1998 Legislation
Print Friendly

HOUSE BILL NO. 671 – Mutual insurance holding company

HOUSE BILL NO. 671

View Daily Data Tracking History

View Bill Text

View Statement of Purpose / Fiscal Impact



Text to be added within a bill has been marked with Bold and
Underline. Text to be removed has been marked with
Strikethrough and Italic. How these codes are actually displayed will
vary based on the browser software you are using.

This sentence is marked with bold and underline to show added text.

This sentence is marked with strikethrough and italic, indicating
text to be removed.

Daily Data Tracking History



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

Bill Text


H0671


                                                                        
 ||||              LEGISLATURE OF THE STATE OF IDAHO             ||||
Fifty-fourth Legislature                 Second Regular Session - 1998
                                                                        

                             IN 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)  A
12      Except 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 the  policy holders      policyholders
31     of any domestic insurer involved; or
32        (b)  Would substantially reduce the security of and service to be rendered
33    to    policy  holders     policyholders  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 / Fiscal Impact


    





                           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