Current StatusView additional legislative information at the LPITS web site.Bill Number: 3331 Ratification Number: 348 Act Number 334 Introducing Body: House Subject: Transactions of mutual insurer
(A334, R348, H3331)
AN ACT TO AMEND ARTICLE 9, CHAPTER 19, TITLE 38, CODE OF LAWS OF SOUTH CAROLINA, 1976, RELATING TO OPERATIONS GENERALLY OF A DOMESTIC MUTUAL INSURER, BY ADDING SECTIONS 38-19-815 AND 38-19-825 SO AS TO DEFINE "BULK REINSURANCE AND ASSUMPTION", "MERGER", AND "CONVERSION OF A MUTUAL INSURER TO A STOCK INSURER", AND PROVIDE FOR A PROCEDURE FOR BULK REINSURANCE AND ASSUMPTION, MERGER, AND CONVERSION; TO AMEND SECTION 38-19-20, RELATING TO CONTRACTS ISSUED BY DOMESTIC MUTUAL INSURERS, SO AS TO PROVIDE THAT THE EMPLOYER WHOSE NAME IS ON THE MASTER CONTRACT IS A MEMBER OF THE INSURER WHEN THE CONTRACT IS A GROUP ANNUITY CONTRACT OR A CONTRACT OF GROUP INSURANCE AND THE HOLDER OF AN INDIVIDUAL OR GROUP ANNUITY CONTRACT OR AN INDIVIDUAL OR GROUP CONTRACT OF INSURANCE INSTEAD OF A HOLDER OF ONE OR MORE INSURANCE CONTRACTS ISSUED BY AN INSURER; TO AMEND SECTION 38-19-40, RELATING TO NOTICE OF THE TIME AND PLACE OF THE ANNUAL MEETING OF MEMBERS REQUIRED TO BE GIVEN BY A DOMESTIC MUTUAL INSURER, SO AS TO REQUIRE A PROCEDURE FOR CHANCING THE TIME INSTEAD OF THE DATE OF THE ANNUAL MEETING; TO AMEND SECTION 38-19-50, RELATING TO THE USE OF A PROXY BY A MEMBER OF A DOMESTIC MUTUAL INSURER, SO AS TO DELETE THE AUTHORITY OF A MEMBER OF THE INSURER TO GIVE HIS PROXY TO ANOTHER MEMBER, THE PROHIBITION OF AN OFFICER OF THE INSURER HOLDING OR VOTING THE PROXY OF ANY MEMBER, AND THE CONDITIONS UNDER WHICH A PROXY IS NO LONGER VALID, TO PROVIDE WHEN THE APPOINTMENT OF THE PROXY IS EFFECTIVE, AND TO ADD CONDITIONS UNDER WHICH A MEMBER'S VOTE UPON A PROPOSAL MAY BE REGISTERED, PROVIDE CONDITIONS UNDER WHICH A PROXY ONLY MAY BE USED; TO AMEND SECTION 38-19-60, RELATING TO THE CONDUCT OF BUSINESS AT AN ANNUAL MEETING OF A DOMESTIC MUTUAL INSURER, SO AS TO DELETE THE PROVISIONS GOVERNING THE UTILIZATION OF A PROXY; TO AMEND SECTION 38-19-610, RELATING TO THE BORROWING OF MONEY BY A DOMESTIC MUTUAL INSURER, SO AS TO DELETE THE MAXIMUM PERCENTAGE RATE OF EIGHT PERCENT A YEAR AT WHICH THE MONEY MAY BE BORROWED; TO AMEND SECTION 38-27-610, RELATING TO THE PRIORITY OF DISTRIBUTION OF CLAIMS FROM THE INSURER'S ESTATE, SO AS TO DELETE THE PROVISIONS IN CLASS 7 WHICH AUTHORIZE PAYMENTS TO MEMBERS OF DOMESTIC MUTUAL INSURANCE COMPANIES LIMITED IN ACCORDANCE WITH LAW AND CREATE A NEW CLASS 8 AUTHORIZING PAYMENTS TO MEMBERS OF DOMESTIC MUTUAL INSURANCE COMPANIES; AND TO REPEAL SECTIONS 38-19-210 THROUGH 38-19-260 RELATING TO OPERATIONS GENERALLY OF DOMESTIC MUTUAL INSURERS, AND SECTIONS 38-19-810, 38-19-820, 38-19-830, 38-19-840, 38-19-850, 38-19-860, 38-19-870, 38-19-880, 38-19-890 RELATING TO CONVERSION OF REINSURANCE, LIQUIDATION, AND MERGER OF A DOMESTIC MUTUAL INSURER.
Be it enacted by the General Assembly of the State of South Carolina:
Definitions - transactions of mutual insurer
SECTION 1. Article 9, Chapter 19, Title 38 of the 1976 Code is amended by adding:
"Section 38-19-815. For the purposes of this article:
(1) 'Bulk reinsurance and assumption for the purposes of liquidation' means a transaction in which a mutual insurer wholly reinsures its business with another insurer, transfers all or part of its assets to the other insurer in exchange for an assumption of all of its risks and obligations by the other insurer and proceeds to liquidation.
(2) 'Merger' means a transaction in which a mutual insurer is absorbed by another mutual insurer, its assets, franchises, powers, and liabilities are acquired by the other insurer, and it ceases to exist as a separate business entity.
(3) 'Conversion' means a transaction in which a mutual insurer reorganizes as a stock insurer and the ownership rights of the members of the mutual insurer are exchanged for cash, stock, or both stock and cash as may be provided by the plan of conversion.
Section 38-19-825. (A) A mutual insurer may engage in any of the transactions specified in Section 38-19-815 under such reasonable plan and procedure as approved by the Commissioner after a public hearing on the matter. Notice must be given to those persons who were members, directors or trustees, officers, and employees of the mutual insurer on the date the plan was filed with the Commissioner. Notice may be given to any other person at the discretion of the Commissioner. All of these persons have the right to appear and be heard at the hearing.
(B) The Commissioner may not approve any plan or procedure unless:
(1) its terms and conditions are fair and equitable;
(2) it is approved by a vote of not less than two-thirds of the insurer's members voting on it in person, or by proxy, at a meeting of members called for the purpose pursuant to reasonable notice and procedure as approved by the Commissioner. Only persons who are members on the date the plan was filed with the Commissioner are entitled to vote;
(3) the equity of each member in the insurer is determinable under a fair and reasonable formula approved by the Commissioner, which must be based upon the insurer's entire surplus as shown in the insurer's financial statement filed with the Commissioner, including all voluntary reserves but excluding contingently repayable funds and outstanding guaranty capital shares at the redemption value of them, and without taking into account the value of nonadmitted assets or of insurance business in force;
(4) the members entitled to participate in the distribution of assets, whether cash or property or a combination of them, shall include not less than all members of the insurer as of the date the plan was submitted to the Commissioner and each person who had been a member of the insurer within three years prior to that date;
(5) the Commissioner finds that the insurer's management has not, through reduction and volume of new business written, or cancellation, or through any other means, sought to reduce, limit, or affect the number or identity of the insurer's members to be entitled to participate in the plan, or to secure for the individuals comprising management any unfair advantage through the plan.
(C) If the plan provides for a conversion from a mutual insurer to a stock insurer, the Commissioner may not approve the plan or procedure unless:
(1) the plan gives to each member of the insurer, as specified in subsection (B)(4), a preemptive right to acquire his proportionate part of all of a proposed capital stock of the insurer, or all of the stock of any corporation affiliated with the insurer, within a designated, reasonable period, as the part is determinable under the plan of conversion, and to apply upon the purchase of it the amount of his equity in the insurer as determined under subsection (B)(3). The plan must provide for an equitable distribution of fractional interests. The plan may provide, subject to the approval of the Commissioner, that the preemptive right will not extend to any member who resides in a jurisdiction in which the issuance of stock is impossible, or to any member if the extension would involve unreasonable delay or require the insurer to bear unreasonable costs, provided that any member shall receive one hundred percent of his equity share in the insurer in the form of a cash payment;
(2) shares are to be offered to members at a price not greater than that offered after that time under the plan to others except as provided in subsection (D);
(3) the plan provides for payment to each member of his entire equity share in the insurer, with that payment to be made in cash or to be applied for or upon the purchase of stock to which the member is preemptively entitled, or both, provided that with respect to each member who is not given the option of receiving his entire equity share in cash, the plan must provide that the member has the option to receive a reasonable portion of his equity share, as provided in the plan, but not in excess of fifty percent of his entire equity, in the form of a cash payment, which payment together with the amount applied to the purchase of stock constitutes full payment and discharge of the member's equity or property interest in the mutual insurer. The Commissioner may permit an insurer to forego the option of making a cash payment to members if he determines that it would be reasonable not to provide for the cash election, after taking into account all the facts and circumstances, including whether there is expected to be an active market for the stock to be received in the conversion;
(4) the plan, when completed, provides that the insurer's surplus regarding policyholders is reasonable relating to the insurer's outstanding liabilities and adequate to meet its financial needs. In determining if the surplus as regarding policyholders is reasonable relating to the insurer's outstanding liabilities and adequate to meet its financial needs, the following factors, among others, are considered:
(a) the size of the insurer as measured by its assets, capital and surplus, reserves, premium writing, insurance in force, and other appropriate criteria;
(b) the extent to which the insurer's business is diversified among the several lines of insurance;
(c) the number and size of risks insured in each line of business;
(d) the extent of the geographical dispersion of the insurer's insured risks;
(e) the nature and extent of the insurer's reinsurance program;
(f) the quality, diversification, and liquidity of the insurer's investment portfolio;
(g) the recent past and proJected future trend in the size of the insurer's investment portfolio;
(h) the surplus regarding policyholders maintained by other comparable insurers;
(i) the adequacy of the insurer's reserves; and
(J) the quality and liquidity of investments in affiliates. The Commissioner may treat any investment as a disallowed asset for purposes of determining the adequacy of surplus regarding policyholders whenever in his Judgment the investment warrants it.
(D) Nothing in this section prohibits the inclusion in the conversion plan of provisions under which the individuals comprising the insurer's management and employee group are entitled to purchase for cash, at a price not lower than the price at which it had been offered to the insurer's members, shares of stock not taken by members on the preemptive offering to members, in accordance with the reasonable classification of the individuals included in the plan approved by the Commissioner. This price limitation may not extend beyond a date set forth in the plan. After the expiration of such date, the governing body of the insurer, with the approval of the Commissioner, may dispose of any stock not taken before that time to any person and for such consideration as may be necessary or desirable in its discretion.
(E) A director, officer, agent, or employee of the insurer may receive only his usual regular compensation, for aiding, promoting, or assisting in the conversion, except as set forth in the plan approved by the Commissioner. 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.
(F) For the purpose of determining whether a conversion plan meets the requirements of this section and any other relevant provisions of this title, the Commissioner may employ staff personnel and outside consultants. All reasonable costs related to the review of a plan of conversion, including those costs attributable to the use of staff personnel, must be borne by the insurer making the filing."
Rights of holders of contract of insurance
SECTION 2. Section 38-19-20 of the 1976 Code is amended to read:
"Section 38-19-20. Each holder of an individual or group annuity contract or an individual or group contract of insurance, other than a contract of reinsurance, is a member of the insurer with the rights and obligations of membership as provided by this chapter. With respect to a group annuity contract or a contract of group insurance, the employer or other person to whom or in whose name the master contract is issued or held is considered the member. Each contract issued, individual or group, shall effectively stipulate this fact."
Notice of annual meeting
SECTION 3. Section 38-19-40 of the 1976 Code is amended to read:
"Section 38-19-40. Notice of the time and place of the annual meeting of members of a domestic mutual insurer must be given by imprinting the notice plainly on the policies issued by the insurer. Any change of the time or place of the annual meeting may be made only at an annual meeting of members. Notice of a change must be given:
(1) by imprinting the new time or place on all policies which are issued following the annual meeting at which a change was approved; and
(2) by including a written notice of the change in a premium due notice to each member subsequent to the annual meeting at which the change was approved and before the first annual meeting affected by the change; or
(3) by any other method ordered or approved by the Commissioner."
Method of voting
SECTION 4. Section 38-19-50 of the 1976 Code is amended to read:
"Section 38-19-50. (A) A member of a domestic mutual insurer may vote in person or by proxy on any matter coming before a corporate meeting of members. An appointment of proxy is effective when received by the secretary or other officer or agent authorized to tabulate votes. Unless a time of expiration is otherwise specified, an appointment is valid for eleven months.
(B) No member's vote upon any proposal (1) to divest the insurer of its business and assets, or the major part of it, or (2) to change the corporate structure of the insurer as provided in Article 9 of this chapter may be registered or taken except in person or by a proxy newly executed and specific as to the matter to be voted upon.
(C) No proxy may be utilized by a domestic mutual insurer subJect to the provisions of this chapter unless:
(1) it is printed in ballot form;
(2) it includes in the case of elections for members of boards of directors adequate provisions for the voting by write-in for persons other than those nominees appearing on the proxy for each office;
(3) it includes adequate notice that votes for directors where more than one office of director is subJect to election may be cast cumulatively;
(4) it includes in the case of issues or matters for consideration adequate provisions for affirmative or negative votes individually on each issue or matter;
(5) the Commissioner has given prior approval to it."
Annual meeting - conduct of business
SECTION 5. Section 38-19-60 of the 1976 Code is amended to read:
"Section 38-19-60. At any annual meeting of a domestic mutual insurer all business including the election of directors must be conducted pursuant to majority vote of those members present and voting either in person or by proxy of nonpresent members as provided in Section 38-19-50. No other quorum requirements may limit the conduct of this business."
Borrowing of money
SECTION 6. Section 38-19-610 of the 1976 Code is amended to read:
"Section 38-19-610. A domestic mutual insurer, with the Commissioner's advance approval and without the pledge of any of its assets, may borrow money to defray the expenses of its organization or for any purpose required by its business upon an agreement that the money and the interest as agreed upon must be repaid only out of the insurer's earned surplus in excess of its required minimum surplus. If the money is to be borrowed upon multiple agreements, the agreements must be serially numbered. No loan agreement or series of agreements may have or be given any preferential rights over any other such loan agreement or series. No commission or promotional expense may be paid to a director, officer, or employee of the insurer on account of this loan.
The Commissioner's approval of the loan, if granted, shall specify the amount to be borrowed, the purpose for which the money is to be used, the terms and forms of the loan agreement, the date by which the loan must be completed, and other related matters the Commissioner considers proper.
This article does not apply to loans obtained by the insurer in the ordinary course of business from banks and other financial institutions, nor to loans secured by pledge or mortgage of assets."
Distribution of claims
SECTION 7. Section 38-27-610 of the 1976 Code is amended to read:
"Section 38-27-610. The priority of distribution of claims from the insurer's estate must be in accordance with the order in which each class of claims is set forth in this section. Every claim in each class must be paid in full or adequate funds retained for the payment before the members of the next class receive any payment. No subclasses may be established within any class. The order of distribution of claims is:
(1) Class 1. The costs and expenses of administration, including, but not limited to:
(a) the actual and necessary costs of preserving or recovering the assets of the insurer;
(b) compensation for services rendered by the receiver in the amount of five percent of the total assets of the insurer coming into the possession of the receiver;
(c) any necessary filing fees;
(d) the fees and mileage payable to witnesses;
(e) compensation of the special deputies, attorneys, and other persons as appointed by the receiver for the efficient conduct of the receivership, rehabilitation, or liquidation;
(f) the reasonable expenses of a guaranty association or foreign guaranty association in handling claims.
(2) Class 2. Debts due to employees for services performed to the extent that they do not exceed one thousand dollars and represent payment for services performed within one year before the filing of the petition for liquidation. Officers and directors are not entitled to the benefit of this priority. This priority is in lieu of any other similar priority authorized by law as to wages or compensation of employees.
(3) Class 3. All claims under policies for losses incurred, including third party claims, all claims against the insurer for liability for bodily injury or for injury to or destruction of tangible property which are not under policies, and all claims of a guaranty association or foreign guaranty association. All claims under life insurance and annuity policies, whether for death proceeds, annuity proceeds, or investment values, must be treated as loss claims. That portion of any loss, indemnification for which is provided by other benefits or advantages recovered by the claimant, may not be included in this class, other than benefits or advantages recovered or recoverable in discharge of familial obligations of support or by way of succession at death or as proceeds of life insurance or as gratuities. No payment by an employer to his employee may be treated as a gratuity.
(4) Class 4. Claims under nonassessable policies for unearned premium or other premium refunds and claims of general creditors.
(5) Class 5. Claims of the federal or any state or local government. Claims, including those of any governmental body for a penalty or forfeiture, are allowed in this class only to the extent of the pecuniary loss sustained from the act, transaction, or proceeding out of which the penalty or forfeiture arose, with reasonable and actual costs occasioned thereby. The remainder of the claims are postponed to the class of claims under item (9) of this section.
(6) Class 6. Claims filed late or any other claims other than claims under items (7), (8), and (9) of this section.
(7) Class 7. Surplus or contribution notes, or similar obligations, and premium refunds on assessable policies.
(8) Class 8. Payments to members of domestic mutual insurance companies are limited in accordance with law.
(9) Class 9. The claims of shareholders or other owners."
Repealed
SECTION 8. Sections 38-19-210 through 38-19-260 and Sections 38-19-810, 38-19-820, 38-19-830, 38-19-840, 38-19-850, 38-19-860, 38-19-870, 38-19-880, and 38-19-890 are repealed.
Time effective
SECTION 9. This act takes effect upon approval by the Governor.