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SECTION 7313
Reorganization of domestic mutual accident and health insurance companies
Insurance (ISC) CHAPTER 28, ARTICLE 73
§ 7313. Reorganization of domestic mutual accident and health
insurance companies.

(a) In this section:

(1) "Affiliate" of a mutual insurer means any person who controls, is
controlled by or is under common control with, the mutual insurer being
converted. A corporation is an affiliate of another corporation,
regardless of ownership, if substantially the same group of persons
manage the two corporations.

(2) "Control" has the meaning assigned to it in paragraph two of
subsection (a) of section one thousand five hundred one of this chapter.

(3) A "domestic mutual insurer" or "mutual insurer" means a domestic
mutual accident and health insurance company organized under article
twelve of this chapter and licensed under article forty-two of this
chapter and not operating under an order of rehabilitation.

(4) "Policyholder" means a person, as determined by the records of a
mutual accident and health insurer, who is deemed to be the
"policyholder" of a policy that is of a type described in paragraph
three of subsection (a) of section one thousand one hundred thirteen of
this chapter.

(5) "Policyholders' membership interest" means and includes all
policyholders' rights as members arising under the charter of the mutual
accident and health insurer or this chapter or otherwise by law,
including the rights to vote and to participate in the distribution of
surplus whether or not incident to a liquidation of a mutual accident
and health insurer. The term "policyholders' membership interest" does
not include rights, including without limitation the right to
participate in the distribution of surplus, expressly conferred upon the
policyholders by their policies or contracts other than any right to
vote.

(6) "Reorganization" means a conversion in accordance with this
section.

(b)(1) A domestic mutual insurer may apply to the superintendent for
permission to reorganize and convert into a domestic stock accident and
health insurer complying with the relevant organization and licensing
provisions of articles twelve and forty-two of this chapter. The
application to the superintendent shall be pursuant to a resolution,
adopted by no less than a majority of the entire board of directors,
specifying the reasons for and the purposes of the proposed conversion
and the manner in which the conversion is expected to benefit
policyholders and the public. A copy of the resolution, together with a
statement of its adoption, both certified by the president and
secretary, or officers corresponding to either of them, and affirmed by
them as true under the penalties of perjury and under the seal of the
mutual insurer, and such other information as the superintendent may
require shall accompany the application.

(2) The superintendent shall order an examination of the mutual
insurer pursuant to section three hundred ten of this chapter as of the
last day of the period covered in the insurer's latest filed statement,
except that the proposed conversion shall terminate without an
examination if the superintendent finds that:

(A) the resolution is defective upon its face;

(B) the proposed conversion is contrary to law or is not in the best
interests of the policyholders or the public; or

(C) the mutual insurer does not have a surplus to policyholders at
least equal to the minimum capital and surplus required to be maintained
for a newly organized stock insurer doing the same kinds of insurance.

(c) The superintendent shall also appoint one or more qualified
disinterested persons to appraise and report to the superintendent the
fair market value of the mutual insurer and, to the extent necessary,
its affiliates, on the basis of its latest filed annual or quarterly
statement, and of any significant subsequent developments. The
appraisers shall consider the assets and liabilities of the mutual
insurer and any factors bearing on the value of the mutual insurer or
its affiliates. The appraisers shall receive reasonable compensation and
be reimbursed for reasonable expenses incurred in discharging their
duties. The appraisers may, as necessary, employ consultants to advise
them on any technical matters.

(d) The superintendent shall make copies of such examination report
and appraisal report available to the board of directors within fifteen
days of the superintendent's receipt of the reports. After receiving the
reports, the superintendent may grant or deny permission to the board of
directors to submit to the superintendent a plan of conversion. If
permission is granted, the plan shall include the provisions, and be
submitted in the manner and under the conditions, required by subsection
(e) of this section. If permission is denied, the superintendent shall
make a written statement of the superintendent's findings and the board
shall have the right to a hearing before the superintendent within
thirty days of the date of denial.

(e)(1) In order for the conversion to proceed:

(A) the plan must be adopted by a majority of the entire board;

(B) the plan must be signed by the president and attested to by the
secretary, or officers corresponding to either of them, under the
corporate seal of the insurer; and

(C) a copy of the plan and resolution, both certified by such officers
as true under the penalties of perjury and under the seal of the
insurer, shall be submitted to the superintendent not later than
forty-five days after permission was granted under subsection (d) of
this section.

(2) The plan shall include:

(A) the proposed charter and by-laws of the insurer as a stock
corporation set out in accordance with paragraph five of subsection (a)
of section one thousand two hundred one of this chapter;

(B) the manner of treating a holder of an agreement subject to section
one thousand three hundred seven of this chapter, if any; the holder, if
otherwise qualified, may, at its option, exchange such agreement for an
equitable share of the securities or other consideration, or both, of
the corporation into which the insurer is to be converted.

(C)(i) the manner and basis of exchanging the equitable share of each
eligible mutual policyholder's membership interests for securities or
other consideration, or both, of the stock corporation into which the
mutual insurer is to be converted and the disposition of any unclaimed
shares.

(ii) The plan shall also provide that each person who had a policy of
insurance in effect at any time during the three-year period immediately
preceding the date of adoption of the resolution described in subsection
(b) of this section shall be entitled to receive in exchange for the
equitable share, without additional payment, consideration payable in
voting common shares of the insurer or other consideration, or both. The
equitable share of the policyholder in the mutual insurer shall be
determined by the ratio that the net premiums (gross premiums less
return premiums and dividend paid) such policyholder has properly and
timely paid to the insurer on insurance policies in effect during the
three years immediately preceding the adoption of the resolution by the
board of directors under subsection (b) of this section bears to the
total net premiums received by the mutual insurer from such eligible
policyholders. In computing a policyholder's equitable share, no credit
shall be given for any net premiums which result from an endorsement
which is effective on or after the date of adoption of the resolution.

(iii) Notwithstanding item (ii) of this subparagraph, credit shall be
given for any net premiums resulting from an audit or retrospective
premium adjustment that is billed within one hundred eighty days after
the date of adoption of the resolution described in subsection (b) of
this section, provided the premium is paid timely.

(iv) If the equitable share of the eligible policyholder entitles the
policyholder to the purchase of a fractional share of stock, the
policyholder shall have the option to receive the value of the
fractional share in cash or purchase a full share by paying the balance
in cash;

(D) the number of voting common shares proposed to be authorized for
the stock corporation, their par value and the price at which they shall
be offered, which price may not exceed one-half of the median equitable
share of all policyholders under item (ii) of subparagraph (C) of
paragraph two of this subsection.

(E) any other information or other item that the superintendent may
require.

(f) The mutual insurer shall give prompt notice to all persons who
become policyholders or holders of agreements subject to section one
thousand three hundred seven of this chapter on or after the date of the
adoption of the resolution described in subsection (b) of this section.
The notice shall specify the pendency of a proposed conversion and the
effect the conversion shall have on them.

(g) The superintendent shall hold a public hearing, adequate notice of
which shall be mailed by the mutual insurer to each policyholder on the
day preceding the date of adoption of the resolution described in
subsection (b) of this section, accompanied by a copy of the plan of
conversion and any comment the superintendent considers necessary for
the adequate information of the policyholders. The mutual insurer shall
also immediately cause the notice to be posted on its website. In
addition, the mutual insurer shall give notice of the hearing by
publication in a newspaper of general circulation in the county in which
the mutual insurer has its principal office and in the two largest
cities in each state in which the insurer has underwritten insurance
within the five years preceding the date of the adoption of the
resolution described in subsection (b) of this section. The notice shall
be accompanied by a summary approved by the superintendent of the plan
and any comment the superintendent considers necessary for the adequate
information of former policyholders and the public.

(h) (1) After the hearing, the superintendent shall approve the plan
as submitted, refuse to approve the plan, or request modification of the
plan before granting approval. The superintendent may approve the plan
unless the superintendent finds that the plan violates this chapter, is
inconsistent with law, or is not fair and equitable or in the best
interests of the policyholders and the public. If the superintendent
finds that the plan does not meet the foregoing standards for approval,
the superintendent shall either refuse to approve the plan and the plan
shall become null and void or return the plan to the mutual insurer for
modification to meet the superintendent's stated objections.

(2) If within ninety days after receipt of the superintendent's
request for modifications the mutual insurer does not submit an amended
plan satisfactory to the superintendent and that meets the
superintendent's objections and complies with the standards for
approval, the plan shall become null and void.

(i) After approval by the superintendent the plan shall be submitted
to a vote of the persons who were policyholders of the mutual insurer on
the day preceding the date of adoption of the resolution described in
subsection (b) of this section. The plan shall provide for proxy voting
in a manner to be prescribed by the superintendent. The board shall
submit the question of the plan to the policyholders at a meeting
thereof, by causing a full, true and correct copy or a summary thereof
approved by the superintendent, together with notice, stating the time,
place and purpose of the meeting, to be delivered personally, or
deposited in the post office, postage prepaid, at least thirty days
(unless a shorter time, not less than ten days, be approved by the
superintendent) prior to the time fixed for such meeting, addressed to
each policyholder at the policyholder's last post office address
appearing on the records of the insurer or other form of delivery
intended to encourage participation acceptable to the superintendent.

(j) Each such policyholder eligible to vote pursuant to subsection (i)
of this section shall be entitled to the number of votes as may be
provided for in the by-laws of the mutual insurer. The votes of
two-thirds of all the votes cast by policyholders represented at the
meeting in person or by proxy, or by such other means acceptable to the
superintendent intended to encourage participation, shall be necessary
for the adoption of the plan. Upon the conclusion of the vote the
insurer shall submit to the superintendent a certified copy of the plan
voted on together with a certificate setting forth the results of the
vote, both of which shall be subscribed by the president and attested by
the secretary, or officers corresponding to either of them, under the
corporate seal of the mutual insurer, and affirmed by them as true under
the penalties of perjury.

(k) If at any stage in the process of a conversion under this section
the superintendent finds that the mutual insurer is impaired or that the
further transaction of business by the mutual insurer will be hazardous
to its policyholders, its creditors, or the public, the proposed
conversion shall terminate.

(l) If the conversion plan is adopted pursuant to subsection (j) of
this section, the superintendent, upon being satisfied that the insurer
will have at least the minimum capital and surplus required to be
maintained for a newly organized domestic stock insurer doing the same
kinds of insurance, shall issue a new certificate of authority to the
insurer, thereby converting the mutual insurer into a stock insurer. At
the same time, the superintendent may issue such license as may be
required pursuant to section one thousand two hundred four of this
chapter.

(m) Upon the conversion, the stock insurer shall give notice thereof
by publication in a newspaper of general circulation in the county in
which the insurer has its principal office and in the two largest cities
in each state in which the insurer shall be licensed to do business. In
addition, the stock insurer shall also immediately cause the notice to
be posted on its website. The notice shall include a correct copy of the
plan, or a summary thereof approved by the superintendent.

(n) Upon the conversion of the mutual insurer in the manner herein
provided, all the rights, franchises and interests of the former mutual
insurer, in and to every species of property, real, personal and mixed,
and things in action thereunto belonging, shall be deemed as transferred
to and vested in the stock insurer, without any other deed or transfer;
and simultaneously therewith such company shall be deemed to have
assumed all of the obligations and liabilities of the former mutual
insurer.

(o) No action or proceeding, pending at the time of the conversion to
which the mutual insurer may be a party shall be abated or discontinued
by reason of such conversion, but the same may be prosecuted to final
judgment in the same manner as if the conversion had not taken place, or
the stock corporation may be substituted in place of the mutual insurer
by order of the court in which the action or proceeding may be pending.

(p) The directors and officers of the mutual insurer shall serve until
new directors and officers have been duly elected and qualified pursuant
to the charter and by-laws of the stock insurer.

(q) The insurer, whether before or after conversion, shall pay no
compensation of any kind to any person other than regular salaries to
existing personnel, in connection with the proposed conversion, other
than for clerical and mailing expenses, except that, with the
superintendent's approval, payment may be made at reasonable rates for
printing costs, and for legal and other professional fees for services
actually rendered. All expenses of the conversion, including the
expenses incurred by the department, shall be borne by the insurer.

(r) No voting common shares shall be subscribed by or issued to
persons other than eligible policyholders or holders of agreements
subject to section one thousand three hundred seven of this chapter
until all subscriptions by such policyholders or agreement holders have
been filled or other consideration has been provided in accordance with
the plan. Thereafter, any new issue of common shares within three years
after the conversion shall first be offered to the persons who have
become voting common shareholders, pursuant to subsection (e) of this
section in proportion to their holdings of such shares.

(s) No insurer becoming a domestic stock insurer under the provisions
of this section shall:

(1) for a period of ten years after conversion, redomesticate directly
or indirectly or remove its principal offices from within the state; or

(2) for a period of five years after conversion:

(A) enter into any agreement by the terms of which any person,
partnership or corporation agrees to pay all or a portion of the
expenses of management of the insurer in consideration of the insurer's
agreement to pay such person or other entity either commissions on
premiums due the insurer or any other compensation for services, or

(B) enter into any agreement with an officer or director of the
insurer or with any firm or corporation in which any officer or director
of the insurer is pecuniarily interested, directly or indirectly, under
which agreement the insurer agrees to pay, for the acquisition of
business, any commissions or other compensation that by the terms of
such agreement varies with the amount of the business or with the
earnings of the insurer on the business.

(t) Nothing in this section shall in any way impede or impair the
exercise by the superintendent of the superintendent's authority under
any other provision of this chapter.