S*1170 Session 112 (1997-1998)
S*1170(Rat #0429, Act #0413 of 1998) General Bill, By
Senate Banking and Insurance
Similar(S 1094, H 4465, H 5056)
A BILL 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.
04/02/98 Senate Introduced, read first time, placed on calendar
without reference
04/07/98 Senate Read second time SJ-9
04/07/98 Senate Ordered to third reading with notice of amendments SJ-9
04/29/98 Senate Read third time and sent to House SJ-21
04/30/98 House Introduced and read first time HJ-3
04/30/98 House Referred to Committee on Labor, Commerce and
Industry HJ-4
05/20/98 House Committee report: Favorable Labor, Commerce and
Industry HJ-81
05/26/98 House Read second time HJ-19
05/27/98 House Read third time and enrolled HJ-22
06/04/98 Ratified R 429
06/09/98 Signed By Governor
06/29/98 Effective date 06/09/98
06/29/98 Copies available
06/30/98 Act No. 413
(A413, R429, S1170)
AN ACT 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.
Be it enacted by the General Assembly of the State of South Carolina:
Reorganization of domestic, foreign mutual insurers
SECTION 1. Chapter 19, Title 38 of the 1976 Code is amended by
adding:
Article 13
Reorganization of Mutual Insurers
as Domestic Mutual Insurance
Holding Company Systems
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 than 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 consistent with the South Carolina Business
Corporation 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 Corporation 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
ninety 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.
Time effective
SECTION 2. This act takes effect upon approval by the Governor.
Approved the 9th day of June, 1998. |