of the requirements
26    and regulations imposed on stock insurance companies under

 

 

SB2513- 40 -LRB099 17058 EGJ 41416 b

1    state law relating to the regulation and supervision of
2    insurance companies, but the converting stock company may
3    not exercise rights or privileges that other stock
4    insurance companies may not exercise.
5    (15) Commencement of business as a stock insurance company.
6A converting mutual company may not engage in the business of
7insurance as a stock company until the converting stock company
8complies with all provisions of this Section. Limitation of
9actions. Any action challenging the validity of or arising out
10of acts taken or proposed to be taken under this Section shall
11be commenced within 30 days after the effective date of the
12plan.
13    (16) Amendment of policies. A mutual company, by
14endorsement or rider approved by the Director and sent to the
15policyholder, may simultaneously with or at any time after the
16effective date of the conversion amend any outstanding
17insurance policy for the purpose of extinguishing the
18membership rights of such policyholder.
19    (17) Prohibition on acquisitions of control. Except as
20otherwise specifically provided in subsection (3), from the
21date a plan of conversion is adopted by the governing body of a
22converting mutual company until 3 years after the effective
23date of the plan of conversion, a person may not directly or
24indirectly offer to acquire, make any announcement to acquire,
25or acquire in any manner, including making a filing with the
26Department for such acquisition under a statute or regulation

 

 

SB2513- 41 -LRB099 17058 EGJ 41416 b

1of this state, the beneficial ownership of 10% or more of a
2class of a voting security of the converted stock company or of
3a person that controls the voting securities of the converted
4stock company, unless the converted stock company or a person
5that controls the voting securities of the converted stock
6company consents to such acquisition and such acquisition is
7otherwise approved by the Director.
8(Source: P.A. 98-755, eff. 7-16-14.)
 
9    Section 99. Effective date. This Act takes effect January
101, 2017.