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| Public Act 098-0755 | ||||
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AN ACT concerning regulation.
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Be it enacted by the People of the State of Illinois,
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represented in the General Assembly:
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Section 5. The Illinois Insurance Code is amended by | ||||
changing Section 59.1 as follows:
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(215 ILCS 5/59.1)
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(Section scheduled to be repealed on January 1, 2017)
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Sec. 59.1. Conversion to stock company.
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(1) Definitions. For the purposes of this Section, the | ||||
following terms shall
have the meanings indicated:
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(a) "Eligible member" is a member as of the
date
the | ||||
mutual company's board of directors adopts a plan of | ||||
conversion. A person
insured under a group policy is not an | ||||
eligible member, unless:
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(i) the person is insured or covered under a group | ||||
life policy or group
annuity contract under which funds | ||||
are accumulated and allocated to the
respective | ||||
covered persons;
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(ii) the person has the right to direct the | ||||
application of the funds so
allocated;
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(iii) the group policyholder makes no contribution | ||||
to the premiums or
deposits for the policy or contract; | ||||
and
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(iv) the mutual company has the names and addresses | ||
of the persons
covered under the group life policy or | ||
group annuity contract.
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A person whose policy is issued after the board of | ||
directors adopts the
plan but before the plan's effective | ||
date is not an eligible member but shall
have those rights | ||
set forth in subsection (10) of this Section.
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(b) "Converted stock company" is an Illinois domiciled | ||
stock company that
converted from an Illinois domiciled | ||
mutual company under this Section.
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(c) "Plan of conversion" or "plan" is a plan adopted by | ||
an Illinois
domestic mutual company's board of directors | ||
under this Section to convert the
mutual company into an | ||
Illinois domiciled stock company.
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(d) "Policy" includes an annuity contract.
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(e) "Member" means a person who, on the records of the | ||
mutual company
and pursuant to its articles of | ||
incorporation or bylaws, is deemed to be a
holder of a | ||
membership interest in the mutual company.
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(2) Adoption of the plan of conversion by the board of | ||
directors.
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(a) A mutual company seeking to convert to a stock | ||
company shall, by the
affirmative vote of two-thirds of its | ||
board of directors, adopt a plan of
conversion consistent | ||
with the requirements of subsection (6) of this Section.
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(b) At any time before approval of a plan by the | ||
Director, the mutual
company by the affirmative vote of | ||
two-thirds of its board of directors, may
amend or withdraw | ||
the plan.
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(3) Approval of the plan of conversion by the Director of | ||
Insurance.
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(a) Required findings. After adoption by the mutual | ||
company's board of
directors, the plan shall be submitted | ||
to the Director for review and approval.
The Director shall | ||
approve the plan upon finding that:
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(i) the provisions of this Section have been | ||
complied with;
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(ii) the plan will not prejudice the interests of | ||
the members; and
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(iii) the plan's method of allocating subscription | ||
rights is fair and
equitable.
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(b) Documents to be filed.
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(i) Prior to the members' approval of the plan, a | ||
mutual company seeking
the Director's approval of a | ||
plan shall file the following documents with the
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Director for review and approval:
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(A) the plan of conversion, including the | ||
independent evaluation of
pro forma market value | ||
required by item (f) of subsection (6) of this | ||
Section;
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(B) the form of notice required by item (b) of | ||
subsection (4) of this
Section for eligible | ||
members of the meeting to vote on the plan;
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(C) any proxies to be solicited from eligible | ||
members pursuant to
subitem (ii) of item (c) of | ||
subsection (4) of this Section;
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(D) the form of notice required by item (a) of | ||
subsection (10) of this
Section for persons whose | ||
policies are issued after adoption of the plan but
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before its effective date; and
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(E) the proposed articles of incorporation and | ||
bylaws of the converted
stock company.
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Once filed, these documents shall be approved or | ||
disapproved by the
Director within a reasonable time.
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(ii) After the members have approved the plan, the | ||
converted stock
company shall file the following | ||
documents with the Director:
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(A) the minutes of the meeting of the members | ||
at which the plan was
voted upon; and
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(B) the revised articles of incorporation and | ||
bylaws of the converted
stock company.
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(c) Consultant. The Director may retain, at the mutual | ||
company's expense,
any qualified expert not otherwise a | ||
part of the Director's staff to assist in
reviewing the | ||
plan and the independent evaluation of the pro forma market | ||
value
which is required by item (f) of subsection (6) of | ||
this Section.
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(4) Approval of the plan by the members.
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(a) Members entitled to notice of and to vote on the | ||
plan. All eligible
members shall be given notice of and an | ||
opportunity to vote upon the plan.
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(b) Notice required. All eligible members shall be | ||
given notice of the
members' meeting to vote upon the plan. | ||
A copy of the plan or a summary of the
plan shall accompany | ||
the notice. The notice shall be mailed to each member's
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last known address, as shown on the mutual company's | ||
records, within 45 days of
the Director's approval of the | ||
plan. The meeting to vote upon the plan shall
not be set | ||
for a date less than 30 60 days after the date when the | ||
notice of the
meeting is mailed by the mutual company. If | ||
the meeting to vote upon the plan
is held coincident with | ||
the mutual company's annual meeting of policyholders,
only | ||
one combined notice of meeting is required.
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(c) Vote required for approval.
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(i) After approval by the Director, the plan shall | ||
be adopted upon
receiving the affirmative vote of at | ||
least two-thirds of the votes cast by
eligible members.
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(ii) Members entitled to vote upon the proposed | ||
plan may vote in person
or by proxy. Any proxies to be | ||
solicited from eligible members shall be filed
with and | ||
approved by the Director.
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(iii) The number of votes each eligible member may | ||
cast shall be
determined by the mutual company's | ||
bylaws. If the bylaws are silent, each
eligible member | ||
may cast one vote.
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(5) Adoption of revised articles of incorporation. | ||
Adoption of the revised
articles of incorporation of the | ||
converted stock company is necessary to
implement the plan and | ||
shall be governed by the applicable provisions of
Section 57 of | ||
this Code. For a Class 1 mutual company, the members may adopt
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the revised articles of incorporation at the same meeting at | ||
which the members
approve the plan. For a Class 2 or 3 mutual | ||
company, the revised articles of
incorporation may be adopted | ||
solely by the board of directors or trustees, as
provided in | ||
Section 57 of this Code.
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(5.5) Prior to the completion of a plan of conversion filed | ||
by a mutual
company with the Director, no person shall | ||
knowingly acquire, make any offer,
or make any announcement of | ||
an offer for any security issued or to be issued by
the | ||
converting mutual company in connection with its plan of | ||
conversion or for
any security issued or to be issued by any | ||
other company authorized in
item(c)(i) of subsection (6) of | ||
this Section and organized for purposes of
effecting the | ||
conversion, except in compliance with the maximum purchase
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limitations imposed by item (i) of subsection (6) of this | ||
Section or the terms
of the plan of conversion as approved by | ||
the Director.
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(6) Required provisions in a plan of conversion. The | ||
following provisions
shall be included in the plan:
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(a) Reasons for conversion. The plan shall set forth | ||
the reasons for the
proposed conversion.
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(b) Effect of conversion on existing policies.
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(i) The plan shall provide that all policies in | ||
force on the effective
date of conversion shall | ||
continue to remain in force under the terms of those
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policies, except that any voting rights of the | ||
policyholders provided for under
the policies or under | ||
this Code and any contingent liability policy | ||
provisions
of the type described in Section 55 of this | ||
Code shall be extinguished on the
effective date of the | ||
conversion.
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(ii) The plan shall further provide that holders of | ||
participating
policies in effect on the date of | ||
conversion shall continue to have the right
to receive | ||
dividends as provided in the participating policies, | ||
if any.
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(iii) Except for a mutual company's participating | ||
life policies,
guaranteed renewable
accident and | ||
health policies, and non-cancelable accident and | ||
health policies,
the converted stock company may issue | ||
the insured a nonparticipating policy as
a substitute | ||
for the participating policy upon the renewal date of a
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participating policy.
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(c) Subscription rights to eligible members.
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(i) The plan shall provide that each eligible | ||
member is to receive,
without payment, nontransferable | ||
subscription rights to purchase a portion of
the | ||
capital stock of the converted stock company. As an | ||
alternative to
subscription rights in the converted | ||
stock company, the plan may provide that
each eligible | ||
member is to receive, without payment, nontransferable
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subscription rights to purchase a portion of the | ||
capital stock of: (A) a
corporation organized and owned | ||
by the mutual company for the purpose of
acquiring or | ||
holding all the stock of the converted
stock company; | ||
or (B) a
stock insurance company owned by the mutual | ||
company into which the mutual
company will be merged.
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(ii) The subscription rights shall be allocated in | ||
whole shares among
the eligible members using a fair | ||
and equitable formula. This formula may but
need not | ||
take into account how the different classes of policies | ||
of the
eligible members contributed to the surplus of | ||
the mutual company.
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(d) Oversubscription. The plan shall provide a fair and | ||
equitable means
for the allocation of shares of capital | ||
stock in the event of an
oversubscription to shares by | ||
eligible members exercising subscription rights
received | ||
pursuant to item (c) of subsection (6) of this Section.
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(e) Undersubscription. The plan shall provide that any | ||
shares of capital
stock not subscribed to by eligible | ||
members exercising subscription rights
received under item | ||
(c) of subsection (6) of this Section shall be sold in a
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public offering through an underwriter. If the number of | ||
shares of capital
stock not
subscribed by eligible members | ||
is so small
or the additional time or expense required for | ||
a public offering of those
shares would be otherwise | ||
unwarranted under the circumstances, the plan of | ||
conversion may provide for the
purchase of the unsubscribed | ||
shares by a private placement or other alternative
method | ||
approved by the Director that is fair and equitable to the | ||
eligible
members.
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(f) Total price of stock. The plan shall set the total | ||
price of the
capital stock equal to the estimated pro forma | ||
market value of the converted
stock company based upon an | ||
independent evaluation by a qualified person. The
pro forma | ||
market value may be the value that is estimated to be | ||
necessary to
attract full subscription for the shares as | ||
indicated by the independent
evaluation.
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(g) Purchase price of each share. The plan shall set | ||
the purchase price of
each share of capital stock equal to | ||
any reasonable amount that will not
inhibit the purchase of | ||
shares by members. The purchase price of each share
shall | ||
be uniform for all purchasers except the price may be | ||
modified by the
Director by reason of his consideration of | ||
a plan for the purchase of
unsubscribed stock pursuant to | ||
item (e) of subsection (6) of this Section.
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(h) Closed block of business for participating life | ||
policies of a Class 1
mutual company.
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(i) The plan shall provide that a Class 1 mutual | ||
company's participating
life policies in force on the | ||
effective date of the conversion shall be
operated by | ||
the converted stock company for dividend purposes as a | ||
closed block
of participating business except that any | ||
or all classes of group participating
policies may be | ||
excluded from the closed block.
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(ii) The plan shall establish one or more | ||
segregated accounts for the
benefit of the closed block | ||
of business and shall allocate to those segregated
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accounts enough assets of the mutual company so that | ||
the assets together with
the revenue from the closed | ||
block of business are sufficient to support the
closed | ||
block including, but not limited to, the payment of | ||
claims, expenses,
taxes, and any dividends that are | ||
provided for under the terms of the
participating | ||
policies with appropriate adjustments in the dividends | ||
for
experience changes. The plan shall be accompanied | ||
by an opinion of a qualified
actuary or an appointed | ||
actuary who meets the standards set forth in the
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insurance laws or regulations for the submission of | ||
actuarial opinions as to
the adequacy of reserves or | ||
assets. The opinion shall relate to the adequacy
of the | ||
assets allocated to the segregated accounts in support | ||
of the closed
block of business. The actuarial opinion | ||
shall be based on methods of analysis
deemed | ||
appropriate for those purposes by the Actuarial | ||
Standards Board.
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(iii) The amount of assets allocated to the | ||
segregated accounts of the
closed block shall be based | ||
upon the mutual company's last annual statement
that is | ||
updated to the effective date of the conversion.
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(iv) The converted stock company shall keep a | ||
separate accounting for
the closed block and shall make | ||
and include in the annual statement to be filed
with | ||
the Director each year a separate statement showing the | ||
gains, losses, and
expenses properly attributable to | ||
the closed block.
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(v) Periodically, upon the Director's approval, | ||
those assets allocated
to the closed block as provided | ||
in subitem (ii) of item (h) of subsection (6)
of this | ||
Section that are in excess of the amount of assets | ||
necessary to support
the remaining policies polices in | ||
the closed block shall revert to the benefit of the
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converted stock company.
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(vi) The Director may waive the requirement for the | ||
establishment of a
closed block of business if the | ||
Director deems it to be in the best interests
of the | ||
participating policyholders of the mutual insurer to | ||
do so.
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(i) Limitations on acquisition of control. The plan | ||
shall provide that any
one person or group of persons | ||
acting in concert may not acquire, through
public offering | ||
or subscription rights, more than 5% of the capital stock | ||
of
the converted stock company for a period of 5 years from | ||
the effective date of
the plan except with the approval of | ||
the Director. This limitation does not
apply to any entity | ||
that is to purchase 100% of the capital stock of the
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converted company as part of the plan of conversion | ||
approved by the Director or
to a purchase of stock by a | ||
tax-qualified employee benefit plan pursuant to
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subscription grants granted to that plan as authorized | ||
under item (b) of
subsection (7) of this Section and to a | ||
purchase of unsubscribed stock pursuant
to item (e) of | ||
subsection (6) of this Section.
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(7) Optional provisions in a plan of conversion. The | ||
following provisions
may be included in the plan:
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(a) Directors and officers subscription rights.
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(i) The plan may provide that the directors and | ||
officers of the mutual
company shall receive, without | ||
payment, nontransferable subscription rights to
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purchase capital stock of the converted stock company | ||
or the stock of another
corporation that is | ||
participating in the conversion plan as provided in | ||
subitem
(i) of item (c) of subsection (6) of this | ||
Section. Those subscription rights
shall be allocated | ||
among the directors and officers by a fair and | ||
equitable
formula.
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(ii) The total number of shares that may be | ||
purchased under subitem (i)
of item (a) of subsection | ||
(7) of this Section may not exceed 35% of the total
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number of shares to be issued in the case of a mutual | ||
company with total assets
of less than $50 million or | ||
25% of the total shares to be issued in the case of
a | ||
mutual company with total assets of more than $500 | ||
million. For mutual
companies with total assets | ||
between $50 million and $500 million, the total
number | ||
of shares that may be purchased shall be interpolated.
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(iii) Stock purchased by a director or officer | ||
under subitem (i) of item
(a) of subsection (7) of this | ||
Section may not be sold within one year following
the | ||
effective date of the conversion.
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(iv) The plan may also provide that a director or | ||
officer or person
acting in concert with a director or | ||
officer of the mutual company may not
acquire any | ||
capital stock of the converted stock company for 3 | ||
years after the
effective date of the plan, except | ||
through a broker or dealer, without the
permission of | ||
the Director. That provision may not apply to prohibit | ||
the
directors and officers from purchasing stock | ||
through subscription rights
received in the plan under | ||
subitem (i) of item (a) of subsection (7) of this
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Section.
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(b) Tax-qualified employee stock benefit plan. The | ||
plan may allocate to a
tax-qualified employee benefit plan | ||
nontransferable subscription rights to
purchase up to 10% | ||
of the capital stock of the converted stock company or the
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stock of another corporation that is participating in the | ||
conversion plan as
provided in subitem (i) of item (c) of | ||
subsection (6) of this Section. That
employee benefit plan | ||
shall be entitled to exercise its subscription rights
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regardless of the amount of shares purchased by other | ||
persons.
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(8) Alternative plan of conversion. The board of directors | ||
may adopt a plan
of conversion that does not rely in whole or | ||
in part upon the issuance to
members of non-transferable | ||
subscription rights to purchase stock of the
converted stock | ||
company if the Director finds that the plan does not prejudice
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the interests of the members, is fair and equitable, and is | ||
based upon an
independent appraisal of the market value of the | ||
mutual company by a qualified
person and a fair and equitable | ||
allocation of any consideration to be given
eligible members. | ||
The Director may retain, at the mutual company's expense,
any | ||
qualified expert not otherwise a part of the Director's staff | ||
to assist in
reviewing whether the plan may be approved by the | ||
Director.
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(9) Effective date of the plan. A plan shall become | ||
effective when the
Director has approved the plan, the members | ||
have approved the plan, and the
revised articles of | ||
incorporation have been adopted.
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(10) Rights of members whose policies are issued after | ||
adoption of the plan
and before its effective date.
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(a) Notice. All members whose policies are issued after | ||
the proposed plan
has been adopted by the board of | ||
directors and before the effective date of the
plan shall | ||
be given written notice of the plan of conversion. The | ||
notice shall
specify the member's right to rescind that | ||
policy as provided in item (b) of
subsection (10) of this | ||
Section within 45 days after the effective date of the
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plan. A copy of the plan or a summary of the plan shall | ||
accompany the notice.
The form of the notice shall be filed | ||
with and approved by the Director.
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(b) Option to rescind. Any member entitled to receive | ||
the notice described
in item (a) of subsection (10) of this | ||
Section shall be entitled to rescind his
or her policy and | ||
receive a full refund of any amounts paid for the policy or
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contract within 10 days after the receipt of the notice.
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(11) Corporate existence.
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(a) Upon the conversion of a mutual company to a | ||
converted stock company
according to the provisions of this | ||
Section, the corporate existence of the
mutual company | ||
shall be continued in the converted stock company. All the
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rights, franchises, and interests of the mutual company in | ||
and to every type of
property, real, personal, and mixed, | ||
and things in action thereunto belonging,
is deemed | ||
transferred to and vested in the converted stock company | ||
without any
deed or transfer. Simultaneously, the | ||
converted stock company is deemed to
have assumed all the | ||
obligations and liabilities of the mutual company.
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(b) The directors and officers of the mutual company, | ||
unless otherwise
specified in the plan of conversion, shall | ||
serve as directors and officers of
the converted stock | ||
company until new directors and officers of the converted
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stock company are duly elected pursuant to the articles of | ||
incorporation and
bylaws of the converted stock company.
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(12) Conflict of interest. No director, officer, agent, or | ||
employee of the
mutual company or any other person shall | ||
receive any fee, commission, or other
valuable consideration, | ||
other than his or her usual regular salary and
compensation, | ||
for in any manner aiding, promoting, or assisting in the
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conversion except as set forth in the plan approved by the | ||
Director. This
provision does not prohibit the payment of | ||
reasonable fees and compensation to
attorneys, accountants, | ||
and actuaries for services performed in the independent
| ||
practice of their professions, even if the attorney, | ||
accountant, or actuary is
also a Director of the mutual | ||
company.
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(13) Costs and expenses. All the costs and expenses | ||
connected with a plan of
conversion shall be paid for or | ||
reimbursed by the mutual company or the
converted stock company | ||
except where the plan provides either for a holding
company to | ||
acquire the stock of the converted stock company or for the | ||
merger
of the mutual company into a stock insurance company as | ||
provided in subitem (i)
of item (c) of subsection (6) of this | ||
Section. In those cases, the acquiring
holding company or the | ||
stock insurance company shall pay for or reimburse all
the | ||
costs and expenses connected with the plan.
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(14) Failure to give notice. If the mutual company complies | ||
substantially
and in good faith with the notice requirements of | ||
this Section, the mutual
company's failure to give any member | ||
or members any required notice does not
impair the validity of | ||
any action taken under this Section.
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(15) Limitation of actions. Any action challenging the | ||
validity of or
arising out of acts taken or proposed to be | ||
taken under this Section
shall be commenced within 30 days | ||
after the effective date of the plan.
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(Source: P.A. 90-381, eff. 8-14-97.)
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Section 99. Effective date. This Act takes effect upon | ||
becoming law.
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