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90_HB2226ham002
LRB9001538JSgcam01
1 AMENDMENT TO HOUSE BILL 2226
2 AMENDMENT NO. . Amend House Bill 2226 on page 1,
3 line 6, by changing "56" to "56, 59.1"; and
4 on page 10 by inserting immediately below line 5 the
5 following:
6 "(215 ILCS 5/59.1)
7 Sec. 59.1. Conversion to stock company.
8 (1) Definitions. For the purposes of this Section, the
9 following terms shall have the meanings indicated:
10 (a) "Eligible member" is a member whose policy is
11 in force as of the date the mutual company's board of
12 directors adopts a plan of conversion. A person insured
13 under a group policy is not an eligible member, unless:
14 (i) the person is insured or covered under a
15 group life policy or group annuity contract under
16 which funds are accumulated and allocated to the
17 respective covered persons;
18 (ii) the person has the right to direct the
19 application of the funds so allocated;
20 (iii) the group policyholder makes no
21 contribution to the premiums or deposits for the
22 policy or contract; and
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1 (iv) the mutual company has the names and
2 addresses of the persons covered under the group
3 life policy or 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
7 rights set forth in subsection (10) of this Section.
8 (b) "Converted stock company" is an Illinois
9 domiciled stock company that converted from an Illinois
10 domiciled mutual company under this Section.
11 (c) "Plan of conversion" or "plan" is a plan
12 adopted by an Illinois domestic mutual company's board of
13 directors under this Section to convert the mutual
14 company into an Illinois domiciled stock company.
15 (d) "Policy" includes an annuity contract.
16 (e) "Member" means a person who, on the records of
17 the 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
21 directors.
22 (a) A mutual company seeking to convert to a stock
23 company shall, by the affirmative vote of two-thirds of
24 its board of directors, adopt a plan of conversion
25 consistent with the requirements of subsection (6) of
26 this Section.
27 (b) At any time before approval of a plan by the
28 Director, the mutual company by the affirmative vote of
29 two-thirds of its board of directors, may amend or
30 withdraw the plan.
31 (3) Approval of the plan of conversion by the Director
32 of Insurance.
33 (a) Required findings. After adoption by the mutual
34 company's board of directors, the plan shall be submitted
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1 to the Director for review and approval. The Director
2 shall approve the plan upon finding that:
3 (i) the provisions of this Section have been
4 complied with;
5 (ii) the plan will not prejudice the interests
6 of the members; and
7 (iii) the plan's method of allocating
8 subscription rights is fair and equitable.
9 (b) Documents to be filed.
10 (i) Prior to the members' approval of the
11 plan, a mutual company seeking the Director's
12 approval of a plan shall file the following
13 documents with the Director for review and approval:
14 (A) the plan of conversion, including the
15 independent evaluation of pro forma market
16 value required by item (f) of subsection (6) of
17 this Section;
18 (B) the form of notice required by item
19 (b) of subsection (4) of this Section for
20 eligible members of the meeting to vote on the
21 plan;
22 (C) any proxies to be solicited from
23 eligible members pursuant to subitem (ii) of
24 item (c) of subsection (4) of this Section;
25 (D) the form of notice required by item
26 (a) of subsection (10) of this Section for
27 persons whose policies are issued after
28 adoption of the plan but before its effective
29 date; and
30 (E) the proposed articles of
31 incorporation and bylaws of the converted stock
32 company.
33 Once filed, these documents shall be approved or
34 disapproved by the Director within a reasonable
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1 time.
2 (ii) After the members have approved the plan,
3 the converted stock company shall file the following
4 documents with the Director:
5 (A) the minutes of the meeting of the
6 members at which the plan was voted upon; and
7 (B) the revised articles of incorporation
8 and bylaws of the converted stock company.
9 (c) Consultant. The Director may retain, at the
10 mutual company's expense, any qualified expert not
11 otherwise a part of the Director's staff to assist in
12 reviewing the plan and the independent evaluation of the
13 pro forma market value which is required by item (f) of
14 subsection (6) of this Section.
15 (4) Approval of the plan by the members.
16 (a) Members entitled to notice of and to vote on
17 the plan. All eligible members shall be given notice of
18 and an opportunity to vote upon the plan.
19 (b) Notice required. All eligible members shall be
20 given notice of the members' meeting to vote upon the
21 plan. A copy of the plan or a summary of the plan shall
22 accompany the notice. The notice shall be mailed to each
23 member's last known address, as shown on the mutual
24 company's records, within 45 days of the Director's
25 approval of the plan. The meeting to vote upon the plan
26 shall not be set for a date less than 60 days after the
27 date when the notice of the meeting is mailed by the
28 mutual company. If the meeting to vote upon the plan is
29 held coincident with the mutual company's annual meeting
30 of policyholders, only one combined notice of meeting is
31 required.
32 (c) Vote required for approval.
33 (i) After approval by the Director, the plan
34 shall be adopted upon receiving the affirmative vote
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1 of at least two-thirds of the votes cast by eligible
2 members.
3 (ii) Members entitled to vote upon the
4 proposed plan may vote in person or by proxy. Any
5 proxies to be solicited from eligible members shall
6 be filed with and approved by the Director.
7 (iii) The number of votes each eligible member
8 may cast shall be determined by the mutual company's
9 bylaws. If the bylaws are silent, each eligible
10 member may cast one vote.
11 (5) Adoption of revised articles of incorporation.
12 Adoption of the revised articles of incorporation of the
13 converted stock company is necessary to implement the plan
14 and shall be governed by the applicable provisions of Section
15 57 of this Code. For a Class 1 mutual company, the members
16 may adopt the revised articles of incorporation at the same
17 meeting at which the members approve the plan. For a Class 2
18 or 3 mutual company, the revised articles of incorporation
19 may be adopted solely by the board of directors or trustees,
20 as provided in Section 57 of this Code.
21 (5.5) Prior to the completion of a plan of conversion
22 filed by a mutual company with the Director, no person shall
23 knowingly acquire, make any offer, or make any announcement
24 of an offer for any security issued or to be issued by the
25 converting mutual company in connection with its plan of
26 conversion or for any security issued or to be issued by any
27 other company authorized in item(c)(i) of subsection (6) of
28 this Section and organized for purposes of effecting the
29 conversion, except in compliance with the maximum purchase
30 limitations imposed by item (i) of subsection (6) of this
31 Section or the terms of the plan of conversion as approved by
32 the Director.
33 (6) Required provisions in a plan of conversion. The
34 following provisions shall be included in the plan:
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1 (a) Reasons for conversion. The plan shall set
2 forth the reasons for the proposed conversion.
3 (b) Effect of conversion on existing policies.
4 (i) The plan shall provide that all policies
5 in force on the effective date of conversion shall
6 continue to remain in force under the terms of those
7 policies, except that any voting rights of the
8 policyholders provided for under the policies or
9 under this Code and any contingent liability policy
10 provisions of the type described in Section 55 of
11 this Code shall be extinguished on the effective
12 date of the conversion.
13 (ii) The plan shall further provide that
14 holders of participating policies in effect on the
15 date of conversion shall continue to have the right
16 to receive dividends as provided in the
17 participating policies, if any.
18 (iii) Except for a mutual company's
19 participating life policies, guaranteed renewable
20 accident and health policies, and non-cancelable
21 accident and health policies, the converted stock
22 company may issue the insured a nonparticipating
23 policy as a substitute for the participating policy
24 upon the renewal date of a participating policy.
25 (c) Subscription rights to eligible members.
26 (i) The plan shall provide that each eligible
27 member is to receive, without payment,
28 nontransferable subscription rights to purchase a
29 portion of the capital stock of the converted stock
30 company. As an alternative to subscription rights
31 in the converted stock company, the plan may provide
32 that each eligible member is to receive, without
33 payment, nontransferable subscription rights to
34 purchase a portion of the capital stock of: (A) a
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1 corporation organized and owned by the mutual
2 company for the purpose of acquiring or purchasing
3 and holding all the stock of the converted stock
4 company; or (B) a stock insurance company owned by
5 the mutual company into which the mutual company
6 will be merged.
7 (ii) The subscription rights shall be
8 allocated in whole shares among the eligible members
9 using a fair and equitable formula. This formula
10 may but need not take into account how the different
11 classes of policies of the eligible members
12 contributed to the surplus of the mutual company.
13 (d) Oversubscription. The plan shall provide a fair
14 and equitable means for the allocation of shares of
15 capital stock in the event of an oversubscription to
16 shares by eligible members exercising subscription rights
17 received pursuant to item (c) of subsection (6) of this
18 Section.
19 (e) Undersubscription. The plan shall provide that
20 any shares of capital stock not subscribed to by eligible
21 members exercising subscription rights received under
22 item (c) of subsection (6) of this Section shall be sold
23 in a public offering through an underwriter. If the
24 number of shares of capital stock not subscribed by
25 eligible members is so small or the additional time or
26 expense required for a public offering of those shares
27 would be otherwise unwarranted under the circumstances in
28 number as to not warrant the expense of a public
29 offering, the plan of conversion may provide for the
30 purchase of the unsubscribed shares by a private
31 placement or other alternative method approved by the
32 Director that is fair and equitable to the eligible
33 members.
34 (f) Total price of stock. The plan shall set the
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1 total price of the capital stock equal to the estimated
2 pro forma market value of the converted stock company
3 based upon an independent evaluation by a qualified
4 person. The pro forma market value may be the value that
5 is estimated to be necessary to attract full subscription
6 for the shares as indicated by the independent
7 evaluation.
8 (g) Purchase price of each share. The plan shall
9 set the purchase price of each share of capital stock
10 equal to any reasonable amount that will not inhibit the
11 purchase of shares by members. The purchase price of
12 each share shall be uniform for all purchasers except the
13 price may be modified by the Director by reason of his
14 consideration of a plan for the purchase of unsubscribed
15 stock pursuant to item (e) of subsection (6) of this
16 Section.
17 (h) Closed block of business for participating
18 life policies of a Class 1 mutual company.
19 (i) The plan shall provide that a Class 1
20 mutual company's participating life policies in
21 force on the effective date of the conversion shall
22 be operated by the converted stock company for
23 dividend purposes as a closed block of participating
24 business except that any or all classes of group
25 participating policies may be excluded from the
26 closed block.
27 (ii) The plan shall establish one or more
28 segregated accounts for the benefit of the closed
29 block of business and shall allocate to those
30 segregated accounts enough assets of the mutual
31 company so that the assets together with the revenue
32 from the closed block of business are sufficient to
33 support the closed block including, but not limited
34 to, the payment of claims, expenses, taxes, and any
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1 dividends that are provided for under the terms of
2 the participating policies with appropriate
3 adjustments in the dividends for experience changes.
4 The plan shall be accompanied by an opinion of a
5 qualified actuary or an appointed actuary who meets
6 the standards set forth in the insurance laws or
7 regulations for the submission of actuarial opinions
8 as to the adequacy of reserves or assets. The
9 opinion shall relate to the adequacy of the assets
10 allocated to the segregated accounts in support of
11 the closed block of business. The actuarial opinion
12 shall be based on methods of analysis deemed
13 appropriate for those purposes by the Actuarial
14 Standards Board.
15 (iii) The amount of assets allocated to the
16 segregated accounts of the closed block shall be
17 based upon the mutual company's last annual
18 statement that is updated to the effective date of
19 the conversion.
20 (iv) The converted stock company shall keep a
21 separate accounting for the closed block and shall
22 make and include in the annual statement to be filed
23 with the Director each year a separate statement
24 showing the gains, losses, and expenses properly
25 attributable to the closed block.
26 (v) Periodically, upon the Director's
27 approval, those assets allocated to the closed block
28 as provided in subitem (ii) of item (h) of
29 subsection (6) of this Section that are in excess of
30 the amount of assets necessary to support the
31 remaining polices in the closed block shall revert
32 to the benefit of the converted stock company.
33 (vi) The Director may waive the requirement
34 for the establishment of a closed block of business
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1 if the Director deems it to be in the best interests
2 of the participating policyholders of the mutual
3 insurer to do so.
4 (i) Limitations on acquisition of control. The plan
5 shall provide that any one person or group of persons
6 acting in concert may not acquire, through public
7 offering or subscription rights, more than 5% of the
8 capital stock of the converted stock company for a period
9 of 5 years from the effective date of the plan except
10 with the approval of the Director. This limitation does
11 not apply to any entity that is to purchase 100% of the
12 capital stock of the converted company as part of the
13 plan of conversion approved by the Director or to a
14 purchase of stock by a tax-qualified employee benefit
15 plan pursuant to subscription grants granted to that plan
16 as authorized under item (b) (c) of subsection (7) of
17 this Section and to a purchase of unsubscribed stock
18 pursuant to item (e) of subsection (6) of this Section.
19 (7) Optional provisions in a plan of conversion. The
20 following provisions may be included in the plan:
21 (a) Directors and officers subscription rights.
22 (i) The plan may provide that the directors
23 and officers of the mutual company shall receive,
24 without payment, nontransferable subscription rights
25 to purchase capital stock of the converted stock
26 company or the stock of another corporation that is
27 participating in the conversion plan as provided in
28 subitem (i) of item (c) of subsection (6) of this
29 Section. Those subscription rights shall be
30 allocated among the directors and officers by a fair
31 and equitable formula.
32 (ii) The total number of shares that may be
33 purchased under subitem (i) of item (a) of
34 subsection (7) of this Section may not exceed 35% of
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1 the total number of shares to be issued in the case
2 of a mutual company with total assets of less than
3 $50 million or 25% of the total shares to be issued
4 in the case of a mutual company with total assets of
5 more than $500 million. For mutual companies with
6 total assets between $50 million and $500 million,
7 the total number of shares that may be purchased
8 shall be interpolated.
9 (iii) Stock purchased by a director or officer
10 under subitem (i) of item (a) of subsection (7) of
11 this Section may not be sold within one year
12 following the effective date of the conversion.
13 (iv) The plan may also provide that a director
14 or officer or person acting in concert with a
15 director or officer of the mutual company may not
16 acquire any capital stock of the converted stock
17 company for 3 years after the effective date of the
18 plan, except through a broker or dealer, without the
19 permission of the Director. That provision may not
20 apply to prohibit the directors and officers from
21 purchasing stock through subscription rights
22 received in the plan under subitem (i) of item (a)
23 of subsection (7) of this Section.
24 (b) Tax-qualified employee stock benefit plan. The
25 plan may allocate to a tax-qualified employee benefit
26 plan nontransferable subscription rights to purchase up
27 to 10% of the capital stock of the converted stock
28 company or the stock of another corporation that is
29 participating in the conversion plan as provided in
30 subitem (i) of item (c) of subsection (6) of this
31 Section. That employee benefit plan shall be entitled to
32 exercise its subscription rights regardless of the amount
33 of shares purchased by other persons.
34 (8) Alternative plan of conversion. The board of
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1 directors may adopt a plan of conversion that does not rely
2 in whole or in part upon the issuance to members of
3 non-transferable subscription rights to purchase stock of the
4 converted stock company if the Director finds that the plan
5 does not prejudice the interests of the members, is fair and
6 equitable, and is based upon an independent appraisal of the
7 market value of the mutual company by a qualified person and
8 a fair and equitable allocation of any consideration to be
9 given eligible members. The Director may retain, at the
10 mutual company's expense, any qualified expert not otherwise
11 a part of the Director's staff to assist in reviewing whether
12 the plan may be approved by the Director.
13 (9) Effective date of the plan. A plan shall become
14 effective when the Director has approved the plan, the
15 members have approved the plan, and the revised articles of
16 incorporation have been adopted.
17 (10) Rights of members whose policies are issued after
18 adoption of the plan and before its effective date.
19 (a) Notice. All members whose policies are issued
20 after the proposed plan has been adopted by the board of
21 directors and before the effective date of the plan shall
22 be given written notice of the plan of conversion. The
23 notice shall specify the member's right to rescind that
24 policy as provided in item (b) of subsection (10) of this
25 Section within 45 days after the effective date of the
26 plan. A copy of the plan or a summary of the plan shall
27 accompany the notice. The form of the notice shall be
28 filed with and approved by the Director.
29 (b) Option to rescind. Any member entitled to
30 receive the notice described in item (a) of subsection
31 (10) of this Section shall be entitled to rescind his or
32 her policy and receive a full refund of any amounts paid
33 for the policy or contract within 10 days after the
34 receipt of the notice.
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1 (11) Corporate existence.
2 (a) Upon the conversion of a mutual company to a
3 converted stock company according to the provisions of
4 this Section, the corporate existence of the mutual
5 company shall be continued in the converted stock
6 company. All the rights, franchises, and interests of
7 the mutual company in and to every type of property,
8 real, personal, and mixed, and things in action thereunto
9 belonging, is deemed transferred to and vested in the
10 converted stock company without any deed or transfer.
11 Simultaneously, the converted stock company is deemed to
12 have assumed all the obligations and liabilities of the
13 mutual company.
14 (b) The directors and officers of the mutual
15 company, unless otherwise specified in the plan of
16 conversion, shall serve as directors and officers of the
17 converted stock company until new directors and officers
18 of the converted stock company are duly elected pursuant
19 to the articles of incorporation and bylaws of the
20 converted stock company.
21 (12) Conflict of interest. No director, officer, agent,
22 or employee of the mutual company or any other person shall
23 receive any fee, commission, or other valuable consideration,
24 other than his or her usual regular salary and compensation,
25 for in any manner aiding, promoting, or assisting in the
26 conversion except as set forth in the plan approved by the
27 Director. This provision does not prohibit the payment of
28 reasonable fees and compensation to attorneys, accountants,
29 and actuaries for services performed in the independent
30 practice of their professions, even if the attorney,
31 accountant, or actuary is also a Director of the mutual
32 company.
33 (13) Costs and expenses. All the costs and expenses
34 connected with a plan of conversion shall be paid for or
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1 reimbursed by the mutual company or the converted stock
2 company except where the plan provides either for a holding
3 company to acquire the stock of the converted stock company
4 or for the merger of the mutual company into a stock
5 insurance company as provided in subitem (i) of item (c) of
6 subsection (6) of this Section. In those cases, the acquiring
7 holding company or the stock insurance company shall pay for
8 or reimburse all the costs and expenses connected with the
9 plan.
10 (14) Failure to give notice. If the mutual company
11 complies substantially and in good faith with the notice
12 requirements of this Section, the mutual company's failure to
13 give any member or members any required notice does not
14 impair the validity of any action taken under this Section.
15 (15) Limitation of actions. Any action challenging the
16 validity of or arising out of acts taken or proposed to be
17 taken under this Section shall be commenced within 30 days
18 after the effective date of the plan.
19 (Source: P.A. 88-662, eff. 9-16-94.)".