Illinois General Assembly - Full Text of SB2634
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Full Text of SB2634  98th General Assembly




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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7    (Section scheduled to be repealed on January 1, 2017)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        (a) "Eligible member" is a member as of the date the
12    mutual company's board of directors adopts a plan of
13    conversion. A person insured under a group policy is not an
14    eligible member, unless:
15            (i) the person is insured or covered under a group
16        life policy or group annuity contract under which funds
17        are accumulated and allocated to the respective
18        covered persons;
19            (ii) the person has the right to direct the
20        application of the funds so allocated;
21            (iii) the group policyholder makes no contribution
22        to the premiums or deposits for the policy or contract;
23        and



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1            (iv) the mutual company has the names and addresses
2        of the persons covered under the group life policy or
3        group annuity contract.
4        A person whose policy is issued after the board of
5    directors adopts the plan but before the plan's effective
6    date is not an eligible member but shall have those rights
7    set forth in subsection (10) of this Section.
8        (b) "Converted stock company" is an Illinois domiciled
9    stock company that converted from an Illinois domiciled
10    mutual company under this Section.
11        (c) "Plan of conversion" or "plan" is a plan adopted by
12    an Illinois domestic mutual company's board of directors
13    under this Section to convert the mutual company into an
14    Illinois domiciled stock company.
15        (d) "Policy" includes an annuity contract.
16        (e) "Member" means a person who, on the records of the
17    mutual company and pursuant to its articles of
18    incorporation or bylaws, is deemed to be a holder of a
19    membership interest in the mutual company.
20    (2) Adoption of the plan of conversion by the board of
22        (a) A mutual company seeking to convert to a stock
23    company shall, by the affirmative vote of two-thirds of its
24    board of directors, adopt a plan of conversion consistent
25    with the requirements of subsection (6) of this Section.
26        (b) At any time before approval of a plan by the



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1    Director, the mutual company by the affirmative vote of
2    two-thirds of its board of directors, may amend or withdraw
3    the plan.
4    (3) Approval of the plan of conversion by the Director of
6        (a) Required findings. After adoption by the mutual
7    company's board of directors, the plan shall be submitted
8    to the Director for review and approval. The Director shall
9    approve the plan upon finding that:
10            (i) the provisions of this Section have been
11        complied with;
12            (ii) the plan will not prejudice the interests of
13        the members; and
14            (iii) the plan's method of allocating subscription
15        rights is fair and equitable.
16        (b) Documents to be filed.
17            (i) Prior to the members' approval of the plan, a
18        mutual company seeking the Director's approval of a
19        plan shall file the following documents with the
20        Director for review and approval:
21                (A) the plan of conversion, including the
22            independent evaluation of pro forma market value
23            required by item (f) of subsection (6) of this
24            Section;
25                (B) the form of notice required by item (b) of
26            subsection (4) of this Section for eligible



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1            members of the meeting to vote on the plan;
2                (C) any proxies to be solicited from eligible
3            members pursuant to subitem (ii) of item (c) of
4            subsection (4) of this Section;
5                (D) the form of notice required by item (a) of
6            subsection (10) of this Section for persons whose
7            policies are issued after adoption of the plan but
8            before its effective date; and
9                (E) the proposed articles of incorporation and
10            bylaws of the converted stock company.
11        Once filed, these documents shall be approved or
12        disapproved by the Director within a reasonable time.
13            (ii) After the members have approved the plan, the
14        converted stock company shall file the following
15        documents with the Director:
16                (A) the minutes of the meeting of the members
17            at which the plan was voted upon; and
18                (B) the revised articles of incorporation and
19            bylaws of the converted stock company.
20        (c) Consultant. The Director may retain, at the mutual
21    company's expense, any qualified expert not otherwise a
22    part of the Director's staff to assist in reviewing the
23    plan and the independent evaluation of the pro forma market
24    value which is required by item (f) of subsection (6) of
25    this Section.
26    (4) Approval of the plan by the members.



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1        (a) Members entitled to notice of and to vote on the
2    plan. All eligible members shall be given notice of and an
3    opportunity to vote upon the plan.
4        (b) Notice required. All eligible members shall be
5    given notice of the members' meeting to vote upon the plan.
6    A copy of the plan or a summary of the plan shall accompany
7    the notice. The notice shall be mailed to each member's
8    last known address, as shown on the mutual company's
9    records, within 45 days of the Director's approval of the
10    plan. The meeting to vote upon the plan shall not be set
11    for a date less than 30 60 days after the date when the
12    notice of the meeting is mailed by the mutual company. If
13    the meeting to vote upon the plan is held coincident with
14    the mutual company's annual meeting of policyholders, only
15    one combined notice of meeting is required.
16        (c) Vote required for approval.
17            (i) After approval by the Director, the plan shall
18        be adopted upon receiving the affirmative vote of at
19        least two-thirds of the votes cast by eligible members.
20            (ii) Members entitled to vote upon the proposed
21        plan may vote in person or by proxy. Any proxies to be
22        solicited from eligible members shall be filed with and
23        approved by the Director.
24            (iii) The number of votes each eligible member may
25        cast shall be determined by the mutual company's
26        bylaws. If the bylaws are silent, each eligible member



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



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1    the reasons for the proposed conversion.
2        (b) Effect of conversion on existing policies.
3            (i) The plan shall provide that all policies in
4        force on the effective date of conversion shall
5        continue to remain in force under the terms of those
6        policies, except that any voting rights of the
7        policyholders provided for under the policies or under
8        this Code and any contingent liability policy
9        provisions of the type described in Section 55 of this
10        Code shall be extinguished on the effective date of the
11        conversion.
12            (ii) The plan shall further provide that holders of
13        participating policies in effect on the date of
14        conversion shall continue to have the right to receive
15        dividends as provided in the participating policies,
16        if any.
17            (iii) Except for a mutual company's participating
18        life policies, guaranteed renewable accident and
19        health policies, and non-cancelable accident and
20        health policies, the converted stock company may issue
21        the insured a nonparticipating policy as a substitute
22        for the participating policy upon the renewal date of a
23        participating policy.
24        (c) Subscription rights to eligible members.
25            (i) The plan shall provide that each eligible
26        member is to receive, without payment, nontransferable



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



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



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



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



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1    acting in concert may not acquire, through public offering
2    or subscription rights, more than 5% of the capital stock
3    of the converted stock company for a period of 5 years from
4    the effective date of the plan except with the approval of
5    the Director. This limitation does not apply to any entity
6    that is to purchase 100% of the capital stock of the
7    converted company as part of the plan of conversion
8    approved by the Director or to a purchase of stock by a
9    tax-qualified employee benefit plan pursuant to
10    subscription grants granted to that plan as authorized
11    under item (b) of subsection (7) of this Section and to a
12    purchase of unsubscribed stock pursuant to item (e) of
13    subsection (6) of this Section.
14    (7) Optional provisions in a plan of conversion. The
15following provisions may be included in the plan:
16        (a) Directors and officers subscription rights.
17            (i) The plan may provide that the directors and
18        officers of the mutual company shall receive, without
19        payment, nontransferable subscription rights to
20        purchase capital stock of the converted stock company
21        or the stock of another corporation that is
22        participating in the conversion plan as provided in
23        subitem (i) of item (c) of subsection (6) of this
24        Section. Those subscription rights shall be allocated
25        among the directors and officers by a fair and
26        equitable formula.



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1            (ii) The total number of shares that may be
2        purchased under subitem (i) of item (a) of subsection
3        (7) of this Section may not exceed 35% of the total
4        number of shares to be issued in the case of a mutual
5        company with total assets of less than $50 million or
6        25% of the total shares to be issued in the case of a
7        mutual company with total assets of more than $500
8        million. For mutual companies with total assets
9        between $50 million and $500 million, the total number
10        of shares that may be purchased shall be interpolated.
11            (iii) Stock purchased by a director or officer
12        under subitem (i) of item (a) of subsection (7) of this
13        Section may not be sold within one year following the
14        effective date of the conversion.
15            (iv) The plan may also provide that a director or
16        officer or person acting in concert with a director or
17        officer of the mutual company may not acquire any
18        capital stock of the converted stock company for 3
19        years after the effective date of the plan, except
20        through a broker or dealer, without the permission of
21        the Director. That provision may not apply to prohibit
22        the directors and officers from purchasing stock
23        through subscription rights received in the plan under
24        subitem (i) of item (a) of subsection (7) of this
25        Section.
26        (b) Tax-qualified employee stock benefit plan. The



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1    plan may allocate to a tax-qualified employee benefit plan
2    nontransferable subscription rights to purchase up to 10%
3    of the capital stock of the converted stock company or the
4    stock of another corporation that is participating in the
5    conversion plan as provided in subitem (i) of item (c) of
6    subsection (6) of this Section. That employee benefit plan
7    shall be entitled to exercise its subscription rights
8    regardless of the amount of shares purchased by other
9    persons.
10    (8) Alternative plan of conversion. The board of directors
11may adopt a plan of conversion that does not rely in whole or
12in part upon the issuance to members of non-transferable
13subscription rights to purchase stock of the converted stock
14company if the Director finds that the plan does not prejudice
15the interests of the members, is fair and equitable, and is
16based upon an independent appraisal of the market value of the
17mutual company by a qualified person and a fair and equitable
18allocation of any consideration to be given eligible members.
19The Director may retain, at the mutual company's expense, any
20qualified expert not otherwise a part of the Director's staff
21to assist in reviewing whether the plan may be approved by the
23    (9) Effective date of the plan. A plan shall become
24effective when the Director has approved the plan, the members
25have approved the plan, and the revised articles of
26incorporation have been adopted.



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1    (10) Rights of members whose policies are issued after
2adoption of the plan and before its effective date.
3        (a) Notice. All members whose policies are issued after
4    the proposed plan has been adopted by the board of
5    directors and before the effective date of the plan shall
6    be given written notice of the plan of conversion. The
7    notice shall specify the member's right to rescind that
8    policy as provided in item (b) of subsection (10) of this
9    Section within 45 days after the effective date of the
10    plan. A copy of the plan or a summary of the plan shall
11    accompany the notice. The form of the notice shall be filed
12    with and approved by the Director.
13        (b) Option to rescind. Any member entitled to receive
14    the notice described in item (a) of subsection (10) of this
15    Section shall be entitled to rescind his or her policy and
16    receive a full refund of any amounts paid for the policy or
17    contract within 10 days after the receipt of the notice.
18    (11) Corporate existence.
19        (a) Upon the conversion of a mutual company to a
20    converted stock company according to the provisions of this
21    Section, the corporate existence of the mutual company
22    shall be continued in the converted stock company. All the
23    rights, franchises, and interests of the mutual company in
24    and to every type of property, real, personal, and mixed,
25    and things in action thereunto belonging, is deemed
26    transferred to and vested in the converted stock company



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1    without any deed or transfer. Simultaneously, the
2    converted stock company is deemed to have assumed all the
3    obligations and liabilities of the mutual company.
4        (b) The directors and officers of the mutual company,
5    unless otherwise specified in the plan of conversion, shall
6    serve as directors and officers of the converted stock
7    company until new directors and officers of the converted
8    stock company are duly elected pursuant to the articles of
9    incorporation and bylaws of the converted stock company.
10    (12) Conflict of interest. No director, officer, agent, or
11employee of the mutual company or any other person shall
12receive any fee, commission, or other valuable consideration,
13other than his or her usual regular salary and compensation,
14for in any manner aiding, promoting, or assisting in the
15conversion except as set forth in the plan approved by the
16Director. This provision does not prohibit the payment of
17reasonable fees and compensation to attorneys, accountants,
18and actuaries for services performed in the independent
19practice of their professions, even if the attorney,
20accountant, or actuary is also a Director of the mutual
22    (13) Costs and expenses. All the costs and expenses
23connected with a plan of conversion shall be paid for or
24reimbursed by the mutual company or the converted stock company
25except where the plan provides either for a holding company to
26acquire the stock of the converted stock company or for the



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1merger of the mutual company into a stock insurance company as
2provided in subitem (i) of item (c) of subsection (6) of this
3Section. In those cases, the acquiring holding company or the
4stock insurance company shall pay for or reimburse all the
5costs and expenses connected with the plan.
6    (14) Failure to give notice. If the mutual company complies
7substantially and in good faith with the notice requirements of
8this Section, the mutual company's failure to give any member
9or members any required notice does not impair the validity of
10any action taken under this Section.
11    (15) Limitation of actions. Any action challenging the
12validity of or arising out of acts taken or proposed to be
13taken under this Section shall be commenced within 30 days
14after the effective date of the plan.
15(Source: P.A. 90-381, eff. 8-14-97.)
16    Section 99. Effective date. This Act takes effect upon
17becoming law.