Full Text of HB3784 98th General Assembly
HB3784eng 98TH GENERAL ASSEMBLY |
| | HB3784 Engrossed | | LRB098 15215 RPM 50204 b |
|
| 1 | | AN ACT concerning regulation.
| 2 | | Be it enacted by the People of the State of Illinois,
| 3 | | represented in the General Assembly:
| 4 | | Section 5. The Illinois Insurance Code is amended by | 5 | | changing Section 59.1 as follows:
| 6 | | (215 ILCS 5/59.1)
| 7 | | (Section scheduled to be repealed on January 1, 2017)
| 8 | | Sec. 59.1. Conversion to stock company.
| 9 | | (1) Definitions. For the purposes of this Section, the | 10 | | following terms shall
have the meanings indicated:
| 11 | | (a) "Eligible member" is a member as of the
date
the | 12 | | mutual company's board of directors adopts a plan of | 13 | | conversion. A person
insured under a group policy is not an | 14 | | eligible member, unless:
| 15 | | (i) the person is insured or covered under a group | 16 | | life policy or group
annuity contract under which funds | 17 | | are accumulated and allocated to the
respective | 18 | | covered persons;
| 19 | | (ii) the person has the right to direct the | 20 | | application of the funds so
allocated;
| 21 | | (iii) the group policyholder makes no contribution | 22 | | to the premiums or
deposits for the policy or contract; | 23 | | and
|
| | | HB3784 Engrossed | - 2 - | LRB098 15215 RPM 50204 b |
|
| 1 | | (iv) the mutual company has the names and addresses | 2 | | of the persons
covered under the group life policy or | 3 | | group annuity contract.
| 4 | | A person whose policy is issued after the board of | 5 | | directors adopts the
plan but before the plan's effective | 6 | | date is not an eligible member but shall
have those rights | 7 | | set forth in subsection (10) of this Section.
| 8 | | (b) "Converted stock company" is an Illinois domiciled | 9 | | stock company that
converted from an Illinois domiciled | 10 | | mutual company under this Section.
| 11 | | (c) "Plan of conversion" or "plan" is a plan adopted by | 12 | | an Illinois
domestic mutual company's board of directors | 13 | | under this Section to convert the
mutual company into an | 14 | | Illinois domiciled stock company.
| 15 | | (d) "Policy" includes an annuity contract.
| 16 | | (e) "Member" means a person who, on the records of the | 17 | | mutual company
and pursuant to its articles of | 18 | | incorporation or bylaws, is deemed to be a
holder of a | 19 | | membership interest in the mutual company.
| 20 | | (2) Adoption of the plan of conversion by the board of | 21 | | directors.
| 22 | | (a) A mutual company seeking to convert to a stock | 23 | | company shall, by the
affirmative vote of two-thirds of its | 24 | | board of directors, adopt a plan of
conversion consistent | 25 | | with the requirements of subsection (6) of this Section.
| 26 | | (b) At any time before approval of a plan by the |
| | | HB3784 Engrossed | - 3 - | LRB098 15215 RPM 50204 b |
|
| 1 | | Director, the mutual
company by the affirmative vote of | 2 | | two-thirds of its board of directors, may
amend or withdraw | 3 | | the plan.
| 4 | | (3) Approval of the plan of conversion by the Director of | 5 | | Insurance.
| 6 | | (a) Required findings. After adoption by the mutual | 7 | | company's board of
directors, the plan shall be submitted | 8 | | to the Director for review and approval.
The Director shall | 9 | | approve the plan upon finding that:
| 10 | | (i) the provisions of this Section have been | 11 | | complied with;
| 12 | | (ii) the plan will not prejudice the interests of | 13 | | the members; and
| 14 | | (iii) the plan's method of allocating subscription | 15 | | rights is fair and
equitable.
| 16 | | (b) Documents to be filed.
| 17 | | (i) Prior to the members' approval of the plan, a | 18 | | mutual company seeking
the Director's approval of a | 19 | | plan shall file the following documents with the
| 20 | | Director for review and approval:
| 21 | | (A) the plan of conversion, including the | 22 | | independent evaluation of
pro forma market value | 23 | | required by item (f) of subsection (6) of this | 24 | | Section;
| 25 | | (B) the form of notice required by item (b) of | 26 | | subsection (4) of this
Section for eligible |
| | | HB3784 Engrossed | - 4 - | LRB098 15215 RPM 50204 b |
|
| 1 | | members of the meeting to vote on the plan;
| 2 | | (C) any proxies to be solicited from eligible | 3 | | members pursuant to
subitem (ii) of item (c) of | 4 | | subsection (4) of this Section;
| 5 | | (D) the form of notice required by item (a) of | 6 | | subsection (10) of this
Section for persons whose | 7 | | policies are issued after adoption of the plan but
| 8 | | before its effective date; and
| 9 | | (E) the proposed articles of incorporation and | 10 | | bylaws of the converted
stock company.
| 11 | | Once filed, these documents shall be approved or | 12 | | disapproved by the
Director within a reasonable time.
| 13 | | (ii) After the members have approved the plan, the | 14 | | converted stock
company shall file the following | 15 | | documents with the Director:
| 16 | | (A) the minutes of the meeting of the members | 17 | | at which the plan was
voted upon; and
| 18 | | (B) the revised articles of incorporation and | 19 | | bylaws of the converted
stock company.
| 20 | | (c) Consultant. The Director may retain, at the mutual | 21 | | company's expense,
any qualified expert not otherwise a | 22 | | part of the Director's staff to assist in
reviewing the | 23 | | plan and the independent evaluation of the pro forma market | 24 | | value
which is required by item (f) of subsection (6) of | 25 | | this Section.
| 26 | | (4) Approval of the plan by the members.
|
| | | HB3784 Engrossed | - 5 - | LRB098 15215 RPM 50204 b |
|
| 1 | | (a) Members entitled to notice of and to vote on the | 2 | | plan. All eligible
members shall be given notice of and an | 3 | | opportunity to vote upon the plan.
| 4 | | (b) Notice required. All eligible members shall be | 5 | | given notice of the
members' meeting to vote upon the plan. | 6 | | A copy of the plan or a summary of the
plan shall accompany | 7 | | the notice. The notice shall be mailed to each member's
| 8 | | last known address, as shown on the mutual company's | 9 | | records, within 45 days of
the Director's approval of the | 10 | | plan. The meeting to vote upon the plan shall
not be set | 11 | | for a date less than 30 60 days after the date when the | 12 | | notice of the
meeting is mailed by the mutual company. If | 13 | | the meeting to vote upon the plan
is held coincident with | 14 | | the mutual company's annual meeting of policyholders,
only | 15 | | one combined notice of meeting is required.
| 16 | | (c) Vote required for approval.
| 17 | | (i) After approval by the Director, the plan shall | 18 | | be adopted upon
receiving the affirmative vote of at | 19 | | least two-thirds of the votes cast by
eligible members.
| 20 | | (ii) Members entitled to vote upon the proposed | 21 | | plan may vote in person
or by proxy. Any proxies to be | 22 | | solicited from eligible members shall be filed
with and | 23 | | approved by the Director.
| 24 | | (iii) The number of votes each eligible member may | 25 | | cast shall be
determined by the mutual company's | 26 | | bylaws. If the bylaws are silent, each
eligible member |
| | | HB3784 Engrossed | - 6 - | LRB098 15215 RPM 50204 b |
|
| 1 | | may cast one vote.
| 2 | | (5) Adoption of revised articles of incorporation. | 3 | | Adoption of the revised
articles of incorporation of the | 4 | | converted stock company is necessary to
implement the plan and | 5 | | shall be governed by the applicable provisions of
Section 57 of | 6 | | this Code. For a Class 1 mutual company, the members may adopt
| 7 | | the revised articles of incorporation at the same meeting at | 8 | | which the members
approve the plan. For a Class 2 or 3 mutual | 9 | | company, the revised articles of
incorporation may be adopted | 10 | | solely by the board of directors or trustees, as
provided in | 11 | | Section 57 of this Code.
| 12 | | (5.5) Prior to the completion of a plan of conversion filed | 13 | | by a mutual
company with the Director, no person shall | 14 | | knowingly acquire, make any offer,
or make any announcement of | 15 | | an offer for any security issued or to be issued by
the | 16 | | converting mutual company in connection with its plan of | 17 | | conversion or for
any security issued or to be issued by any | 18 | | other company authorized in
item(c)(i) of subsection (6) of | 19 | | this Section and organized for purposes of
effecting the | 20 | | conversion, except in compliance with the maximum purchase
| 21 | | limitations imposed by item (i) of subsection (6) of this | 22 | | Section or the terms
of the plan of conversion as approved by | 23 | | the Director.
| 24 | | (6) Required provisions in a plan of conversion. The | 25 | | following provisions
shall be included in the plan:
| 26 | | (a) Reasons for conversion. The plan shall set forth |
| | | HB3784 Engrossed | - 7 - | LRB098 15215 RPM 50204 b |
|
| 1 | | the reasons for the
proposed conversion.
| 2 | | (b) Effect of conversion on existing policies.
| 3 | | (i) The plan shall provide that all policies in | 4 | | force on the effective
date of conversion shall | 5 | | continue to remain in force under the terms of those
| 6 | | policies, except that any voting rights of the | 7 | | policyholders provided for under
the policies or under | 8 | | this Code and any contingent liability policy | 9 | | provisions
of the type described in Section 55 of this | 10 | | Code shall be extinguished on the
effective date of the | 11 | | conversion.
| 12 | | (ii) The plan shall further provide that holders of | 13 | | participating
policies in effect on the date of | 14 | | conversion shall continue to have the right
to receive | 15 | | dividends as provided in the participating policies, | 16 | | if any.
| 17 | | (iii) Except for a mutual company's participating | 18 | | life policies,
guaranteed renewable
accident and | 19 | | health policies, and non-cancelable accident and | 20 | | health policies,
the converted stock company may issue | 21 | | the insured a nonparticipating policy as
a substitute | 22 | | for the participating policy upon the renewal date of a
| 23 | | participating policy.
| 24 | | (c) Subscription rights to eligible members.
| 25 | | (i) The plan shall provide that each eligible | 26 | | member is to receive,
without payment, nontransferable |
| | | HB3784 Engrossed | - 8 - | LRB098 15215 RPM 50204 b |
|
| 1 | | subscription rights to purchase a portion of
the | 2 | | capital stock of the converted stock company. As an | 3 | | alternative to
subscription rights in the converted | 4 | | stock company, the plan may provide that
each eligible | 5 | | member is to receive, without payment, nontransferable
| 6 | | subscription rights to purchase a portion of the | 7 | | capital stock of: (A) a
corporation organized and owned | 8 | | by the mutual company for the purpose of
acquiring or | 9 | | holding all the stock of the converted
stock company; | 10 | | or (B) a
stock insurance company owned by the mutual | 11 | | company into which the mutual
company will be merged.
| 12 | | (ii) The subscription rights shall be allocated in | 13 | | whole shares among
the eligible members using a fair | 14 | | and equitable formula. This formula may but
need not | 15 | | take into account how the different classes of policies | 16 | | of the
eligible members contributed to the surplus of | 17 | | the mutual company.
| 18 | | (d) Oversubscription. The plan shall provide a fair and | 19 | | equitable means
for the allocation of shares of capital | 20 | | stock in the event of an
oversubscription to shares by | 21 | | eligible members exercising subscription rights
received | 22 | | pursuant to item (c) of subsection (6) of this Section.
| 23 | | (e) Undersubscription. The plan shall provide that any | 24 | | shares of capital
stock not subscribed to by eligible | 25 | | members exercising subscription rights
received under item | 26 | | (c) of subsection (6) of this Section shall be sold in a
|
| | | HB3784 Engrossed | - 9 - | LRB098 15215 RPM 50204 b |
|
| 1 | | public offering through an underwriter. If the number of | 2 | | shares of capital
stock not
subscribed by eligible members | 3 | | is so small
or the additional time or expense required for | 4 | | a public offering of those
shares would be otherwise | 5 | | unwarranted under the circumstances, the plan of | 6 | | conversion may provide for the
purchase of the unsubscribed | 7 | | shares by a private placement or other alternative
method | 8 | | approved by the Director that is fair and equitable to the | 9 | | eligible
members.
| 10 | | (f) Total price of stock. The plan shall set the total | 11 | | price of the
capital stock equal to the estimated pro forma | 12 | | market value of the converted
stock company based upon an | 13 | | independent evaluation by a qualified person. The
pro forma | 14 | | market value may be the value that is estimated to be | 15 | | necessary to
attract full subscription for the shares as | 16 | | indicated by the independent
evaluation.
| 17 | | (g) Purchase price of each share. The plan shall set | 18 | | the purchase price of
each share of capital stock equal to | 19 | | any reasonable amount that will not
inhibit the purchase of | 20 | | shares by members. The purchase price of each share
shall | 21 | | be uniform for all purchasers except the price may be | 22 | | modified by the
Director by reason of his consideration of | 23 | | a plan for the purchase of
unsubscribed stock pursuant to | 24 | | item (e) of subsection (6) of this Section.
| 25 | | (h) Closed block of business for participating life | 26 | | policies of a Class 1
mutual company.
|
| | | HB3784 Engrossed | - 10 - | LRB098 15215 RPM 50204 b |
|
| 1 | | (i) The plan shall provide that a Class 1 mutual | 2 | | company's participating
life policies in force on the | 3 | | effective date of the conversion shall be
operated by | 4 | | the converted stock company for dividend purposes as a | 5 | | closed block
of participating business except that any | 6 | | or all classes of group participating
policies may be | 7 | | excluded from the closed block.
| 8 | | (ii) The plan shall establish one or more | 9 | | segregated accounts for the
benefit of the closed block | 10 | | of business and shall allocate to those segregated
| 11 | | accounts enough assets of the mutual company so that | 12 | | the assets together with
the revenue from the closed | 13 | | block of business are sufficient to support the
closed | 14 | | block including, but not limited to, the payment of | 15 | | claims, expenses,
taxes, and any dividends that are | 16 | | provided for under the terms of the
participating | 17 | | policies with appropriate adjustments in the dividends | 18 | | for
experience changes. The plan shall be accompanied | 19 | | by an opinion of a qualified
actuary or an appointed | 20 | | actuary who meets the standards set forth in the
| 21 | | insurance laws or regulations for the submission of | 22 | | actuarial opinions as to
the adequacy of reserves or | 23 | | assets. The opinion shall relate to the adequacy
of the | 24 | | assets allocated to the segregated accounts in support | 25 | | of the closed
block of business. The actuarial opinion | 26 | | shall be based on methods of analysis
deemed |
| | | HB3784 Engrossed | - 11 - | LRB098 15215 RPM 50204 b |
|
| 1 | | appropriate for those purposes by the Actuarial | 2 | | Standards Board.
| 3 | | (iii) The amount of assets allocated to the | 4 | | segregated accounts of the
closed block shall be based | 5 | | upon the mutual company's last annual statement
that is | 6 | | updated to the effective date of the conversion.
| 7 | | (iv) The converted stock company shall keep a | 8 | | separate accounting for
the closed block and shall make | 9 | | and include in the annual statement to be filed
with | 10 | | the Director each year a separate statement showing the | 11 | | gains, losses, and
expenses properly attributable to | 12 | | the closed block.
| 13 | | (v) Periodically, upon the Director's approval, | 14 | | those assets allocated
to the closed block as provided | 15 | | in subitem (ii) of item (h) of subsection (6)
of this | 16 | | Section that are in excess of the amount of assets | 17 | | necessary to support
the remaining policies polices in | 18 | | the closed block shall revert to the benefit of the
| 19 | | converted stock company.
| 20 | | (vi) The Director may waive the requirement for the | 21 | | establishment of a
closed block of business if the | 22 | | Director deems it to be in the best interests
of the | 23 | | participating policyholders of the mutual insurer to | 24 | | do so.
| 25 | | (i) Limitations on acquisition of control. The plan | 26 | | shall provide that any
one person or group of persons |
| | | HB3784 Engrossed | - 12 - | LRB098 15215 RPM 50204 b |
|
| 1 | | acting in concert may not acquire, through
public offering | 2 | | or subscription rights, more than 5% of the capital stock | 3 | | of
the converted stock company for a period of 5 years from | 4 | | the effective date of
the plan except with the approval of | 5 | | the Director. This limitation does not
apply to any entity | 6 | | that is to purchase 100% of the capital stock of the
| 7 | | converted company as part of the plan of conversion | 8 | | approved by the Director or
to a purchase of stock by a | 9 | | tax-qualified employee benefit plan pursuant to
| 10 | | subscription grants granted to that plan as authorized | 11 | | under item (b) of
subsection (7) of this Section and to a | 12 | | purchase of unsubscribed stock pursuant
to item (e) of | 13 | | subsection (6) of this Section.
| 14 | | (7) Optional provisions in a plan of conversion. The | 15 | | following provisions
may be included in the plan:
| 16 | | (a) Directors and officers subscription rights.
| 17 | | (i) The plan may provide that the directors and | 18 | | officers of the mutual
company shall receive, without | 19 | | payment, nontransferable subscription rights to
| 20 | | purchase capital stock of the converted stock company | 21 | | or the stock of another
corporation that is | 22 | | participating in the conversion plan as provided in | 23 | | subitem
(i) of item (c) of subsection (6) of this | 24 | | Section. Those subscription rights
shall be allocated | 25 | | among the directors and officers by a fair and | 26 | | equitable
formula.
|
| | | HB3784 Engrossed | - 13 - | LRB098 15215 RPM 50204 b |
|
| 1 | | (ii) The total number of shares that may be | 2 | | purchased under subitem (i)
of item (a) of subsection | 3 | | (7) of this Section may not exceed 35% of the total
| 4 | | number of shares to be issued in the case of a mutual | 5 | | company with total assets
of less than $50 million or | 6 | | 25% of the total shares to be issued in the case of
a | 7 | | mutual company with total assets of more than $500 | 8 | | million. For mutual
companies with total assets | 9 | | between $50 million and $500 million, the total
number | 10 | | of shares that may be purchased shall be interpolated.
| 11 | | (iii) Stock purchased by a director or officer | 12 | | under subitem (i) of item
(a) of subsection (7) of this | 13 | | Section may not be sold within one year following
the | 14 | | effective date of the conversion.
| 15 | | (iv) The plan may also provide that a director or | 16 | | officer or person
acting in concert with a director or | 17 | | officer of the mutual company may not
acquire any | 18 | | capital stock of the converted stock company for 3 | 19 | | years after the
effective date of the plan, except | 20 | | through a broker or dealer, without the
permission of | 21 | | the Director. That provision may not apply to prohibit | 22 | | the
directors and officers from purchasing stock | 23 | | through subscription rights
received in the plan under | 24 | | subitem (i) of item (a) of subsection (7) of this
| 25 | | Section.
| 26 | | (b) Tax-qualified employee stock benefit plan. The |
| | | HB3784 Engrossed | - 14 - | LRB098 15215 RPM 50204 b |
|
| 1 | | plan may allocate to a
tax-qualified employee benefit plan | 2 | | nontransferable subscription rights to
purchase up to 10% | 3 | | of the capital stock of the converted stock company or the
| 4 | | stock of another corporation that is participating in the | 5 | | conversion plan as
provided in subitem (i) of item (c) of | 6 | | subsection (6) of this Section. That
employee benefit plan | 7 | | shall be entitled to exercise its subscription rights
| 8 | | regardless of the amount of shares purchased by other | 9 | | persons.
| 10 | | (8) Alternative plan of conversion. The board of directors | 11 | | may adopt a plan
of conversion that does not rely in whole or | 12 | | in part upon the issuance to
members of non-transferable | 13 | | subscription rights to purchase stock of the
converted stock | 14 | | company if the Director finds that the plan does not prejudice
| 15 | | the interests of the members, is fair and equitable, and is | 16 | | based upon an
independent appraisal of the market value of the | 17 | | mutual company by a qualified
person and a fair and equitable | 18 | | allocation of any consideration to be given
eligible members. | 19 | | The Director may retain, at the mutual company's expense,
any | 20 | | qualified expert not otherwise a part of the Director's staff | 21 | | to assist in
reviewing whether the plan may be approved by the | 22 | | Director.
| 23 | | (9) Effective date of the plan. A plan shall become | 24 | | effective when the
Director has approved the plan, the members | 25 | | have approved the plan, and the
revised articles of | 26 | | incorporation have been adopted.
|
| | | HB3784 Engrossed | - 15 - | LRB098 15215 RPM 50204 b |
|
| 1 | | (10) Rights of members whose policies are issued after | 2 | | adoption of the plan
and before its effective date.
| 3 | | (a) Notice. All members whose policies are issued after | 4 | | the proposed plan
has been adopted by the board of | 5 | | directors and before the effective date of the
plan shall | 6 | | be given written notice of the plan of conversion. The | 7 | | notice shall
specify the member's right to rescind that | 8 | | policy as provided in item (b) of
subsection (10) of this | 9 | | Section within 45 days after the effective date of the
| 10 | | plan. A copy of the plan or a summary of the plan shall | 11 | | accompany the notice.
The form of the notice shall be filed | 12 | | with and approved by the Director.
| 13 | | (b) Option to rescind. Any member entitled to receive | 14 | | the notice described
in item (a) of subsection (10) of this | 15 | | Section shall be entitled to rescind his
or her policy and | 16 | | receive a full refund of any amounts paid for the policy or
| 17 | | contract within 10 days after the receipt of the notice.
| 18 | | (11) Corporate existence.
| 19 | | (a) Upon the conversion of a mutual company to a | 20 | | converted stock company
according to the provisions of this | 21 | | Section, the corporate existence of the
mutual company | 22 | | shall be continued in the converted stock company. All the
| 23 | | rights, franchises, and interests of the mutual company in | 24 | | and to every type of
property, real, personal, and mixed, | 25 | | and things in action thereunto belonging,
is deemed | 26 | | transferred to and vested in the converted stock company |
| | | HB3784 Engrossed | - 16 - | LRB098 15215 RPM 50204 b |
|
| 1 | | without any
deed or transfer. Simultaneously, the | 2 | | converted stock company is deemed to
have assumed all the | 3 | | obligations and liabilities of the mutual company.
| 4 | | (b) The directors and officers of the mutual company, | 5 | | unless otherwise
specified in the plan of conversion, shall | 6 | | serve as directors and officers of
the converted stock | 7 | | company until new directors and officers of the converted
| 8 | | stock company are duly elected pursuant to the articles of | 9 | | incorporation and
bylaws of the converted stock company.
| 10 | | (12) Conflict of interest. No director, officer, agent, or | 11 | | employee of the
mutual company or any other person shall | 12 | | receive any fee, commission, or other
valuable consideration, | 13 | | other than his or her usual regular salary and
compensation, | 14 | | for in any manner aiding, promoting, or assisting in the
| 15 | | conversion except as set forth in the plan approved by the | 16 | | Director. This
provision does not prohibit the payment of | 17 | | reasonable fees and compensation to
attorneys, accountants, | 18 | | and actuaries for services performed in the independent
| 19 | | practice of their professions, even if the attorney, | 20 | | accountant, or actuary is
also a Director of the mutual | 21 | | company.
| 22 | | (13) Costs and expenses. All the costs and expenses | 23 | | connected with a plan of
conversion shall be paid for or | 24 | | reimbursed by the mutual company or the
converted stock company | 25 | | except where the plan provides either for a holding
company to | 26 | | acquire the stock of the converted stock company or for the |
| | | HB3784 Engrossed | - 17 - | LRB098 15215 RPM 50204 b |
|
| 1 | | merger
of the mutual company into a stock insurance company as | 2 | | provided in subitem (i)
of item (c) of subsection (6) of this | 3 | | Section. In those cases, the acquiring
holding company or the | 4 | | stock insurance company shall pay for or reimburse all
the | 5 | | costs and expenses connected with the plan.
| 6 | | (14) Failure to give notice. If the mutual company complies | 7 | | substantially
and in good faith with the notice requirements of | 8 | | this Section, the mutual
company's failure to give any member | 9 | | or members any required notice does not
impair the validity of | 10 | | any action taken under this Section.
| 11 | | (15) Limitation of actions. Any action challenging the | 12 | | validity of or
arising out of acts taken or proposed to be | 13 | | taken under this Section
shall be commenced within 30 days | 14 | | after the effective date of the plan.
| 15 | | (Source: P.A. 90-381, eff. 8-14-97 .)
| 16 | | Section 99. Effective date. This Act takes effect upon | 17 | | becoming law.
|
|