Current Status Bill Number:5056 Type of Legislation:General Bill GB Introducing Body:House Introduced Date:19980416 Primary Sponsor:Labor, Commerce and Industry Committee HLCI 26 All Sponsors:Labor, Commerce and Industry Committee Drafted Document Number:pt\1888dw.98 Companion Bill Number:1094 Residing Body:House Date of Last Amendment:19980526 Subject:Domestic mutual insurance holding company system, domestic or foreign insurer reorganized as; Insurance
Body Date Action Description Com Leg Involved
______ ________ _______________________________________ _______ ____________
House 19980602 Continued
Senate 19980527 Read third time, returned to House
with amendment
Senate 19980526 Read second time, unanimous
consent for third reading on
Wednesday, 19980527
Senate 19980526 Amended
Senate 19980521 Polled out of Committee: 02 SBI
Without report
Senate 19980423 Introduced, read first time, 02 SBI
referred to Committee
House 19980422 Read third time, sent to Senate
House 19980421 Read second time
House 19980416 Introduced, read first time
View additional legislative information at the LPITS web site.
AMENDED
May 26, 1998
H. 5056
S. Printed 5/26/98--S.
Read the first time April 23, 1998.
TO AMEND CHAPTER 19, TITLE 38, CODE OF LAWS OF SOUTH CAROLINA, 1976, RELATING TO DOMESTIC MUTUAL INSURERS, BY ADDING ARTICLE 13 SO AS TO PROVIDE FOR THE REORGANIZATION OF A DOMESTIC OR FOREIGN MUTUAL INSURER AS A DOMESTIC MUTUAL INSURANCE HOLDING COMPANY SYSTEM.
Amend Title To Conform
Be it enacted by the General Assembly of the State of South Carolina:
SECTION 1. Chapter 19, Title 38 of the 1976 Code is amended by adding:
Section 38-19-1110. A domestic or foreign mutual insurer may reorganize as a domestic mutual insurance holding company system as provided in this article.
Section 38-19-1120. (A) A domestic or foreign mutual insurer may reorganize into a domestic mutual insurance holding company system which must consist of a domestic mutual insurance holding company and the reorganized mutual insurer as a domestic stock insurance company and which may consist of one or more intermediate stock holding companies and other subsidiaries. The reorganized mutual insurer shall continue, without interruption, its corporate existence as a stock insurance subsidiary of the mutual insurance holding company or as a subsidiary to one or more intermediate stock holding companies.
(B) A domestic or foreign mutual insurer may reorganize by merging its policyholders' membership interests into an existing domestic mutual insurance holding company formed under subsection (A) of this section. The reorganized mutual insurer shall continue, without interruption, its corporate existence as a stock insurance subsidiary of the mutual insurance holding company or as a subsidiary to one or more intermediate stock holding companies.
(C) Upon reorganization, the membership interests of the policyholders of the reorganized insurer shall become membership interests in the mutual insurance holding company. Policyholders of the reorganized insurance company shall be members of the mutual insurance holding company in accordance with the articles of incorporation and bylaws of the mutual insurance holding company. All initial shares of the capital stock of the reorganized insurance company shall be issued to the mutual insurance holding company or to an intermediate holding company which is wholly owned by the mutual insurance holding company. On and after the effective date of the reorganization, the mutual insurance holding company shall at all times, directly or indirectly, own a majority of the voting securities of the reorganized insurance company. The mutual insurance holding company shall, at all times, be wholly-owned by and operated in the interests of the members of the mutual insurance holding company. 'Voting securities' means securities having voting power for the election of the board of directors of the reorganized insurance company other than securities having voting power only because of the occurrence of a contingency.
(D) A domestic mutual insurer may reorganize only pursuant to a plan of reorganization adopted by its board of directors and approved by the Director of the Department of Insurance and policyholders as provided in this article.
Section 38-19-1130. (A) A plan of reorganization must be approved by the affirmative vote of not less than a two-thirds majority of the board of directors of the mutual insurer. The plan of reorganization approved by the board of directors shall be filed with the Director of the Department of Insurance for review and approval. At any time before the director renders a decision regarding the plan of reorganization the board of directors may modify or withdraw the plan of reorganization by the affirmative vote of not less than a two-thirds majority of the board of directors.
(B) An application to the director shall include the plan of reorganization and the following additional information:
(1) the purpose of reorganization;
(2) an analysis of the benefits and risks attendant to the proposed reorganization;
(3) a statement detailing how the plan is fair and equitable to policyholders;
(4) a copy of the proposed articles of incorporation and bylaws of the mutual insurance holding company, intermediate holding companies, and the reorganized mutual insurer specifying all membership rights;
(5) a copy of the proposed form of notice, the description of the plan of reorganization and proxy to be sent to all policyholders and a statement of the method by which that notice, description, and proxy will be distributed to all policyholders;
(6) an organization chart depicting the formal structure of the holding company and all subsidiaries and affiliates along with the estimated initial percent of ownership;
(7) a description of the number of members of the board of directors of the proposed mutual holding company required to be policyholders and how the number was determined;
(8) a statement that all of the initial shares of the voting stock of the reorganized company shall be issued to the mutual insurance holding company or an intermediate holding company and will not be pledged or encumbered;
(9) a plan for membership of future policyholders;
(10) a certification that the plan has been adopted by the vote of not less then two-thirds of the board of directors;
(11) certification by at least two-thirds of the members of the board of directors that the plan of reorganization is fair and equitable and that a fairness opinion has been obtained from either an independent actuary, an independent certified public accountant, or an independent investment banker or from three independent actuaries from an independent actuarial firm;
(12) certification that management will not be enriched by the reorganization for aiding, promoting, or assisting in the reorganization except as set forth in the plan approved by the director;
(13) biographical affidavits for all mutual holding company officers and directors and for the reorganized stock insurer officers and directors;
(14) a description of the annual report and financials to be sent to each member;
(15) information sufficient to demonstrate the financial condition of the reorganizing insurer will not be adversely affected;
(16) information describing the holding company's plans, regarding accumulation of earnings including periodic distribution if any to members;
(17) an opinion from an attorney with experience in corporate tax matters who has been certified by the Commission on Continuing Legal Education and Specialization of the South Carolina Supreme Court as a specialist in taxation matters regarding potential taxes due as a result of the reorganization;
(18) a description of projected remuneration from all sources to officers and directors prior to the reorganization and a description of projected remuneration from all sources subsequent to the reorganization for all officers and directors. The plan shall contain a provision prohibiting officers and directors of the mutual insurance holding company and its subsidiaries and affiliates from purchasing or owning shares of the reorganized company's stock offering, or issuance of stock options to or for the benefit of such officers or directors for a period of six months following the first date the offering was publicly and regularly traded.
(19) terms of any proposed sale of capital stock;
(20) proposed balance sheet presentation of the mutual insurance holding company and reorganized stock insurer after reorganization:
(21) such other material as the director may require.
Section 38-19-1140 (A) The Director of the Department of Insurance shall review the plan of reorganization for the purpose of determining whether the plan meets the requirements of this article. The director may employ staff personnel and outside consultants. All reasonable costs related to the review, including those costs attributable to staff personnel, shall be paid by the insurer making the filing. During the process of review, the director may communicate with the mutual insurer and request such additional information from the mutual insurer as the director may consider necessary.
(B) The director, or his designee must conduct a public hearing regarding the proposed plan of reorganization no later than forty-five days from when the filing is deemed complete. Any interested person may appear and participate at the hearing. The director or his designee must provide notice of the public hearing by publication in a newspaper of general circulation.
(C) Within one hundred twenty days of the filing of the plan which is considered to be complete by the director, the director shall issue an order approving or disapproving the plan. The director shall approve the plan if the director determines:
(1) the requirements of this article have been met,
(2) the director is satisfied that the interests of the policyholders are preserved and protected and that the plan of reorganization is fair and equitable to the policyholders, and in the best interests of the policyholders;
(3) the directors, officers, agents, and employees are not unjustly enriched by the reorganization plan. The approval of the director shall be conditioned upon the approval of the policyholders as provided in this article. If the director does not approve the plan then the director shall issue an order setting forth in detail the reasons for disapproval. If a plan is disapproved then the mutual insurer may resubmit the plan to the director within thirty days of receipt of the order of disapproval. Within ninety days after the filing of the resubmitted plan, which is considered to be complete by the director, the director shall issue an order approving or disapproving the resubmitted plan. The approval of the resubmitted plan shall be conditioned upon the approval of the policyholders as provided by this article. If the director disapproves the resubmitted plan then the mutual insurer may seek judicial review of the director's decision in the Circuit Court of Common Pleas for Richland County.
Section 38-19-1150. (A) After the date of the director's conditioned approval of a plan of reorganization, the mutual insurer shall hold a regular or special meeting of its policyholders at a reasonable time and place to vote upon the plan of reorganization. The mutual insurer shall give at least thirty days' notice, by first class mail, to the last known address of each policyholder that the plan of reorganization will be voted on at a regular or special meeting of the policyholders. If the meeting of policyholders to vote upon the plan of reorganization is held coincident with the mutual insurer's annual meeting of the policyholders only one combined notice of meeting is required.
(B) The notice shall include a description of the plan of reorganization and a statement that the director has reviewed the proposed plan of reorganization and has approved the plan subject to the approval of the policyholders. The notice to policyholders will include a statement by the director that the director's approval pursuant to this section is not a recommendation to either accept or reject the Plan of Reorganization. The notice to each policyholder shall also include a written proxy permitting the policyholder to vote for or against the plan of reorganization. A plan of reorganization shall be approved by the affirmative vote of a two-thirds majority of the policyholders voting in person or by proxy at the meeting.
(C) For purposes of voting, policyholders means the policyholders of the mutual insurer on the day the plan of reorganization is initially approved by the board of directors of the mutual insurer. The entity to which a group insurance policy is issued, and not a person covered under the group insurance policy, shall be considered the policyholder for purposes of voting. Each policyholder shall be entitled to only one vote regardless of the number of policies owned by the policyholder.
(D) If a mutual insurer substantially complies in good faith with the notice requirements of this section, the mutual insurer's failure to give a policyholder a required notice does not impair the validity of an action taken under this section.
Section 38-19-1160. The reorganized insurer shall file the articles of incorporation of the mutual holding company, the reorganized stock insurer, and any holding company subsidiaries with the Director of the Department of Insurance for his approval before filing them with the Secretary of State. The director shall issue a certificate of authority when the mutual insurer files with the director a certificate from the mutual insurer setting forth the vote and certifying that the plan of reorganization was approved by not less than a two-thirds majority of the policyholders voting in person or by proxy on the plan of reorganization, that the articles of incorporation have been filed with the Secretary of State and payment of all applicable fees to the Department of Insurance. The reorganization shall be effective upon the issuance of a certificate of authority by the director.
Section 38-19-1170. A membership interest in a mutual insurance holding company does not constitute a security under the laws of the State of South Carolina. A membership interest in a mutual insurance holding company may not be transferred from the member to another person or entity.
Section 38-19-1180. A mutual insurance holding company shall not be authorized to pay dividends or make distributions except as may be expressly approved by the Director of the Department of Insurance. Neither the adoption nor the implementation of a plan of reorganization shall be considered to give rise to an obligation on behalf of a mutual insurance holding company to make a distribution or payment to a member or policyholder, or to another person, board, or entity of any nature whatsoever, in connection with the ownership, control, benefits, policies, purpose, or nature of the mutual insurance company or otherwise.
Section 38-19-1190. Nothing contained in this article shall be construed to prohibit demutualization of a mutual insurance holding company or a mutual insurer pursuant to the laws of this State. All provisions of law regarding demutualization of a mutual insurer shall also apply to a mutual insurance holding company.
Section 38-19-1200. All information, documents, and copies that are obtained by or disclosed to the Director of the Department of Insurance or another person in the course of preparing, filing, or processing an application to reorganize, other than information or documents distributed to policyholders in connection with the meeting of policyholders, shall be given confidential treatment and shall not be subject to subpoena and shall not be released to another person or entity without the prior written consent of the insurer.
Section 38-19-1210. (A) A mutual insurance holding company, intermediate holding company, and the reorganized stock insurer shall be considered to be insurers according to the laws of this State. However, the director may exempt by order a mutual insurance holding company or intermediate holding company that elects not to write insurance from any provisions of this title or regulations adopted thereunder with respect to the writing of insurance or requirements related to capital, surplus, dividends, reserves, borrowing or investments, or other provisions which the Director of the Department of Insurance determines are not applicable or should be modified. This exemption shall not change the mutual insurance holding company's status as a domestic insurer subject to the provisions of Title 38. A mutual insurance holding company, intermediate holding company, or reorganized mutual insurer may merge with, consolidate with, or acquire the assets of another person or entity or take another action as authorized by the South Carolina Business Corporations Act or other applicable law.
(B) The director shall have jurisdiction over a mutual insurance holding company and an intermediate holding company to ensure that policyholder interests are preserved and protected.
(C) The director may promulgate regulations and issue orders to implement this article as provided by the insurance laws of this State consistent with the South Carolina Business Corporations Act.
(D) A mutual insurance holding company and subsidiaries or affiliates shall be subject to all applicable provisions of South Carolina's Insurance Holding Company Regulatory Act.
Section 38-19-1220. In a proceeding for supervision, rehabilitation, or liquidation involving a reorganized mutual insurer, the assets of the mutual insurance holding company and an intermediate stock holding company shall be considered to be assets of the reorganized mutual insurer for the purposes of satisfying the claims of policyholders. A mutual insurance holding company or an intermediate stock holding company may not be dissolved without approval of the Director of the Department of Insurance. A mutual insurance holding company and an intermediate stock holding company each shall be considered an insurer subject to the Administrative Supervision of Insurers Act and the Insurers Rehabilitation and Liquidation Act.
Section 38-19-1230. (A) A mutual insurance holding company shall file with the Director of the Department of Insurance an annual income statement, balance sheet, and cash flow statement and a statement regarding any encumbrances or plans to encumber the assets of the mutual insurance holding company.
(B) A mutual insurance holding company shall have an annual audit by an independent certified public accountant and shall file an audited financial report with the Director of the Department of Insurance by June first of each year.
(C) A mutual insurance holding company shall notify the director 90 days prior to any initial and subsequent subsidiary stock offering for review by the director for compliance with all applicable state law and the offering shall be deemed approved by the director within thirty days of submission to the director unless the director states otherwise in writing within thirty days of submission.
Section 38-19-1240. A challenge to reorganization or an action involving the reorganization of a mutual insurer shall be commenced no later than one hundred eighty days after the effective date of reorganization."
SECTION 2. This act takes effect upon approval by the Governor.