Public Act 098-0755

SB2634 Enrolled LRB098 15214 RPM 50203 b

AN ACT concerning regulation.

Be it enacted by the People of the State of Illinois,

represented in the General Assembly:

Section 5. The Illinois Insurance Code is amended by

changing Section 59.1 as follows:

(215 ILCS 5/59.1)

(Section scheduled to be repealed on January 1, 2017)

Sec. 59.1. Conversion to stock company.

(1) Definitions. For the purposes of this Section, the

following terms shall have the meanings indicated:

(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:

(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;

(ii) the person has the right to direct the

application of the funds so allocated;

(iii) the group policyholder makes no contribution

to the premiums or deposits for the policy or contract;

and

(iv) the mutual company has the names and addresses

of the persons covered under the group life policy or

group annuity contract.

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.

(b) "Converted stock company" is an Illinois domiciled

stock company that converted from an Illinois domiciled

mutual company under this Section.

(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.

(d) "Policy" includes an annuity contract.

(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.

(2) Adoption of the plan of conversion by the board of

directors.

(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.

(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.

(3) Approval of the plan of conversion by the Director of

Insurance.

(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:

(i) the provisions of this Section have been

complied with;

(ii) the plan will not prejudice the interests of

the members; and

(iii) the plan's method of allocating subscription

rights is fair and equitable.

(b) Documents to be filed.

(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

Director for review and approval:

(A) the plan of conversion, including the

independent evaluation of pro forma market value

required by item (f) of subsection (6) of this

Section;

(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;

(C) any proxies to be solicited from eligible

members pursuant to subitem (ii) of item (c) of

subsection (4) of this Section;

(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

before its effective date; and

(E) the proposed articles of incorporation and

bylaws of the converted stock company.

Once filed, these documents shall be approved or

disapproved by the Director within a reasonable time.

(ii) After the members have approved the plan, the

converted stock company shall file the following

documents with the Director:

(A) the minutes of the meeting of the members

at which the plan was voted upon; and

(B) the revised articles of incorporation and

bylaws of the converted stock company.

(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.

(4) Approval of the plan by the members.

(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.

(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

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.

(c) Vote required for approval.

(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.

(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.

(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.

(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

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.

(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

limitations imposed by item (i) of subsection (6) of this

Section or the terms of the plan of conversion as approved by

the Director.

(6) Required provisions in a plan of conversion. The

following provisions shall be included in the plan:

(a) Reasons for conversion. The plan shall set forth

the reasons for the proposed conversion.

(b) Effect of conversion on existing policies.

(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

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.

(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.

(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

participating policy.

(c) Subscription rights to eligible members.

(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

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.

(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.

(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.

(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

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.

(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.

(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.

(h) Closed block of business for participating life

policies of a Class 1 mutual company.

(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.

(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

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

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.

(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.

(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.

(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

converted stock company.

(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.

(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

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

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.

(7) Optional provisions in a plan of conversion. The

following provisions may be included in the plan:

(a) Directors and officers subscription rights.

(i) The plan may provide that the directors and

officers of the mutual company shall receive, without

payment, nontransferable subscription rights to

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.

(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

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.

(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.

(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

Section.

(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

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

regardless of the amount of shares purchased by other

persons.

(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

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.

(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.

(10) Rights of members whose policies are issued after

adoption of the plan and before its effective date.

(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

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.

(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

contract within 10 days after the receipt of the notice.

(11) Corporate existence.

(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

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.

(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

stock company are duly elected pursuant to the articles of

incorporation and bylaws of the converted stock company.

(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

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.

(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.

(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.

(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.

(Source: P.A. 90-381, eff. 8-14-97.)

Section 99. Effective date. This Act takes effect upon

becoming law.