HSB 642 (LSB 5906HC (3) 85)

HOUSE FILE _____

BY  (PROPOSED COMMITTEE ON COMMERCE BILL BY CHAIRPERSON COWNIE)

A BILL FOR

An Act relating to mutual-to-stock insurance company conversions.
BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA:

    Section 1.  NEW SECTION.  512.1  Declarations and purpose.
   1.  It is declared that policyholders of a mutual company have contractual rights to insurance coverage and certain membership rights consisting principally of the right to elect directors of a mutual company, the right to vote on certain fundamental transactions undertaken by a mutual company, and the right to share in surplus in the event of a liquidation of a solvent mutual company. It is declared that the membership rights of policyholders in a domestic mutual company, or policyholders of a foreign mutual company who vote to redomesticate to Iowa pursuant to section 512.5, are not equivalent to an ownership interest in such mutual company. Therefore, in connection with the mutual-to-stock conversion of a mutual company, adequate compensation for the relinquishment of such membership right shall be, at each policyholder’s election either of the following:
   a.  The exercise of a first priority subscription right to purchase stock in the converting company or a holding company for such converting company.
   b.  The right to receive cash in exchange for the redemption of such subscription right by such mutual company.
   2.  The purpose of this chapter shall be the following:
   a.  To provide for the mutual-to-stock conversion of a mutual company in a manner substantially consistent with the manner in which a mutual savings institution converts from a mutual-to-stock form under federal law and regulation.
   b.  To facilitate the recapitalization of the insurance industry nationally by establishing a proven method of capital formation for companies that elect to establish a domicile in this state.
    Sec. 2.  NEW SECTION.  512.2  Short title.

   This chapter shall be known and may be cited as the “Iowa Insurance Company Mutual-to-Stock Conversion Act”.
    Sec. 3.  NEW SECTION.  512.3  Definitions.

   As used in this chapter:

   1.  “Capital stock” means common or preferred stock or any hybrid security or other equity security issued by a converted stock company or other company or entity pursuant to the exercise of subscription rights granted pursuant to section 512.6, subsection 1, paragraph “c”.
   2.  “Commissioner” means the commissioner of insurance appointed pursuant to section 505.2.
   3.  “Converted stock company” means a stock company that converted from a mutual company to a stock company under this chapter or any successor to the stock company.
   4.  “Division” means the insurance division of the department of commerce.
   5.  “Domestic mutual company” means a mutual insurance company domiciled in this state and organized under chapter 508 or 515.
   6.  “Eligible member” means a member of a mutual company whose policy is in force on the date the mutual company’s governing body adopts a plan of conversion or such earlier date as the mutual company may establish with the consent of the commissioner. A person insured under a group policy is not an eligible member. A person whose policy becomes effective after the governing body adopts the plan but before the plan’s effective date is not an eligible member but shall have those rights established under section 512.11.
   7.  “Foreign mutual company” means a mutual insurance company domiciled in a jurisdiction other than this state and organized in a similar manner to a domestic mutual company organized under chapter 508 or 515.
   8.  “Mutual company” means a mutual insurance company that is seeking to convert to a stock company under this chapter including a domestic mutual company and a foreign mutual company that has applied to redomesticate to this state with an intent to file an application to convert from a mutual company to a stock company under this chapter.
   9.  a.  “Mutual holding company” means any of the following whose certificate of incorporation includes the provisions set out in paragraph “b”:
   (1)  A nonstock corporation resulting from a reorganization of a mutual company under this chapter.
   (2)  A nonstock corporation resulting from a reorganization of a mutual company under the laws of any other jurisdiction that subsequently redomesticates in this state.
   (3)  A nonstock corporation incorporated in this state surviving or resulting from a merger or consolidation with a nonstock corporation that resulted from a reorganization of a mutual company under the laws of any other jurisdiction.
   b.  The certificate of incorporation of a mutual holding company shall include provisions setting forth all of the following:
   (1)  That the mutual holding company is a mutual holding company as defined in this chapter.
   (2)  That the mutual holding company shall hold not less than a majority of the shares of voting stock of a converted stock company or intermediate holding company, which in turn holds, directly or indirectly, all of the voting stock of the converted stock company.
   (3)  That the mutual holding company is not authorized to issue any capital stock except pursuant to a conversion in accordance with the provisions of this chapter.
   (4)  That the mutual holding company’s members shall have the rights specified in this chapter and in its certificate of incorporation and bylaws.
   (5)  That the mutual holding company’s assets shall be subject to inclusion in the estate of the converted company in any rehabilitation or insolvency proceedings initiated by the commissioner.
   10.  “Participating policy” means a policy of a mutual company that grants a holder the right to receive dividends if, as, and when declared by the mutual company.
   11.  “Person” means an individual, a corporation, a limited liability company, a partnership, an association, a joint stock company, a trust, an unincorporated organization, a similar entity, or a combination of the foregoing acting in concert.
   12.  “Plan of conversion” or “plan” means a plan adopted by a mutual company’s governing body to convert the mutual company into a stock company under this chapter.
   13.  “Policy” means an insurance policy, including an annuity contract.
   14.  “Standby investor” means a person that has agreed in writing to purchase all or a portion of the capital stock to be sold in a mutual-to-stock conversion that is not subscribed by eligible members.
   15.  “Stock company” means a stock insurance company that meets all of the current requirements for admission to do business as a domestic company in this state under chapter 508 or 515.
   16.  “Subscription right” means the nontransferable right to purchase, for a period of not less than twenty or more than thirty-five days, the stock of the converted stock company, its proposed stock holding company, or an unaffiliated stock company, or other corporation or entity that will acquire the converted stock company through the purchase of all the stock of the converted stock company.
   17.  “Voting member” means a member who is an eligible member and is also a member of the mutual company as of a date not more than ninety days prior to the date of the meeting at which the plan shall be voted upon by members.
    Sec. 4.  NEW SECTION.  512.4  Adoption of plan of conversion.
   1.  A plan of conversion shall not become effective unless the mutual company seeking to convert to a stock company shall have adopted, by the affirmative vote of not less than two-thirds of its governing body and otherwise in accordance with law, a plan consistent with the requirements of sections 512.6, 512.7, and 512.8 or of section 512.9. At any time before approval of a plan by the commissioner, the mutual company, by the affirmative vote of not less than a majority of its governing body, may amend or withdraw the plan.
   2.  Before a mutual company’s eligible members may vote on approval of a plan, a mutual company whose governing body has adopted a plan shall file all of the following documents with the commissioner within ninety days after adoption of the plan together with the specified application fee:
   a.  The plan, including the independent evaluation required by section 512.6, subsection 4.
   b.  The form of notice required by subsection 7.
   c.  The form of proxy to be solicited from eligible members pursuant to subsection 8.
   d.  The form of notice required by section 512.11 to persons whose policies are issued after adoption of the plan but before its effective date.
   e.  The proposed certificate of incorporation and bylaws of the converted stock company.
   f.  The acquisition of control statement.
   g.  An application fee equal to the greater of ten thousand dollars or an amount equal to one-tenth of one percent of the estimated pro forma market value of the converted stock company as determined in accordance with section 512.6, subsection 4. If such value is expressed as a range of values, the application fee shall be based upon the midpoint of the range. For good cause shown, the commissioner may waive the application fee in whole or in part, or permit a portion of the application fee to be deferred until completion of the conversion. 
   h.  Such other information as the commissioner may request. 
   3.  Upon filing of the foregoing documents with the commissioner, the mutual company shall send to eligible members a notice advising eligible members of the adoption and filing of the plan, their ability to provide the commissioner and the mutual company with comments on the plan within thirty days of the date of such notice, and procedures for providing such comments.
   4.  The commissioner shall immediately give written notice to the mutual company of any decision and, in the event of disapproval, a statement in detail of the reasons for the decision. The commissioner shall approve the plan if the commissioner finds all of the following:
   a.  The plan complies with this chapter.
   b.  The plan will not prejudice the interests of the eligible members.
   c.  The plan’s method of allocating subscription rights is fair and equitable.
   5.  The commissioner may retain, at the mutual company’s expense, any qualified expert not otherwise a part of the commissioner’s staff, including counsel and financial advisors, to assist in reviewing the plan and the independent evaluations required under section 512.6, subsection 4.
   6.  The commissioner may order a hearing on whether the terms of the plan comply with this chapter after giving written notice by mail or publication to the mutual company and other interested persons, all of whom have the right to appear at the hearing.
   7.  All voting members shall be sent notice of the members’ meeting to vote on the plan. The notice shall briefly but fairly describe the proposed plan, shall inform the voting member of the voting member’s right to vote upon the plan, and shall be sent to each voting member’s last known address, as shown on the mutual company’s records. If the meeting to vote upon the plan is held during the mutual company’s annual meeting of policyholders, only a combined notice of the meeting is required.
   8.  The plan shall be voted upon by voting members and shall be adopted upon receiving the affirmative vote of at least two-thirds of the votes cast at the meeting. Voting members entitled to vote upon the proposed plan may vote in person or by proxy. The number of votes each voting member may cast shall be determined by the mutual company’s bylaws. If the bylaws are silent, each voting member may cast one vote.
   9.  The certificate of incorporation of the converted stock company shall be considered at the meeting of the voting members called for the purpose of adopting the plan and shall require for adoption the affirmative vote of at least two-thirds of the votes cast at the meeting.
   10.  Within thirty days after the voting members have approved the plan in accordance with the requirements of this section, the converted stock company shall file all of the following documents with the commissioner:
   a.  The minutes of the meeting of the voting members at which the plan was approved which shall include the record of total votes cast and votes cast in favor of the plan.
   b.  The certificate of incorporation and bylaws of the converted stock company.
    Sec. 5.  NEW SECTION.  512.5  Redomestication and conversion.
   1.  A foreign mutual company or foreign mutual holding company that has filed an application for redomestication may file an application for conversion under this chapter promptly after completion of the redomestication or promptly after approval of the redomestication by the members of the foreign mutual company or foreign mutual holding company if such a member vote is required under the laws of the state of domicile of the foreign mutual company or foreign mutual holding company. A redomestication application shall contain such information as the commissioner may require. If the state of domicile of the foreign mutual company or foreign mutual holding company does not object to the redomestication and the members of the foreign mutual company or foreign mutual holding company, to the extent required, approve the redomestication, the redomestication application of a foreign mutual company or foreign mutual holding company shall not be denied solely because the applicant has indicated its intention to avail itself of the provisions of this chapter.
   2.  In addition to any requirements imposed by the existing state of domicile with respect to approval of redomestication by its voting members, a foreign mutual company that files an application for redomestication under this section also shall provide to its voting members a comparison of the method of mutual-to-stock conversion in its existing state of domicile and the method of mutual-to-stock conversion established by this chapter.
   3.  Any order approving the redomestication of a foreign mutual company or foreign mutual holding company shall contain such terms and conditions as the commissioner requires.
   4.  A foreign mutual company or foreign mutual holding company that redomesticates under this section, within ten days of the date of redomestication, shall adopt resolutions ratifying any previously adopted plan of conversion and file such resolutions as an amendment to the application for conversion. The commissioner may deem any failure to file such ratifying resolutions as a withdrawal of the application for conversion.
   5.  This chapter is not intended or shall not be deemed to supersede or conflict with the requirements of the state of domicile of any foreign mutual company or foreign mutual holding company regarding approval of redomestication.
   6.  Except to the extent specifically provided by this section, a plan of conversion shall be adopted as required by section 512.4 and shall be consistent with the requirements of sections 512.6, 512.7, and 512.8 or of section 512.9.
    Sec. 6.  NEW SECTION.  512.6  Required provisions of plan of conversion.
   1.  All of the following provisions shall be included in a plan of conversion:
   a.  The reasons for the proposed conversion.
   b.  The effect of conversion on existing policies, including all of the following:
   (1)  A provision that all policies in force on the effective date of conversion continue to remain in force under the terms of the policies, except that the following rights, to the extent the rights existed in the mutual company, shall be extinguished on the effective date of the conversion:
   (a)  Any voting rights of the policyholders provided under the policies.
   (b)  Except as provided under subparagraph (2), any right to share in the surplus of the mutual company, unless such right is expressly provided for under the provisions of the existing policy.
   (c)  Any assessment provisions provided for under certain types of policies.
   (2)  Except as provided in subparagraph (3), a provision that holders of participating policies in effect on the date of conversion continue to have a right to receive dividends as provided in the participating policies, if any.
   (3)  Except for the mutual company’s life policies, participating guaranteed renewable accident and health policies, and participating guaranteed renewable noncancelable accident and health policies, a provision that upon the renewal date of a participating policy, the converted stock company may issue the member a nonparticipating policy as a substitute for the participating policy. This subparagraph shall not be construed to permit the substitution, during the term of a policy, of a nonexperience-rated policy for an experience-rated policy.
   c.  The grant of subscription rights to eligible members, including both of the following:
   (1)  (a)  A provision that each eligible member is to receive, without payment, nontransferable subscription rights to purchase the capital stock of the converted stock company and that, in the aggregate, all eligible members shall have the right, prior to the right of any other party, to purchase one hundred percent of the capital stock of the converted stock company, exclusive of any shares of capital stock required to be sold or distributed to the holders of surplus notes, if any, and capital stock purchased by the company’s tax-qualified employee stock benefit plan that is in excess of the total price of the capital stock established under subsection 4, as permitted by section 512.8, subsection 3. As an alternative to subscription rights in the converted stock company, the plan may provide that each eligible member is to receive, without payment, nontransferable subscription rights to purchase a portion of the capital stock of one of the following:
   (i)  A corporation or entity organized for the purpose of purchasing and holding all the stock of the converted stock company.
   (ii)  A stock company owned by the mutual company into which the mutual company will be merged.
   (iii)  An unaffiliated stock company or other corporation or entity that will purchase all the stock of the converted stock company.
   (b)  For purposes of any plan, the following transfers of subscription rights shall not be deemed an unpermitted transfer under this chapter:
   (i)  Transfer of subscription rights from an individual to such individual and such individual’s spouse or children or to a trust or other estate or wealth planning entity established for the benefit of such individual, or such individual’s spouse or children.
   (ii)  Transfer of subscription rights from an individual to such individual’s individual or joint individual retirement account, or other tax-qualified retirement plan. 
   (iii)  Transfer of subscription rights from an entity to the shareholders, partners, or members of such entity. 
   (iv)  Transfer of subscription rights from the holder of such rights to the mutual company, its proposed holding company, or an unaffiliated stock company or other corporation or entity that will purchase all the stock of the converted stock company as provided in subparagraph division (a), subparagraph subdivision (iii).
   (2)  A provision that the subscription rights shall be allocated in whole shares among the eligible members using a fair and equitable formula. The formula need not allocate subscription rights to eligible members on a pro rata basis based on premium payments or contributions to surplus, but may take into account how the different classes of policies of the eligible members contributed to the surplus of the mutual company or any other factors that may be fair or equitable. Allocation of subscription rights on a per capita basis shall be entitled to a presumption that such method is fair, subject to rebuttal of fairness by clear and convincing evidence. In accordance with section 512.4, subsection 5, the commissioner may retain an independent consultant to assist in the determination that the allocation of subscription rights is fair and equitable.
   2.  The plan shall provide a fair and equitable means for allocating shares of capital stock in the event of an oversubscription to shares by eligible members exercising subscription rights received under subsection 1, paragraph “c”.
   3.  The plan shall provide that any shares of capital stock not subscribed to by eligible members exercising subscription rights received under subsection 1, paragraph “c”, shall be sold in a public offering or to another corporation or entity that is participating in the plan, as provided in subsection 1, paragraph “c”, subparagraph (1). If the number of shares of capital stock not subscribed by eligible members is so small in number or other factors exist that do not warrant the time or expense of a public offering, or warrant the participation of standby investors to facilitate completion of the conversion, the plan may provide for sale of the unsubscribed shares through a private placement or other alternative method approved by the commissioner that is fair and equitable to eligible members. 
   4.  The plan shall provide for the preparation of a valuation by a qualified independent expert that establishes all of the following:
   a.  The dollar amount of the capital stock for which subscription rights must be granted pursuant to subsection 1, paragraph “c”, which shall be equal to the estimated pro forma market value of the converted stock company. The qualified independent expert may do all of the following:
   (1)  To the extent feasible, determine the pro forma market value by reference to a peer group of stock companies and the application of generally accepted valuation techniques.
   (2)  State the pro forma market value of the converted stock company as a range of value. 
   (3)  Establish the value as the value that is estimated to be necessary to attract full subscription for the shares.
   b.  The dollar value of a subscription right based upon the application of the Black-Scholes option pricing model or another generally accepted option pricing model. In connection with the determination of stock price volatility or other valuation inputs used in option pricing models, the qualified independent expert may assume that the attributes of the converted stock company will be substantially similar to the attributes of the stock of the peer companies used to determine the estimated pro forma market value of the converted stock company. Solely for purposes of determining the value of a subscription right, the term of a subscription right shall be deemed to be a minimum of ninety days.
   5.  The plan shall provide that each eligible member shall be given the right to require the mutual company to redeem such subscription rights, in lieu of the exercise of subscription rights allocated to such eligible member, at a price equal to the number of such subscription rights allocated to such eligible member multiplied by the dollar value of a subscription right as determined by the qualified independent expert pursuant to subsection 4, paragraph “b”. The obligation of the mutual company to redeem such subscription rights shall arise only upon the effective date of the plan as provided in section 512.10. The redemption price payable to each eligible member shall be paid to such eligible member within thirty days of the effective date of the plan. Alternatively, the converted stock company may, but shall not be required to, offer each eligible member the option of receiving the redemption amount in cash or having such redemption amount credited against future premium payments. An eligible member that does not exercise such eligible member’s subscription rights and also fails to affirmatively request redemption of such subscription rights before the expiration of the subscription offering, nevertheless shall be deemed to have requested redemption of such eligible member’s subscription rights and shall receive the redemption amount in cash in the manner otherwise provided in this subsection.
   6.  The plan shall set the purchase price per share of capital stock equal to any reasonable amount. However, the minimum subscription amount required of any eligible member cannot exceed five hundred dollars, but the plan may provide that the minimum number of shares any person may purchase pursuant to the plan is twenty-five shares. The purchase price per share at which capital stock is offered to persons who are not eligible members may be greater than but not less than the purchase price per share at which capital stock is offered to eligible members.
   7.  The plan shall provide that any person or group of persons acting in concert shall not acquire, in the public offering or pursuant to the exercise of subscription rights, more than five percent of the capital stock of the converted stock company or the stock of another corporation that is participating in the plan, as provided in subsection 1, paragraph “c”, subparagraph (1), subparagraph division (a), subparagraph subdivision (iii), except with the approval of the commissioner. This limitation does not apply to any entity that is to purchase one hundred percent of the capital stock of the converted stock company as part of the plan approved by the commissioner or to any person that acts as a standby investor of the capital stock of the converted stock company for an amount equal to ten percent or more of the capital stock of the converted stock company, provided that in each case such purchase by a standby investor of ten percent or more of the capital stock of the converted stock company is approved by the commissioner in accordance with the law of this state following the filing of an acquisition of control statement.
   8.  The plan shall provide that a director or officer or person acting in concert with a director or officer of the mutual company shall not acquire any capital stock of the converted stock company or the stock of another corporation that is participating in the conversion plan, as provided in subsection 1, paragraph “c”, subparagraph (1), subparagraph division (a), subparagraph subdivision (iii), for three years after the effective date of the plan, except through a broker-dealer, without the permission of the commissioner. This provision does not prohibit the directors and officers from doing any of the following:
   a.  Making block purchases of one percent or more of the outstanding common stock other than through a broker-dealer if approved in writing by the division.
   b.  Exercising subscription rights received under the plan.
   c.  Participating in a stock benefit plan permitted by section 512.8, subsection 3, or approved by shareholders pursuant to section 512.13, subsection 2.
   9.  The plan shall provide that a director or officer shall not sell stock purchased pursuant to this section, or section 512.8, subsection 1, within one year after the effective date of the conversion, except that this section shall not be deemed to restrict a transfer of stock by such director or officer if the stock is the stock of a corporation that is participating in the plan as provided in subsection 1, paragraph “c”, subparagraph (1), subparagraph division (a), subparagraph subdivision (iii), and has a class of stock registered under the Securities Exchange Act of 1934, as amended, 15 U.S.C. §78a et seq., or if the transfer is to the spouse or minor children of such director or officer, or to a trust or other estate or wealth planning entity established for the benefit of such director or officer, or the spouse or minor children of such director or officer.
   10.  The plan shall provide that the rights of a holder of a surplus note to participate in the conversion, if any, shall be governed by the terms of the surplus note.
   11.  The plan shall provide that, without the prior approval of the commissioner, a converted stock company, or any corporation participating in the conversion plan pursuant to subsection 1, paragraph “c”, subparagraph (1), subparagraph division (a), subparagraph subdivision (i) or (ii), shall not, for a period of three years from the date of the completion of the conversion, repurchase any of its capital stock from any person, except that this restriction shall not apply to either of the following:
   a.  A repurchase on a pro rata basis pursuant to an offer made to all shareholders of the converted stock company, or any corporation participating in the conversion plan pursuant to subsection 1, paragraph “c”, subparagraph (1), subparagraph division (a), subparagraph subdivision (i) or (ii).
   b.  A purchase in the open market by a tax-qualified, or nontax-qualified employee stock benefit plan in an amount reasonable and appropriate to fund the plan.
    Sec. 7.  NEW SECTION.  512.7  Closed block of business for participating life policies.
   1.  A plan that is adopted by a mutual company that is a life insurance company that issues participating life policies shall provide that participating life policies in force on the effective date of the conversion shall be operated by the converted stock company for dividend purposes as a closed block of participating business, except that any and all classes of group participating policies may be excluded from the closed block.
   2.  The plan shall provide that sufficient assets of the mutual company shall be allocated for the benefit of the closed block of business so that the assets, together with the revenue from the closed block of business, are sufficient to support the closed block, including but not limited to the payment of claims, expenses, taxes, and any dividends that are provided for under the terms of the participating policies, with appropriate adjustments in the dividends for experience changes. The plan shall be accompanied by an opinion of a qualified actuary, or an appointed actuary, who meets the standards set forth in the insurance laws or regulations of this state for the submission of actuarial opinions as to the adequacy of reserves or assets. The opinion shall relate to the adequacy of the assets allocated in support of the closed block of business. The actuarial opinion shall be based on methods of analysis deemed appropriate for those purposes by the actuarial standards board.
   3.  The amount of assets allocated for the benefit of the closed block shall be based upon the mutual life insurance company’s last annual statement, updated to the last day of the quarter immediately preceding the effective date of the conversion.
   4.  The converted stock company shall keep a separate accounting for the closed block and shall make and include in the annual statement to be filed with the commissioner each year a separate statement showing the gains, losses, and expenses properly attributable to the closed block.
   5.  The assets and liabilities allocated to the closed block may be periodically reviewed by the commissioner or the commissioner’s designee. The converted stock company shall bear the cost of any such review. If, as a result of such review, the commissioner determines that the assets allocated to the closed block are insufficient to support the remaining policies in the closed block, the commissioner may issue an order directing the converted stock company to allocate additional assets to the closed block sufficient to support the remaining policies in the closed block and the converted stock company shall comply with such order within thirty days of the date of the order. If, as a result of such review, or as a result of a review initiated by the converted stock company and accepted by the commissioner, assets allocated to the closed block are in excess of the amount necessary to support the remaining policies, upon application made to the commissioner by the converted stock company, the commissioner may issue an order permitting such excess assets in the closed block to revert to the benefit of the converted stock company.
   6.  The commissioner may waive the requirement for establishing a closed block of business if, in the commissioner’s discretion, it is in the best interests of policyholders to do so. The commissioner may waive from inclusion in the closed block of participating policies those participating policies for which there is no expectation of dividends being paid if, in the commissioner’s discretion, it is fair and equitable to do so.
    Sec. 8.  NEW SECTION.  512.8  Optional provisions of plan of conversion.
   1.  The plan may provide that the directors, officers, and employees of the mutual company shall receive, without payment, nontransferable subscription rights to purchase capital stock of the converted stock company or the stock of another corporation that is participating in the conversion plan, as provided in section 512.6, subsection 1, paragraph “c”, subparagraph (1), subparagraph division (a), subparagraph subdivision (iii). These subscription rights shall be allocated among the directors, officers, and employees by a fair and equitable formula and shall be subordinate to the subscription rights of eligible members. This chapter shall not require the subordination of subscription rights received by directors and officers in their capacity as eligible members, if any.
   2.  The aggregate total number of shares that may be purchased by directors and officers of the mutual company in their capacity under subsection 1, and in their capacity as eligible members under section 512.6, subsection 1, paragraph “c”, subparagraph (1), subparagraph division (a), subparagraph subdivision (iii), shall not exceed thirty-five percent of the total number of shares to be issued for a mutual company if total assets of the mutual company are less than fifty million dollars or twenty-five percent of the total number of shares to be issued for a mutual company if total assets of the mutual company are more than five hundred million dollars. For mutual companies with total assets of or between fifty million dollars and five hundred million dollars, the percentage of the total number of shares that may be purchased shall be interpolated.
   3.  The plan may allocate to a tax-qualified employee benefit plan nontransferable subscription rights to purchase up to ten percent of the capital stock of the converted stock company or the stock of another corporation that is participating in the plan, as provided in section 512.6, subsection 1, paragraph “c”, subparagraph (1), subparagraph division (a), subparagraph subdivision (iii). A tax-qualified employee benefit plan is entitled to exercise subscription rights granted under this subsection regardless of the total number of shares purchased by other persons.
   4.  The plan may provide that the other classes of subscribers approved by the commissioner shall receive, without payment, nontransferable subscription rights to purchase capital stock of the converted stock company or the stock of another corporation that is participating in the conversion plan, as provided in section 512.6, subsection 1, paragraph “c”, subparagraph (1), subparagraph division (a), subparagraph subdivision (iii). Other classes of subscribers that may be approved by the commissioner include, without limitation, any of the following:
   a.  Members of the mutual company that became members after the date fixed for establishing eligible members.
   b.  Brokers, agents, or other producers or their directors, officers, or employees that represent the mutual company.
   c.  The shareholders of another corporation that is participating in the plan, as provided in section 512.6, subsection 1, paragraph “c”, subparagraph (1), subparagraph division (a), subparagraph subdivision (iii).
   d.  The shareholders of another corporation that is a party to an acquisition, merger, consolidation, or other similar transaction with the mutual company.
   5.  The plan may provide for the creation of a liquidation account for the benefit of members in the event of voluntary liquidation subsequent to conversion in an amount equal to the surplus of the mutual company, exclusive of the principal amount of any surplus note, on the last day of the quarter immediately preceding the date of adoption of the plan.
    Sec. 9.  NEW SECTION.  512.9  Alternative plan of conversion.
   1.  The governing body may adopt a plan of conversion that does not rely in whole or in part upon issuing nontransferable subscription rights to members to purchase stock of the converted stock company if the commissioner finds that the plan does not prejudice the interests of the members, is fair and equitable, and is not inconsistent with the purpose of this chapter. Subject to a finding of the commissioner that an alternative plan is fair and equitable and is not inconsistent with the purpose of this chapter, an alternative plan may do any of the following:
   a.  Include the merger of a domestic mutual company into a domestic or foreign stock company.
   b.  Provide for issuing transferable or redeemable subscription rights.
   c.  Provide for issuing stock, cash, policyholder credits, or other consideration, or any combination of the foregoing, to policyholders instead of subscription rights.
   d.  Provide for partial conversion of the mutual company and formation of a mutual holding company in accordance with subsection 2.
   e.  Set forth another plan containing any other provisions approved by the commissioner. 
   2.  The commissioner may approve a partial conversion and formation of a mutual holding company provided that the mutual company is not insolvent or in hazardous financial condition according to information supplied in its most recent annual or quarterly statement filed with the commissioner or as determined by a financial examination performed by the commissioner. The commissioner may retain, at the mutual company’s expense, any qualified expert, including counsel and financial advisors, not otherwise a part of the commissioner’s staff, to assist in reviewing whether the plan may be approved by the commissioner.
   3.  a.  A mutual holding company may convert to stock form under this chapter, and shall be subject to the provisions of this chapter and to any other provisions of this title applicable to insurance holding companies, except as otherwise provided in this chapter. It is the policy of this chapter to enable and facilitate such a conversion of a mutual holding company to stock form, and this chapter shall be interpreted accordingly.
   b.  Any mutual holding company may convert to a stock holding company only in accordance with the provisions of this chapter. Solely for purposes of establishing the process for and enabling and facilitating any conversion of a mutual holding company to a stock holding company, references in this chapter to a mutual company shall be deemed to refer to a mutual holding company and other provisions of this chapter shall be interpreted accordingly.
   c.  Any stock issued by a subsidiary insurance company or subsidiary holding company of a mutual holding company to persons other than the parent mutual holding company shall be exchanged for the stock issued by the parent mutual holding company in connection with the conversion of the parent mutual holding company to the parent stock holding company or any corporation participating in the conversion of the mutual holding company pursuant to section 512.6, subsection 1, paragraph “c”, subparagraph (1), subparagraph division (a). The parent mutual holding company and the subsidiary insurance company or subsidiary holding company must demonstrate to the satisfaction of the commissioner that the basis for the exchange is fair and reasonable.
   d.  If a subsidiary insurance company or subsidiary holding company has issued shares to an entity other than the mutual holding company, the conversion of the mutual holding company to a stock holding company shall not be consummated unless a majority of the shares issued to the entities other than the mutual holding company vote in favor of the conversion. This requirement applies in addition to any otherwise required policyholder or shareholder votes.
    Sec. 10.  NEW SECTION.  512.10  Effective date of plan of conversion.

   A plan of conversion is effective when the commissioner has approved the plan, the voting members have approved the plan and adopted the certificate of incorporation of the converted stock company, and the certificate of incorporation is filed in the office of the secretary of state of this state.
    Sec. 11.  NEW SECTION.  512.11  Rights of members whose policies are issued after adoption of plan of conversion and before effective date.
   1.  All members whose policies are issued after the proposed plan of conversion has been adopted by the governing body and before the effective date of the plan shall be sent a written notice regarding the plan upon issuance of such policy.
   2.  A member of a life or health insurance company entitled to be sent the notice described in subsection 1 is entitled to rescind the member’s policy and receive a full refund of any amounts paid for the policy or contract within ten days after such member has received the notice. Except as provided in subsection 3, each member of a property or casualty insurance company entitled to receive the notice provided for in subsection 1 shall be advised of the member’s right of cancellation and to a pro rata refund of unearned premiums.
   3.  A member of a life or health insurance company, or property or casualty insurance company, who has made or filed a claim under such member’s insurance policy shall not be entitled to any right to receive any refund under subsection 2. A person who has exercised the rights provided by subsection 2 shall not be entitled to make or file any claim under such person’s insurance policy.
    Sec. 12.  NEW SECTION.  512.12  Corporate existence.
   1.  On the effective date of the conversion, the corporate existence of the mutual company continues in the converted stock company. On the effective date of the conversion, all the assets, rights, franchises, and interests of the mutual company or the mutual holding company in and to every species of property, real, personal, and mixed, and any accompanying things in action, are vested in the converted stock company without any deed or transfer and the converted stock company assumes all the obligations and liabilities of the mutual company or the mutual holding company.
   2.  Unless otherwise specified in the plan of conversion, the persons who are directors and officers of the mutual company or the mutual holding company on the effective date of the conversion shall serve as directors and officers of the converted stock company until new directors and officers of the converted stock company are elected pursuant to the certificate of incorporation and bylaws of the converted stock company.
    Sec. 13.  NEW SECTION.  512.13  Conflict of interest.
   1.  A director, officer, agent, or employee of the mutual company shall not receive any fee, commission, or other valuable consideration, other than such person’s usual regular salary or compensation, for aiding, promoting, or assisting in a conversion under this chapter, except as provided for in the plan approved by the commissioner. This provision does not prohibit the payment of reasonable fees and compensation to attorneys, accountants, financial advisors, and actuaries for services performed in the independent practice of their professions, even if the attorney, accountant, financial advisor, or actuary is also a director or officer of the mutual company.
   2.  For a period of two years after the effective date of the conversion, a converted stock company shall not implement any nontax-qualified stock benefit plan unless the plan is approved by a majority of votes cast at a duly-convened meeting of shareholders held not less than six months after the effective date of the conversion.
   3.  All the costs and expenses connected with a plan of conversion shall be paid for or reimbursed by the mutual company or the converted stock company. However, if the plan provides for participation by another corporation or stock company in the plan pursuant to section 512.6, subsection 1, paragraph “c”, subparagraph (1), subparagraph division (a), the corporation or stock company may pay for or reimburse all or a portion of the costs and expenses connected with the plan.
    Sec. 14.  NEW SECTION.  512.14  Failure to give notice.

   If the mutual company complies substantially and in good faith with the notice requirements of this chapter, the mutual company’s failure to send a member the required notice does not impair the validity of any action taken under this chapter.
    Sec. 15.  NEW SECTION.  512.15  Limitation on actions.

   Any action challenging the validity of or arising out of acts taken or proposed to be taken under this chapter shall be commenced no later than the latter of the following:

   1.  Sixty days after the approval of the plan by the commissioner.
   2.  Thirty days after notice of the meeting of voting members to approve the plan of conversion is first mailed or delivered to voting members or posted on the mutual company’s internet site.
    Sec. 16.  NEW SECTION.  512.16  Mutual company insolvent or in hazardous financial condition.
   1.  If a mutual company seeking to convert is insolvent or is in hazardous financial condition according to information supplied in its most recent annual or quarterly statement filed with the division or as determined by a financial examination performed by the division, the requirements of this chapter, including notice to and policyholder approval of the plan of conversion, may be waived at the discretion of the commissioner, if requested by the mutual company. If a waiver under this section is ordered by the commissioner, the mutual company shall specify in its plan of conversion all of the following:
   a.  The method and basis for the issuance of the converted stock company’s shares of its capital stock to an independent party in connection with an investment by the independent party in an amount sufficient to restore the converted stock company to a sound financial condition.
   b.  That the conversion shall be accomplished without granting subscription rights or other consideration to the past, present, or future policyholders.
   2.  This section shall not alter or limit the authority of the commissioner under any of the provisions of law, including but not limited to receivership and liquidation provisions applicable to insurance companies.
    Sec. 17.  NEW SECTION.  512.17  Rules.

   The commissioner may adopt rules to administer and enforce this chapter.
    Sec. 18.  NEW SECTION.  512.18  Laws applicable to converted stock company.
   1.  A mutual company shall not be permitted to convert under this chapter if, as a direct result of the conversion, a person or any affiliate of the person acquires control of the converted stock company, unless the person and the person’s affiliates comply with the provisions of this state’s laws regarding the acquisition of control of an insurance company.
   2.  Except as otherwise specified in this chapter, a stock company converted under this chapter shall have and may exercise all the rights and privileges and shall be subject to all of the requirements and regulations imposed on stock companies under this chapter and any other laws of this state relating to the regulation and supervision of insurance companies, but the stock company shall not exercise any rights or privileges which other stock companies cannot exercise.
    Sec. 19.  NEW SECTION.  512.19  Commencement of business as a stock company.

   A mutual company shall not have the power to engage in the business of insurance as a stock company until it complies with all provisions of this chapter.
    Sec. 20.  NEW SECTION.  512.20  Amendment of policies.

   A mutual company, by endorsement or rider approved by the commissioner and sent to a policyholder, may simultaneously with or at any time after the adoption of a plan of conversion amend any outstanding insurance policy for the purpose of extinguishing the right of the policyholder to share in the surplus of the mutual company. However, this amendment shall be null and void if the plan of conversion is not submitted to the commissioner or, if submitted, is disapproved by the commissioner or, if approved by the commissioner, is not approved by the eligible members on or before the first anniversary of its approval by the commissioner.
    Sec. 21.  NEW SECTION.  512.21  Prohibition on acquisitions of control.

   Except as otherwise specifically provided in section 512.6, from the date a plan of conversion is adopted by the governing body of a mutual company until three years after the effective date of the plan, a person shall not directly or indirectly offer to acquire, make any announcement to acquire or acquire in any manner, including making a filing with the division for such acquisition under a statute or rule of this state, the beneficial ownership of ten percent or more of a class of a voting security of the converted stock company or of a person which controls the voting securities of the converted stock company, unless the converted stock company or a person who controls the voting securities of the converted stock company consents to such acquisition and such acquisition is otherwise approved by the commissioner.
EXPLANATION
The inclusion of this explanation does not constitute agreement with

the explanation’s substance by the members of the general assembly.
   This bill enacts new Code chapter 512 which provides an additional procedure for mutual insurance companies domiciled in this state and organized under Code chapter 508 (life insurance companies) or Code chapter 515 (insurance other than life), as well as certain foreign mutual insurance companies, to convert from a mutual company to a stock company. The procedure does not replace current Code chapter 508C (conversion from mutual company to stock company) or current Code chapter 515G (mutual insurance company conversions).
   The bill requires the mutual company wishing to convert to a stock company to submit a plan of conversion to its governing body for adoption, to the commissioner of insurance for approval, and to the mutual company’s voting members for approval. Following final approval the converted stock company must file its certificate of incorporation and bylaws with the commissioner.
   The bill allows a foreign mutual company or foreign mutual holding company to redomesticate to Iowa and to file an application for conversion to a stock company. Such a company’s plan of conversion must be adopted and approved consistent with the provisions of the new Code chapter applicable to domestic companies.
   The required contents of a plan of conversion are set out in the bill and include provisions relating to policy continuation, voting rights, subscription rights to purchase the capital stock of the converted stock company or of related entities, valuation of capital stock by a qualified independent expert, redemption rights, and restrictions on the purchase, sale, and repurchase of capital stock by directors, officers, and others. The bill contains specific provisions regarding a closed block of business for participating life policies. 
   The commissioner is authorized to approve alternative plans of conversion that allow for partial conversions, mutual holding companies, mergers, and variable subscription rights.
   The bill also includes provisions relating to rights of members whose policies were issued after adoption of the plan of conversion, conflicts of interest, limitations on actions challenging a conversion, conversions involving insolvent companies, amendment of outstanding policies, and acquisitions of control following conversion.