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H0671...........................................................by BUSINESS
MUTUAL INSURANCE HOLDING COMPANY - Adds to and amends existing law to
provide for and govern the procedure to allow conversion of a domestic
mutual insurer to a mutual insurance holding company.
02/12 House intro - 1st rdg - to printing
02/13 Rpt prt - to Bus
02/24 Rpt out - rec d/p - to 2nd rdg
02/25 2nd rdg - to 3rd rdg
02/26 3rd rdg - PASSED - 61-2-7
AYES -- Alltus, Barraclough, Barrett, Bieter, Bivens, Black(15),
Black(23), Boe, Bruneel, Callister, Campbell, Chase, Clark, Crow,
Deal, Denney, Ellsworth, Field(13), Field(20), Geddes, Gould, Hadley,
Hansen, Henbest, Hornbeck, Jaquet, Jones(9), Jones(22), Jones(20),
Judd, Kellogg, Kempton, Kendell, Kunz, Lake, Loertscher, Mader,
Marley, McKague, Meyer, Miller, Mortensen, Pischner, Pomeroy,
Reynolds, Richman, Ridinger, Robison, Sali, Schaefer, Stoicheff,
Stone, Stubbs, Taylor, Tilman, Tippets, Trail, Watson, Wood,
Zimmermann, Mr Speaker
NAYS -- Stevenson, Wheeler
Absent and Excused -- Bell, Crane, Cuddy, Gagner, Kjellander,
Linford, Newcomb
Floor Sponsor - Taylor
Title apvd - to Senate
02/27 Senate intro - 1st rdg - to Com/HuRes
03/11 Rpt out - rec d/p - to 2nd rdg
03/12 2nd rdg - to 3rd rdg
03/18 3rd rdg - PASSED - 34-0-1
AYES--Andreason, Boatright, Branch, Bunderson, Burtenshaw, Cameron,
Crow, Danielson, Darrington, Deide, Dunklin, Frasure, Geddes,
Hawkins, Ingram, Ipsen, Keough, King, Lee, McLaughlin, Noh, Parry,
Richardson, Riggs, Risch, Sandy, Schroeder, Sorensen, Stennett,
Sweeney, Thorne, Twiggs, Wheeler, Whitworth
NAYS--None
Absent and excused--Hansen
Floor Sponsor - Cameron
Title apvd - to House
03/19 To enrol - rpt enrol - Sp signed
Pres signed - to Governor
03/24 Governor signed
Session Law Chapter 303
Effective: 07/01/98
H0671|||| LEGISLATURE OF THE STATE OF IDAHO |||| Fifty-fourth Legislature Second Regular Session - 1998IN THE HOUSE OF REPRESENTATIVES HOUSE BILL NO. 671 BY BUSINESS COMMITTEE 1 AN ACT 2 RELATING TO INSURANCE; AMENDING CHAPTER 38, TITLE 41, IDAHO CODE, BY THE ADDI- 3 TION OF A NEW SECTION 41-3821, IDAHO CODE, TO PROVIDE THAT A DOMESTIC 4 MUTUAL INSURER MAY REORGANIZE BY FORMING A MUTUAL INSURANCE HOLDING COM- 5 PANY BASED UPON A MUTUAL PLAN AND BY MERGING ITS POLICYHOLDERS' MEMBERSHIP 6 INTERESTS INTO THE MUTUAL INSURANCE HOLDING COMPANY AND CONTINUING THE 7 CORPORATE EXISTENCE OF THE REORGANIZING INSURER AS A STOCK INSURER; AMEND- 8 ING SECTION 41-2857, IDAHO CODE, TO PROVIDE APPLICATION TO A CONVERSION OF 9 A MUTUAL INSURANCE COMPANY TO A MUTUAL INSURANCE HOLDING COMPANY AND TO 10 MAKE TECHNICAL CORRECTIONS; AND AMENDING SECTION 41-3805, IDAHO CODE, TO 11 PROVIDE THE APPLICATION TO A CONVERSION OF A MUTUAL INSURANCE COMPANY TO A 12 MUTUAL INSURANCE HOLDING COMPANY AND TO MAKE A TECHNICAL CORRECTION. 13 Be It Enacted by the Legislature of the State of Idaho: 14 SECTION 1. That Chapter 38, Title 41, Idaho Code, be, and the same is 15 hereby amended by the addition thereto of a NEW SECTION , to be 16 known and designated as Section 41-3821, Idaho Code, and to read as follows: 17 41-3821. MUTUAL INSURANCE HOLDING COMPANIES. 18 (1) (a) A domestic mutual insurer, upon approval of the director, may 19 reorganize by forming an insurance holding company system, "the mutual 20 insurance holding company," based upon a mutual plan and continuing the 21 corporate existence of the reorganizing insurer as a stock insurer. The 22 director, after a public hearing as provided in section 41-3805, Idaho 23 Code, if satisfied that the interests of the policyholders are properly 24 protected and that the plan of reorganization is fair and equitable to the 25 policyholders, may approve the proposed plan of reorganization and may 26 require as a condition of approval such modifications of the proposed plan 27 of reorganization as the director finds necessary for the protection of 28 the policyholders' interests. The director may retain consultants as pro- 29 vided in section 41-3805(4), Idaho Code. A reorganization pursuant to this 30 subsection is subject to sections 41-3802 and 41-3803, Idaho Code. The 31 director shall retain jurisdiction over a mutual insurance holding company 32 organized pursuant to this section to assure that policyholder interests 33 are protected. 34 (b) All of the initial shares of the capital stock of the reorganized 35 insurer shall be issued to the mutual insurance holding company. The mem- 36 bership interests of the policyholders of the reorganized insurer shall 37 become membership interests in the mutual insurance holding company. Poli- 38 cyholders of the reorganized insurer shall be members of the mutual insur- 39 ance holding company in accordance with the articles of incorporation and 40 bylaws of the mutual insurance holding company. The mutual insurance hold- 41 ing company shall at all times own a majority of the voting shares of the 42 capital stock of the reorganized insurer. 43 (2) (a) A domestic mutual insurer, upon the approval of the director, 2 1 may reorganize by merging its policyholders' membership interests into a 2 mutual insurance holding company formed pursuant to subsection (1) of this 3 section and continuing the corporate existence of the reorganizing insurer 4 as a stock insurer subsidiary of the mutual insurance holding company. The 5 director, after a public hearing as provided in section 41-3805, Idaho 6 Code, if satisfied that the interests of the policyholders are properly 7 protected and that the merger is fair and equitable to the policyholders, 8 may approve the proposed merger and may require as a condition of approval 9 such modifications of the proposed merger as the director finds necessary 10 for the protection of the policyholders' interests. The director may 11 retain consultants as provided in section 41-3805(4), Idaho Code. A merger 12 pursuant to this subsection is subject to sections 41-3802 and 41-3803, 13 Idaho Code. The director shall retain jurisdiction over the mutual insur- 14 ance holding company organized pursuant to this section to assure that 15 policyholder interests are protected. 16 (b) All of the initial shares of the capital stock of the reorganized 17 insurer shall be issued to the mutual insurance holding company. The mem- 18 bership interests of the policyholders of the reorganized insurance com- 19 pany shall become membership interests in the mutual insurance holding 20 company. Policyholders of the reorganized insurer shall be members of the 21 mutual insurance holding company in accordance with the articles of incor- 22 poration and bylaws of the mutual insurance holding company. The mutual 23 insurance holding company shall at all times own a majority of the voting 24 shares of the capital stock of the reorganized insurer. A merger of poli- 25 cyholders' membership interests in a mutual insurer into a mutual insur- 26 ance holding company shall be deemed to be a merger of insurance companies 27 pursuant to section 41-2857, Idaho Code, and section 41-2857, Idaho Code, 28 is also applicable. 29 (c) A foreign mutual insurer, which if a domestic corporation would be 30 organized under chapter 3, title 41, Idaho Code, may reorganize upon the 31 approval of the director and in compliance with the requirements of any 32 law or rule which is applicable to the foreign mutual insurer by merging 33 its policyholders' membership interests into a mutual insurance holding 34 company formed pursuant to subsection (1) of this section and continuing 35 the corporate existence of the reorganizing foreign mutual insurer as a 36 foreign stock insurer subsidiary of the mutual insurance holding company. 37 The director, after a public hearing as provided in section 41-3805, Idaho 38 Code, may approve the proposed merger. The director may retain consultants 39 as provided in section 41-3805(4), Idaho Code. A merger pursuant to this 40 paragraph is subject to sections 41-3802 and 41-3803, Idaho Code. The 41 reorganizing foreign mutual insurer may remain a foreign company or for- 42 eign corporation after the merger, and may be admitted to do business in 43 this state. A foreign mutual insurer which is a party to the merger may at 44 the same time redomesticate in this state by complying with the applicable 45 requirements of this state and its state of domicile. The provisions of 46 subsection (2)(b) shall apply to a merger authorized under this paragraph. 47 (3) A mutual insurance holding company resulting from the reorganization 48 of a domestic mutual insurer organized under chapter 1, title 30, Idaho Code, 49 shall be incorporated pursuant to chapter 1, title 30, Idaho Code. This 50 requirement shall supersede any conflicting provisions of chapter 1, title 30, 51 Idaho Code. The articles of incorporation and any amendments to such articles 52 of the mutual insurance holding company shall be subject to approval of the 53 director in the same manner as those of an insurance company. 54 (4) A mutual insurance holding company is deemed to be an insurer subject 55 to chapter 33, title 41, Idaho Code, and shall automatically be a party to any 3 1 proceeding under chapter 33, title 41, Idaho Code, involving an insurer which 2 as a result of a reorganization pursuant to subsection (1) or (2) of this sec- 3 tion is a subsidiary of the mutual insurance holding company. In any proceed- 4 ing under chapter 33, title 41, Idaho Code, involving the reorganized insurer, 5 the assets of the mutual insurance holding company are deemed to be assets of 6 the estate of the reorganized insurer for purposes of satisfying the claims of 7 the reorganized insurer's policyholders. A mutual insurance holding company 8 shall not dissolve or liquidate without the approval of the director or as 9 ordered by the district court pursuant to chapter 33, title 41, Idaho Code. 10 (5) (a) Section 41-2855, Idaho Code, is not applicable to a reorganiza- 11 tion or merger pursuant to this section. 12 (b) Section 41-2855, Idaho Code, is applicable to demutualization of a 13 mutual insurance holding company which resulted from the reorganization of 14 a domestic mutual insurer organized under chapter 3, title 41, Idaho Code, 15 as if it were a mutual life insurer. 16 (6) A membership interest in a domestic mutual insurance holding company 17 shall not constitute a security as defined in section 30-1402(12), Idaho Code. 18 (7) The majority of the voting shares of the capital stock of the reorga- 19 nized insurer, which is required by this section to be at all times owned by a 20 mutual insurance holding company, shall not be conveyed, transferred, 21 assigned, pledged, subject to a security interest or lien, encumbered, or 22 otherwise hypothecated or alienated by the mutual insurance holding company or 23 intermediate holding company. Any conveyance, transfer, assignment, pledge, 24 security interest, lien, encumbrance, or hypothecation or alienation of, in or 25 on the majority of the voting shares of the reorganized insurer which is 26 required by this section to be at all times owned by a mutual insurance hold- 27 ing company, is in violation of this section and shall be void in inverse 28 chronological order of the date of such conveyance, transfer, assignment, 29 pledge, security interest, lien, encumbrance, or hypothecation or alienation, 30 as to the shares necessary to constitute a majority of such voting shares. The 31 majority of the voting shares of the capital stock of the reorganized insurer 32 which is required by this section to be at all times owned by a mutual insur- 33 ance holding company shall not be subject to execution and levy as provided in 34 title 11, Idaho Code. The shares of the capital stock of the surviving or new 35 company resulting from a merger or consolidation of two (2) or more reorga- 36 nized insurers or two (2) or more intermediate holding companies which were 37 subsidiaries of the same mutual insurance holding company are subject to the 38 same requirements, restrictions, and limitations as provided in this section 39 to which the shares of the merging or consolidating reorganized insurers or 40 intermediate holding companies were subject by this section prior to the 41 merger or consolidation. 42 As used in this section, "majority of the voting shares of the capital 43 stock of the reorganized insurer" means shares of the capital stock of the 44 reorganized insurer which carry the right to cast a majority of the votes 45 entitled to be cast by all of the outstanding shares of the capital stock of 46 the reorganized insurer for the election of directors and on all other matters 47 submitted to a vote of the shareholders of the reorganized insurer. The owner- 48 ship of a majority of the voting shares of the capital stock of the reorga- 49 nized insurer which are required by this section to be at all times owned by a 50 parent mutual insurance holding company includes indirect ownership through 51 one (1) or more intermediate holding companies in a corporate structure 52 approved by the director. However, indirect ownership through one (1) or more 53 intermediate holding companies shall not result in the mutual insurance hold- 54 ing company owning less than the equivalent of a majority of the voting shares 55 of the capital stock of the reorganized insurer. The director shall have 4 1 jurisdiction over an intermediate holding company as if it were a mutual 2 insurance holding company. 3 As used in this section, "intermediate holding company" means a holding 4 company which is a subsidiary of a mutual insurance holding company, and which 5 either directly or through a subsidiary intermediate holding company has one 6 (1) or more subsidiary reorganized insurers of which a majority of the voting 7 shares of the capital stock would otherwise have been required by this section 8 to be at all times owned by the mutual insurance holding company. 9 SECTION 2. That Section 41-2857, Idaho Code, be, and the same is hereby 10 amended to read as follows: 11 41-2857. MERGERS AND CONSOLIDATIONS OF MUTUAL INSURERS. (1)A12Except as set forth in section 41-3821, Idaho Code, a 13 domestic mutual insurer shall not merge or consolidate with a stock insurer. 14 (2) A domestic mutual insurer may merge or consolidate with another 15 mutual insurer under the applicable procedures prescribed by the statutes of 16 this state applying to corporations formed for profit, except as hereinbelow 17 provided. 18 (3) The plan and agreement for merger or consolidation shall be submitted 19 to and approved by at least two - thirds (2/3) of the members of 20 each mutual insurer voting thereon at meetings called for the purpose pursuant 21 to such reasonable notice and procedure as has been approved by the director. 22 If a life insurer, right to vote may be limited to members whose policies are 23 other than term and group policies, and have been in effect for more than one 24 (1) year. 25 (4) No such merger or consolidation shall be effectuated unless in 26 advance thereof the plan and agreement therefor have been filed with the 27 director and approved by him in writing after a hearing thereon. The director 28 shall give such approval within a reasonable time after such filing unless he 29 finds such plan or agreement: 30 (a) Inequitable to thepolicy holderspolicyholders 31 of any domestic insurer involved; or 32 (b) Would substantially reduce the security of and service to be rendered 33 topolicy holderspolicyholders of the domestic 34 insurer in this state and elsewhere; or 35 (c) Is subject to other material and reasonable objections. 36 (5) If the director does not approve such plan or agreement he shall so 37 notify the insurers in writing specifying his reasons therefor. 38 (6) No director, officer, agent or employee of any insurer party to such 39 merger or consolidation, nor any other person, shall receive any fee, commis- 40 sion or other valuable consideration whatsoever for in any manner aiding, pro- 41 moting, or assisting therein except as set forth in the plan and agreement 42 approved by the director. 43 SECTION 3. That Section 41-3805, Idaho Code, be, and the same is hereby 44 amended to read as follows: 45 41-3805. APPROVAL, DISAPPROVAL OF PROPOSED ACQUISITION. (1) The director 46 shall approve any purchase, exchange, merger, or other acquisition of control 47 referred to in section 41-3802, Idaho Code, or referred to in section 48 41-3821, Idaho Code, unless, after a public hearing, the director finds 49 that: 50 (a) After the change of control the domestic insurer could not satisfy 51 the requirements for the issuance of a certificate of authority according 5 1 to requirements in force at the time of the issuance, or last renewal or 2 continuation of its certificate of authority to do the insurance business 3 which it intends to transact in this state; 4 (b) The effect of the purchases, exchanges, merger (of a controlling per- 5 son of the insurer), or other acquisitions of control may be substantially 6 to lessen competition in insurance in this state or tend to create a 7 monopoly therein. In applying the competitive standard in this paragraph: 8 (i) The informational requirements of section 41-3805B(3) (a), 9 Idaho Code, and the standards of section 41-3805B(4) (b), Idaho Code, 10 shall apply; 11 (ii) The merger or other acquisition shall not be disapproved if the 12 director finds that any of the situations meeting the criteria pro- 13 vided in section 41-3805B(4) (c), Idaho Code, exist; and 14 (iii) The director may condition the approval of the merger or other 15 acquisition on the removal of the basis of disapproval within a spec- 16 ified period of time. 17 (c) The financial condition of an acquiring person is such as would jeop- 18 ardize the financial stability of the insurer, or prejudice the interest 19 of its policyholders or, in the case of an acquisition of control, the 20 interest of any remaining stockholders who are unaffilliated with the 21 acquiring person; 22 (d) The plans or proposals which the acquiring person has to liquidate 23 the insurer, to sell its assets, or to merge it with any person, or to 24 make any other major change in its business or corporate structure or man- 25 agement, are unfair and unreasonable to policyholders of the insurer and 26 not in the public interest; 27 (e) The competence, experience and integrity of those persons who would 28 control the operation of the insurer indicate that it would not be in the 29 interest of policyholders, stockholders, or the public to permit the 30 merger or other acquisition of control; or 31 (f) The acquisition is likely to be hazardous or prejudicial to the 32 insurance buying public. 33 (2) The public hearing referred to in subsection (1) of this section 34 shall be held within thirty (30) days after the statement required by section 35 41-3802, Idaho Code, is filed, and at least twenty (20) days' notice thereof 36 shall be given by the director to the person filing the statement. Not less 37 than seven (7) days' notice of such public hearing shall be given by the per- 38 son filing the statement to the insurer and to such other persons as may be 39 designated by the director. The director shall make a determination within 40 thirty (30) days after the conclusion of such hearing. At such hearing, the 41 person filing the statement, the insurer, any person to whom notice of hearing 42 was sent, and any other person whose interest may be affected thereby shall 43 have the right to present evidence, examine and cross - examine 44 witnesses, and offer oral and written arguments and in connection therewith 45 shall be entitled to conduct discovery proceedings in the same manner as is 46 presently allowed in the district courts in this state. All discovery proceed- 47 ings shall be concluded not later than three (3) days prior to the commence- 48 ment of the public hearing. 49 (3) Merger, consolidation or bulk reinsurance as to a domestic insurer 50 shall be effectuated only pursuant to the applicable provisions of chapter 28, 51 title 41 (organization and corporate procedures of stock and mutual insurers), 52 Idaho Code, and chapter 30, title 41 (mutual benefit associations), Idaho 53 Code. 54 (4) The director may retain any attorney, actuary, accountant, or other 55 individual, organization, corporation, association, or business entity not 6 1 otherwise a member of the director's staff as may be reasonably necessary to 2 assist the department in the processing of any merger or acquisition of con- 3 trol proposed under this section. All reasonable expenses incurred in connec- 4 tion herewith shall be borne by the party seeking the acquisition. The direc- 5 tor may require the acquiring party to post a bond in an amount not to exceed 6 twenty-five thousand dollars ($25,000) as security for payment of such 7 expenses. 8 (5) The provisions of this section shall not apply to any offer, request, 9 invitation, agreement or acquisition which the director by order shall exempt 10 therefrom as not having been made or entered into for the purpose and not hav- 11 ing the effect of changing or influencing the control of a domestic insurer, 12 or as otherwise not comprehended within the purposes of this section. 13 (6) The following shall be violations of this section: 14 (a) The failure to file any statement, amendment, or other material 15 required to be filed pursuant to the provisions of section 41-3802(1) or 16 (2), Idaho Code; or 17 (b) The effectuation or any attempt to effectuate an acquisition of con- 18 trol of, or merger with, a domestic insurer unless the director has given 19 his approval thereto. 20 (7) The courts of Idaho are hereby vested with jurisdiction over every 21 person not resident, domiciled, or authorized to do business in Idaho who 22 files a statement with the director under the provisions of section 41-3802, 23 Idaho Code, and overall actions involving such person arising out of viola- 24 tions of the provisions of this section, and each such person shall be deemed 25 to have performed acts equivalent to and constituting an appointment by such 26 person of the director to be his true and lawful attorney upon whom may be 27 served all lawful process in any action, suit or proceeding arising out of 28 violations of this section. Copies of all such lawful process shall be served 29 on the director and transmitted by registered or certified mail by the direc- 30 tor to such person at his last known address.
STATEMENT OF PURPOSE
RS 08032
The purpose of this legislation is to provide for an
alternative form of corporate organization for mutual
insurance companies. It allows for the conversion of a mutual
insurance company to a stock insurance company. The purpose is
to allow access to capital that is currently not available to
mutual insurance companies. Capital is necessary for future
business expansion and development.
FISCAL NOTE
There would be no fiscal impact to the State of Idaho. The
expenses associated with a mutual insurance company converting
to a mutual insurance company converting to a mutual holding
company system would be paid by the company going through the
conversion. Such a conversion does require regulatory
oversight but would
typically not anticipate the need by the Department of Insurance to
add additional personnel or incur additional expenses.
Contact: M. Allyn Dingel,
STATEMENT OF PURPOSE/FISCAL NOTE
(208)343-5454
H 671