H 5056 Session 112 (1997-1998)
H 5056 General Bill, By House Labor, Commerce and Industry
Similar(S 1094, S 1170, H 4465)
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.
04/16/98 House Introduced, read first time, placed on calendar
without reference HJ-4
04/21/98 House Read second time HJ-55
04/22/98 House Read third time and sent to Senate HJ-12
04/23/98 Senate Introduced and read first time SJ-6
04/23/98 Senate Referred to Committee on Banking and Insurance SJ-6
05/21/98 Senate Polled Banking and Insurance with no report SJ-7
05/26/98 Senate Amended SJ-31
05/26/98 Senate Read second time SJ-31
05/26/98 Senate Unanimous consent for third reading on next
legislative day SJ-31
05/27/98 Senate Read third time and returned to House with
amendments SJ-95
06/02/98 House Continued HJ-63
AMENDED
May 26, 1998
H. 5056
Introduced by Labor, Commerce and Industry
Committee
S. Printed 5/26/98--S.
Read the first time April 23, 1998.
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.
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:
"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 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.
-----XX----- |