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The Vermont Statutes Online



Title

08

:
Banking and Insurance






Chapter

101

:
INSURANCE COMPANIES GENERALLY






Subchapter

003
:
MERGERS, CONSOLIDATIONS, CONVERSIONS, MUTUALIZATIONS, BULK REINSURANCE, SUBSIDIARIES










 

§

3423. Converting mutual insurer or mutual insurance holding company

(a) A mutual

insurer may become a stock insurer or a mutual insurance holding company may

become a stock company or reorganize under such reasonable plan and procedure

as may be approved by the commissioner after a hearing thereon of which notice

was given to the eligible members, all of whom shall have the right to appear

at the hearing.

(b) The

commissioner shall not approve any such plan or procedure unless:

(1) Its terms

and conditions are fair and equitable;

(2) The plan

shall have been duly adopted by action of not less than three-fourths of the

members of the board of directors or trustees of the mutual insurer or mutual

insurance holding company, as the case may be;

(3) It is

subject to approval by vote of not less than three-fourths of the eligible

members actually voting thereon in person, by proxy, or by mail at a meeting of

members called for the purpose, for which at least 30 days' notice has been

provided to eligible members, pursuant to such reasonable notice and procedure

as may be approved by the commissioner;

(4) The plan

provides the method by which the aggregate value of eligible members' interests

will be determined. The method specified must be acceptable to the commissioner

and shall be based on the market value of the converted company, unless another

method for determining this value is approved by the commissioner;

(5) The plan

provides for each eligible member to receive a fixed component of consideration

or a variable component of consideration, or both, or any other component of

consideration acceptable to the commissioner. Any component shall reflect,

based upon fair and equitable formulas, methods and assumptions, factors such

as estimated proportionate contributions of classes, or groupings of policies

and contracts to the aggregate component of consideration being distributed to

eligible members, or other factors the commissioner may approve;

(6) The plan

specifies the consideration to the eligible members entitled thereto, which

consideration may consist of cash, securities of the reorganized insurer or

securities of another institution or institutions, subscription rights to

purchase securities of the reorganized insurer or securities of another institution

or institutions, a certificate of contribution, surplus notes, additional

insurance or annuity benefits, policy credits, increased dividends or other

consideration, or any combination of such forms of consideration as the

commissioner may approve. The form or forms of consideration to be distributed

to any class or category of member need not be the same as the consideration to

be distributed to any other class or category of member. The choice of the form

or forms of consideration to be distributed may take into account such factors

as the class or category of policy with respect to what consideration is being

distributed, the country of residence or tax status of eligible members, the

reasonableness of the cost of providing a particular form of consideration in

relation to its value, or other appropriate factors. If the plan provides for

the sale of securities to members, the securities shall be offered to members

at a price not greater than that to be offered under the plan to others;

(7) If the plan

relates to the conversion of a mutual life insurer, the plan shall provide for

the reasonable expectations of policyholders through the establishment of a

closed block or other method acceptable to the commissioner. Any provision for

dividend expectations may be limited to participating individual life insurance

policies and participating individual annuity contracts in force or deemed to

be in force by the plan of conversion on the effective date of the plan for

which the insurer has an experience-based dividend scale due, paid or accrued

by action of the board of directors of the mutual insurer in the year in which

the plan is adopted; provided, however, that other categories of policies and

benefits may be included or excluded, subject to approval of the commissioner;

(8) If the plan

relates to the conversion of a mutual insurer, the plan, when completed, would

provide for the converted insurer paid-in capital stock in an amount not less

than the minimum paid-in capital stock required of a domestic stock insurer

upon initial authorization to transact like kinds of insurance, together with

an amount of surplus which is no less than the amount that the commissioner

deems to be reasonably necessary for the insurer's future solvency;

(9) If the plan

relates to the conversion or reorganization of a mutual insurance holding

company, the plan shall provide for:

(A) the

conversion of the mutual insurance holding company to a stock company followed

by a merger or consolidation of the converted stock company with another stock

company, which may include a subsidiary of the mutual insurance holding

company;

(B) a sale of an

intermediate stock holding company or stock insurer with shares or other

consideration being distributed to members of the mutual insurance holding company,

followed by the liquidation or dissolution of the mutual insurance holding

company;

(C) a

liquidation or dissolution of the mutual insurance holding company; or

(D) any

combination of the foregoing or other reorganization or transfer of assets and

assumption of liabilities approved by the commissioner; and

(10) The

commissioner finds that the insurer's management has not, through reduction in

volume of new business written, or cancellation or through any other means

sought to reduce, limit, or affect the number or identity of the insurer's

members to be entitled to participate in such plan, in order to secure for the

individuals comprising management any unfair financial advantage through such

plan, or intentionally engaged in any other conduct designed to secure for the

individuals comprising management any unfair financial advantage through such

plan.

(c) Subsection

(b) of this section shall not be deemed to prohibit the inclusion in the

demutualization plan of provisions under which the individuals comprising the

insurer's management or mutual insurance holding company's management, as the

case may be, and employee group may receive employee benefit and compensation

arrangements, including arrangements through the use of stock of the

reorganized insurer or stock of its parent corporation or other entity, which

are to become effective simultaneously with the plan of reorganization or,

subsequently, provided such provisions are approved by the commissioner. If the

plan provides for the distribution or sale to members of capital stock of the

converted company, nothing in subsection (b) of this section shall be deemed to

prohibit the inclusion in the plan of provisions under which the converting

company's directors, officers, agents or employees shall be entitled to

purchase for cash at the same price as offered to the insurer's members, shares

of stock not taken by members in accordance with such terms and reasonable

classifications of such individuals as may be included in the plan and approved

by the commissioner.

(d) No director,

officer, agent or employee of the insurer, the mutual insurance holding

company, or any other person, shall receive any fee, commission or other

valuable consideration whatsoever, other than their usual regular salaries and

compensation, for in any manner aiding, promoting, or assisting in such

conversion except as set forth in the plan approved by the commissioner. This

provision shall not be deemed to prohibit the payment of reasonable fees and

compensation to attorneys at law, accountants, and actuaries for services

performed in the independent practice of their professions, even though also

directors of the insurer.

(e) Upon the

effective date of the plan, the rights of members in the mutual insurer or

mutual insurance holding company shall be extinguished. All policies of a

mutual insurer in force on the effective date of the plan shall remain in force

under the terms of those policies, except for any terms affected by the

extinguishment of those membership rights.

(f) If a plan

provides for the distribution of common stock, but does not provide for

registration and public trading of the common stock of the converted insurer or

the parent corporation or the converted mutual insurance holding company or

other entity as of the effective date of the plan, the plan shall require the

appropriate entity or entities to use good faith efforts to encourage and

assist in the establishment of a market for such stock as soon as reasonably

possible and, in any event, not later than two years after the effective date

of the reorganization unless otherwise approved by the commissioner. Within two

years after the effective date of the reorganization unless otherwise approved

by the commissioner, the converted insurer or the parent corporation or the

converted mutual insurance holding company or other entity shall make available

to each eligible policyholder or member who received and retained shares of

common stock with minimal aggregate value upon reorganization, a procedure to

dispose of shares of stock at market value without brokerage commissions or

similar fees under a plan approved by the commissioner.

(g) At the

option of the mutual insurer or mutual insurance holding company, as the case

may be, any common shares or other securities of the converted stock company or

of any other institution, included in the members' consideration, other than

those acquired as a result of a member exercising any subscription rights, may

be placed in a trust or other entity existing for the exclusive benefit of the

members, and established solely for the purpose of effectuating the

reorganization to which such common shares or other securities are issued by

the issuer on the effective date of the reorganization, such consideration to

be distributed to members during a process specified in the plan and approved

by the commissioner.

(h) Except as

otherwise specifically provided in the plan of conversion, prior to and for a

period of five years following the effective date of such plan, no person other

than the converted stock insurer or an institution controlling the converted

stock insurer or a converted mutual insurance holding company or institutions

controlling the converted mutual insurance holding company shall, directly or

indirectly, offer to acquire or acquire in any manner the beneficial ownership

of five percent or more of any class of a voting security of the new stock

insurer or of an institution which owns a majority or all of the voting

securities of the new stock insurer or converted mutual insurance holding

company, without the prior approval of the commissioner, of an application for

acquisition filed by such person with the commissioner. The commissioner shall

not approve an application for acquisition unless the commissioner finds, after

a public hearing, that the acquisition would not frustrate the plan of

conversion as approved by the policyholders or members and the commissioner,

would be consistent with the purposes of this statute, and would be on terms

and conditions that are fair and equitable to the policyholders or members, as

the case may be. No security which is acquired or is to be acquired in

contravention of this section or of any rule, regulation or order of the

commissioner may be voted at any shareholders meeting. If the new stock insurer

or converted mutual insurance holding company or any institution which owns a

majority or all of the voting securities of the new stock insurer or converted

mutual insurance holding company or the commissioner believes that any voting

securities have been or are about to be acquired in contravention of this

section or of any rule, regulation or order of the commissioner, he or she may

apply to any court of competent jurisdiction in the state of Vermont for an

order to enjoin any offer or acquisition made or any voting of any security so

acquired, or to void the vote of any such security in contravention of this

section or any rule, regulation or order of the commissioner, and for such

other equitable relief as may be appropriate.

(i) A failure by

a mutual insurer or a mutual insurance company to provide a member or members

with the notice required by this section shall not impair the validity of any

action taken under this section, if such mutual insurer or mutual insurance

holding company has complied substantially and in good faith with all notice

requirements, as determined by the commissioner.

(j) Documents

submitted to the commissioner by the mutual insurer or mutual insurance holding

company in connection with obtaining approval of the plan of conversion shall

be public documents, except that financial data, actuarial memoranda and any

other information which the commissioner determines could result in harm to the

mutual entity or the converted entity or to its members if disclosed, shall be

considered confidential. This confidentiality will not extend to information

provided by the mutual entity which the commissioner deems necessary to be

provided to members to evaluate the plan of conversion.

(k) Any

aggrieved party to a plan, within the meaning of section 77 of this title, may

appeal an order of the commissioner, pursuant to the provisions of such

section, within 30 days after the issuance of an order of the commissioner

approving or disapproving such plan. Any review by the court shall be confined

to the record before the commissioner.

( l) As used in

this section:

(1)

"Eligible member" means, in the case of a mutual insurer, a person

who owns or, pursuant to the terms of the plan, is deemed to own a policy which

was in force as of the record date or, in the case of a mutual insurance

holding company, a person who was or, pursuant to the terms of the plan, is

deemed to have been a member as of the record date. For this purpose, the

record date is the date when the mutual company's board of directors first

adopts the plan of conversion, unless another date is specified in the plan of

conversion and approved by the commissioner. In the case of a mutual life

insurance company or a mutual insurance holding company, the membership of

which is derived from the purchase of contracts from a life insurance company,

eligibility may be limited to members holding contracts which have been in

force not less than one year.

(2) "Fair

and equitable" means that any action undertaken, pursuant to this section,

with respect to a plan of conversion, provides for full and proper

consideration of the aggregate membership interests and corresponding values of

eligible members, in no manner discriminates improperly among eligible members,

and appropriately protects the interests of eligible members before and

subsequent to the conversion. (1967, No. 344 (Adj. Sess.), § 1 (ch. 1, subch.

4, § 2a); amended 1999, No. 86 (Adj. Sess.), § 1, eff. April 27, 2000.)