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H0327...............................................by REVENUE AND TAXATION
MUTUAL INSURANCE HOLDING COMPANIES - Amends existing law to provide that
the formation of mutual insurance holding companies should not increase the
tax burden of the mutual insurance holding company system; to provide that
dividends or distributions may be issued by a stock insurance subsidiary to
the mutual insurance holding company or intermediate holding company; and
to provide that such dividends or distributions shall be excluded from
Idaho taxable income in certain circumstances.
03/04 House intro - 1st rdg - to printing
03/05 Rpt prt - to Rev/Tax
03/12 Rpt out - rec d/p - to 2nd rdg
03/13 2nd rdg - to 3rd rdg
03/17 3rd rdg - PASSED - 70-0-0
AYES -- Andersen, Barraclough, Barrett, Bauer, Bedke, Bell, Bieter,
Black, Block, Boe, Bolz, Bradford, Campbell, Cannon, Clark, Collins,
Crow, Cuddy, Deal, Denney, Douglas, Eberle, Edmunson, Ellsworth,
Eskridge, Field(18), Field(23), Gagner, Garrett, Harwood, Henbest,
Jaquet, Jones, Kellogg, Kulczyk, Lake, Langford, Langhorst, Martinez,
McGeachin, McKague, Meyer, Miller, Mitchell, Moyle, Naccarato,
Nielsen, Raybould, Ridinger, Ring, Ringo, Roberts, Robison, Rydalch,
Sali, Sayler, Schaefer, Shepherd, Shirley, Skippen, Smith(30),
Smith(24), Smylie, Snodgrass, Stevenson, Tilman, Trail, Wills, Wood,
Mr. Speaker
NAYS -- None
Absent and excused -- None
Floor Sponsor - Collins
Title apvd - to Senate
03/19 Senate intro - 1st rdg - to Loc Gov
03/25 Rpt out - rec d/p - to 2nd rdg
03/26 2nd rdg - to 3rd rdg
03/31 3rd rdg - PASSED - 34-0-1
AYES -- Andreason, Bailey, Brandt, Burkett(Roberts), Bunderson,
Burtenshaw, Calabretta, Cameron, Compton, Darrington, Davis, Gannon,
Geddes, Goedde, Hill, Ingram, Kennedy, Keough, Little, Lodge,
Malepeai, Marley, McKenzie, Noble, Noh, Pearce, Richardson,
Schroeder, Sorensen, Stegner, Stennett, Sweet, Werk, Williams
NAYS -- None
Absent and excused -- McWilliams
Floor Sponsors - Sweet, Ingram & Werk
Title apvd - to House
04/01 To enrol
04/02 Rpt enrol - Sp signed
04/03 Pres signed
04/04 To Governor
04/08 Governor signed
Session Law Chapter 271
Effective: 01/01/04
|||| LEGISLATURE OF THE STATE OF IDAHO ||||
Fifty-seventh Legislature First Regular Session - 2003
IN THE HOUSE OF REPRESENTATIVES
HOUSE BILL NO. 327
BY REVENUE AND TAXATION COMMITTEE
1 AN ACT
2 RELATING TO MUTUAL INSURANCE HOLDING COMPANIES; AMENDING SECTION 41-3821,
3 IDAHO CODE, TO PROVIDE THAT THE FORMATION OF MUTUAL INSURANCE HOLDING COM-
4 PANIES SHOULD NOT INCREASE THE TAX BURDEN OF THE MUTUAL INSURANCE HOLDING
5 COMPANY SYSTEM, TO PROVIDE THAT STOCK INSURANCE SUBSIDIARIES SHALL CON-
6 TINUE TO BE SUBJECT TO PREMIUM TAXATION AND REAL PROPERTY TAXATION, TO
7 PROVIDE THAT SUBJECT TO THE APPROVAL OF THE DIRECTOR DIVIDENDS OR DISTRI-
8 BUTIONS MAY BE ISSUED BY A STOCK INSURANCE SUBSIDIARY TO A MUTUAL INSUR-
9 ANCE HOLDING COMPANY OR INTERMEDIATE HOLDING COMPANY, TO PROVIDE THAT SUCH
10 DIVIDENDS OR DISTRIBUTIONS SHALL BE EXCLUDED FROM IDAHO TAXABLE INCOME AND
11 TO PROVIDE THAT THE EXCLUSION SHALL NOT APPLY IN CERTAIN CIRCUMSTANCES;
12 AND PROVIDING AN EFFECTIVE DATE.
13 Be It Enacted by the Legislature of the State of Idaho:
14 SECTION 1. That Section 41-3821, Idaho Code, be, and the same is hereby
15 amended to read as follows:
16 41-3821. MUTUAL INSURANCE HOLDING COMPANIES.
17 (1) (a) A domestic mutual insurer, upon approval of the director, may
18 reorganize by forming an insurance holding company system, "the mutual
19 insurance holding company," based upon a mutual plan and continuing the
20 corporate existence of the reorganizing insurer as a stock insurer. The
21 director, after a public hearing as provided in section 41-3805, Idaho
22 Code, if satisfied that the interests of the policyholders are properly
23 protected and that the plan of reorganization is fair and equitable to the
24 policyholders, may approve the proposed plan of reorganization and may
25 require as a condition of approval such modifications of the proposed plan
26 of reorganization as the director finds necessary for the protection of
27 the policyholders' interests. The director may retain consultants as pro-
28 vided in section 41-3805(4), Idaho Code. A reorganization pursuant to this
29 subsection is subject to sections 41-3802 and 41-3803, Idaho Code. The
30 director shall retain jurisdiction over a mutual insurance holding company
31 organized pursuant to this section to assure that policyholder interests
32 are protected.
33 (b) All of the initial shares of the capital stock of the reorganized
34 insurer shall be issued to the mutual insurance holding company. The mem-
35 bership interests of the policyholders of the reorganized insurer shall
36 become membership interests in the mutual insurance holding company. Poli-
37 cyholders of the reorganized insurer shall be members of the mutual insur-
38 ance holding company in accordance with the articles of incorporation and
39 bylaws of the mutual insurance holding company. The mutual insurance hold-
40 ing company shall at all times own a majority of the voting shares of the
41 capital stock of the reorganized insurer.
42 (2) (a) A domestic mutual insurer, upon the approval of the director, may
43 reorganize by merging its policyholders' membership interests into a
2
1 mutual insurance holding company formed pursuant to subsection (1) of this
2 section and continuing the corporate existence of the reorganizing insurer
3 as a stock insurer subsidiary of the mutual insurance holding company. The
4 director, after a public hearing as provided in section 41-3805, Idaho
5 Code, if satisfied that the interests of the policyholders are properly
6 protected and that the merger is fair and equitable to the policyholders,
7 may approve the proposed merger and may require as a condition of approval
8 such modifications of the proposed merger as the director finds necessary
9 for the protection of the policyholders' interests. The director may
10 retain consultants as provided in section 41-3805(4), Idaho Code. A merger
11 pursuant to this subsection is subject to sections 41-3802 and 41-3803,
12 Idaho Code. The director shall retain jurisdiction over the mutual insur-
13 ance holding company organized pursuant to this section to assure that
14 policyholder interests are protected.
15 (b) All of the initial shares of the capital stock of the reorganized
16 insurer shall be issued to the mutual insurance holding company. The mem-
17 bership interests of the policyholders of the reorganized insurance com-
18 pany shall become membership interests in the mutual insurance holding
19 company. Policyholders of the reorganized insurer shall be members of the
20 mutual insurance holding company in accordance with the articles of incor-
21 poration and bylaws of the mutual insurance holding company. The mutual
22 insurance holding company shall at all times own a majority of the voting
23 shares of the capital stock of the reorganized insurer. A merger of poli-
24 cyholders' membership interests in a mutual insurer into a mutual insur-
25 ance holding company shall be deemed to be a merger of insurance companies
26 pursuant to section 41-2857, Idaho Code, and section 41-2857, Idaho Code,
27 is also applicable.
28 (c) A foreign mutual insurer, which if a domestic corporation would be
29 organized under chapter 3, title 41, Idaho Code, may reorganize upon the
30 approval of the director and in compliance with the requirements of any
31 law or rule which is applicable to the foreign mutual insurer by merging
32 its policyholders' membership interests into a mutual insurance holding
33 company formed pursuant to subsection (1) of this section and continuing
34 the corporate existence of the reorganizing foreign mutual insurer as a
35 foreign stock insurer subsidiary of the mutual insurance holding company.
36 The director, after a public hearing as provided in section 41-3805, Idaho
37 Code, may approve the proposed merger. The director may retain consultants
38 as provided in section 41-3805(4), Idaho Code. A merger pursuant to this
39 paragraph is subject to sections 41-3802 and 41-3803, Idaho Code. The
40 reorganizing foreign mutual insurer may remain a foreign company or for-
41 eign corporation after the merger, and may be admitted to do business in
42 this state. A foreign mutual insurer which is a party to the merger may at
43 the same time redomesticate in this state by complying with the applicable
44 requirements of this state and its state of domicile. The provisions of
45 subsection (2)(b) shall apply to a merger authorized under this paragraph.
46 (3) A mutual insurance holding company resulting from the reorganization
47 of a domestic mutual insurer organized under chapter 1, title 30, Idaho Code,
48 shall be incorporated pursuant to chapter 1, title 30, Idaho Code. This
49 requirement shall supersede any conflicting provisions of chapter 1, title 30,
50 Idaho Code. The articles of incorporation and any amendments to such articles
51 of the mutual insurance holding company shall be subject to approval of the
52 director in the same manner as those of an insurance company.
53 (4) A mutual insurance holding company is deemed to be an insurer subject
54 to chapter 33, title 41, Idaho Code, and shall automatically be a party to any
55 proceeding under chapter 33, title 41, Idaho Code, involving an insurer which
3
1 as a result of a reorganization pursuant to subsection (1) or (2) of this sec-
2 tion is a subsidiary of the mutual insurance holding company. In any proceed-
3 ing under chapter 33, title 41, Idaho Code, involving the reorganized
4 insurer, the assets of the mutual insurance holding company are deemed to be
5 assets of the estate of the reorganized insurer for purposes of satisfying the
6 claims of the reorganized insurer's policyholders. A mutual insurance holding
7 company shall not dissolve or liquidate without the approval of the director
8 or as ordered by the district court pursuant to chapter 33, title 41, Idaho
9 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
5 which either directly or through a subsidiary intermediate holding company has
6 one (1) or more subsidiary reorganized insurers of which a majority of the
7 voting shares of the capital stock would otherwise have been required by this
8 section to be at all times owned by the mutual insurance holding company.
9 (8) It is the intent of the legislature that the formation of a mutual
10 insurance holding company should not increase the Idaho tax burden of the
11 mutual insurance holding company system and that a stock insurance subsidiary
12 shall continue to be subject to Idaho insurance premium taxation in lieu of
13 all other taxes except real property taxes as provided in section 41-405,
14 Idaho Code. Subject to approval by the director as required under Idaho law, a
15 stock insurance subsidiary may issue dividends or distributions to the mutual
16 insurance holding company or any intermediate holding company, and such divi-
17 dends or distributions shall be excluded from the Idaho taxable income of the
18 recipients; provided however, that such exclusion shall not apply to the
19 extent that, in the year preceding the year in which the dividends or distri-
20 butions were made, the subsidiary insurer's liability for Idaho premium tax
21 was less than the amount of Idaho income tax for which the insurer would have
22 been liable in such year had the insurer been subject to Idaho income taxation
23 rather than premium taxation.
24 SECTION 2. This act shall be in full force and effect on and after Janu-
25 ary 1, 2004.
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STATEMENT OF PURPOSE
RS 13104
Domestic insurance companies of Idaho, under the mutual
insurance holding company system, could unintentionally be burdened
with an increased tax liability.
This legislation would provide that dividends or distributions
may be issued by a subsidiary to a mutual insurance holding
company, or intermediate holding company, and such dividends or
distributions be excluded from taxable income of the recipients;
unless the amount of Idaho premium tax paid was less than the
amount of Idaho income tax for which the insurer would have been
liable.
FISCAL IMPACT
There is no fiscal impact to the general fund.
Contact
Name: John Mackey
United Heritage Financial Group
Phone: 322-2685
STATEMENT OF PURPOSE/FISCAL NOTE H 327