Bill Text: IL SB2634 | 2013-2014 | 98th General Assembly | Engrossed

NOTE: There are more recent revisions of this legislation. Read Latest Draft

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Bill Title: Amends the Illinois Insurance Code in the provision concerning a mutual company's conversion to a stock company. Provides that the mutual company's meeting to vote upon the plan of conversion shall not be set for a date less than 30 days (rather than 60 days) after the date when the notice of the meeting is mailed by the mutual company. Makes a technical correction. Effective immediately.

Spectrum: Slight Partisan Bill (Democrat 3-1)

Status: (Passed) 2014-07-16 - Public Act . . . . . . . . . 98-0755 [SB2634 Detail]

Download: Illinois-2013-SB2634-Engrossed.html

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(Section scheduled to be repealed on January 1, 2017)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

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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.
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

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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

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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.

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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.
(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

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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

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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

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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

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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.
(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.

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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.
(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

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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

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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.

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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
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

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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.

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(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

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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

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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.