SB450: Bill Text

February 10, 1998 - Introduced by Senators Moen, Schultz, Burke, Huelsman, Shibilski, Panzer, Moore, Darling, Decker, Welch, Grobschmidt, Fitzgerald, Breske, Farrow, C. Potter, Rude, Wineke, Roessler, Weeden, George, Rosenzweig and Jauch, cosponsored by Representatives Green, Krug, Lorge, Meyer, Jensen, Plale, Ward, Kunicki, Underheim, Hanson, Gard, Huber, Schafer, Riley, Albers, Bock, Brandemuehl, Carpenter, Duff, Cullen, Freese, Hasenohrl, Goetsch, Kreuser, Grothman, La Fave, Hahn, J. Lehman, Hoven, Linton, Handrick, Murat, Kaufert, Springer, Kedzie, Staskunas, Klusman, Wasserman, Kreibich, Ladwig, F. Lasee, Lazich, M. Lehman, Musser, Nass, Ott, Ourada, Porter, Seratti, Vrakas, Walker and Coggs. Referred to Committee on Health, Human Services, Aging, Corrections, Veterans and Military Affairs.

SB450,1,4 An Act to amend 610.01 (intro.) and 613.03 (3); and to create 20.145 (1) (h) and chapter 644 of the statutes; relating to: formation of mutual insurance holding companies, requiring the exercise of rule-making authority and making an appropriation.

Analysis by the Legislative Reference Bureau

Mutual insurance companies are nonstock corporations that cannot issue stock. Current law authorizes, and specifies the procedures for, a mutual insurance company to convert into a stock corporation.

This bill authorizes, and specifies procedures for, a mutual insurance company to restructure by forming a mutual holding company. Simultaneously with the formation of the mutual holding company, the mutual insurance company becomes a stock insurance company that is wholly owned by the mutual holding company, or by an intermediate stock holding company, if any is created, that is wholly owned by the mutual holding company. Although the mutual holding company that is formed in the restructuring is not an insurance company, it remains under the supervision of the office of the commissioner of insurance.

The restructuring procedure set out in the bill requires the mutual insurance company to file a detailed restructuring plan with the commissioner of insurance (commissioner). The commissioner must hold a hearing on the plan. Along with notice of the hearing, the mutual insurance company must send a copy or a detailed summary of the restructuring plan to all of its policyholders, who may present oral or written testimony at the hearing. After the hearing, the commissioner must approve the plan unless the commissioner finds that it violates the law, is unfair and inequitable to the policyholders or is contrary to the interests of the policyholders or the public. If the commissioner approves the restructuring plan, the matter is submitted to a vote of the policyholders at a meeting called for that purpose.

Insurance policies that were issued by the mutual insurance company before the effective date of the restructuring are unaffected by the restructuring and remain in full force with the restructured insurance company, as do all assets and liabilities not specifically transferred to the mutual holding company. The policyholders of the policies issued before the restructuring become members of the mutual holding company with rights equivalent to the rights that they had in the mutual insurance company, including the right to elect the board of directors of the mutual holding company and to vote on conversion or voluntary dissolution of the company and on amendments to the company's articles of incorporation. Policyholders of policies that are issued after the effective date of the restructuring become members of the mutual holding company.

After the restructuring, the mutual holding company may, but only with the approval of the members and the commissioner, issue to investors up to 49% of the stock of the restructured insurance company and any intermediate stock holding company. The mutual holding company must at all times retain control of the restructured insurance company and any intermediate stock holding company through mandatory ownership of 51% of the voting stock. The bill provides for mandatory subscription rights to policyholders in any initial public offering of the restructured insurance company's or any intermediate stock holding company's stock. In addition, the bill prohibits the directors, officers and management of the mutual holding company, the restructured insurance company and any intermediate stock holding company, other than in their capacity as policyholders subscribing for stock on the same basis as other policyholders, from owning any voting stock either in the restructured insurance company or in any intermediate stock holding company for the first year after the initial sale of voting stock to 3rd parties. After the first year, directors, officers and management are individually restricted to owning no more than 5%, and in the aggregate restricted to owning no more than 10%, of the voting stock of the restructured insurance company or any intermediate stock holding company.

The bill sets out various requirements related to the structure and operation of a mutual holding company formed in the restructuring authorized under the bill. Those provisions address such issues as member rights, record-keeping requirements, compensation to directors and officers, subsequent restructuring, conversion into a stock corporation and voluntary and involuntary dissolution.

Finally, the bill also provides for a few variations on the restructuring process. A service insurance corporation may simultaneously convert into a mutual insurance company and restructure in the manner provided in the bill for mutual insurance companies. A restructuring mutual insurance company may propose to acquire, or merge or consolidate with, one or more domestic or foreign insurers as part of its restructuring plan. A domestic or foreign mutual insurance company may merge its policyholders' membership interests into an existing mutual holding company that was formed by the restructuring of a mutual insurance company in accordance with procedures set out in the bill.

For further information see the state fiscal estimate, which will be printed as an appendix to this bill.

The people of the state of Wisconsin, represented in senate and assembly, do enact as follows:

SB450, s. 1 Section 1. 20.145 (1) (h) of the statutes is created to read:

SB450,3,5 20.145 (1) (h) Holding company restructuring expenses. All moneys received from converting mutual insurance companies under s. 644.07 (11) for expenses, including prorated salaries, incurred by the commissioner and office staff related to restructurings under ch. 644.

SB450, s. 2 Section 2. 610.01 (intro.) of the statutes is amended to read:

SB450,3,8 610.01 Definitions. (intro.) In chs. 610 to 620 and 644, unless the context requires otherwise:

SB450, s. 3 Section 3. 613.03 (3) of the statutes, as affected by 1997 Wisconsin Act 27, is amended to read:

SB450,3,15 613.03 (3) Applicability of insurance laws. Except as otherwise specifically provided, service insurance corporations organized or operating under this chapter are subject to ss. 610.01, 610.11, 610.21, 610.23 and 610.24 and chs. 600, 601, 609, 617, 620, 623, 625, 627, 628, 631, 632, 635, 644 and 645 and to no other insurance laws.

SB450, s. 4 Section 4. Chapter 644 of the statutes is created to read:

SB450,3,19 CHAPTER 644 Domestic Mutual iNSURANCE HOLDING COMPANIES

SB450,4,2 SUBCHAPTER I GENERAL PROVISIONS

SB450,4,3 644.02 Definitions. (1) In this chapter, unless the context otherwise requires:

SB450,4,5 (a) "Board" means the board of directors or board of trustees, as the case may be, of the converting insurance company.

SB450,4,9 (b) "Converted insurance company" means an insurance company that converted under this chapter from a mutual insurance company to a stock insurance company, or from a service insurance corporation to a mutual insurance company and then to a stock insurance company, and formed a mutual holding company.

SB450,4,12 (c) "Converted life insurance company" means a life insurance company that converted under this chapter from a mutual life insurance company to a stock insurance company and formed a mutual holding company.

SB450,4,15 (d) "Converting insurance company" means a domestic mutual insurance company or a domestic service insurance corporation undergoing restructuring under this chapter.

SB450,4,20 (e) "Dividend plan" means a plan to provide reasonable assurances as to the policyholder dividend scales of the participating individual policies and contracts of a converted insurance company in the life insurance business in force on the date specified in the dividend plan for which the insurer had an experience-based dividend scale payable in the year of the plan by creating any of the following:

SB450,4,22 1. Covenants of the converted insurance company or the mutual holding company, or both.

SB450,5,7 2. One or more closed blocks. Assets of the converted insurance company shall be allocated to the closed block in an amount that produces cash flows, together with anticipated revenues from the closed block business, expected to be sufficient to support the closed block business, including provision for payment of claims and those expenses and taxes specified in the dividend plan, and provision for continuation of the dividend scales in effect on the effective date of the restructuring under this chapter if the experience underlying such dividend scales continues. Any plan under this subdivision may provide for conditions under which the converted insurance company may cease to maintain any closed block and for the allocation of assets to that closed block.

SB450,5,9 3. A combination of subds. 1. and 2. or any other means of providing reasonable assurances that the commissioner approves.

SB450,5,11 (f) "Dividend scales" means the equitable apportionment of divisible surplus by the board.

SB450,5,13 (g) "Divisible surplus" means the annual distribution described in s. 632.62 (4) (b) as a payment made to policyholders as determined by the board.

SB450,5,15 (h) "Intermediate stock holding company" means a corporation that satisfies all of the following:

SB450,5,16 1. The corporation was incorporated under ch. 180.

SB450,5,18 2. At least 51% of the corporation's voting stock is held directly or indirectly by a mutual holding company.

SB450,5,20 3. The corporation holds directly or indirectly at least 51% of the voting stock of a converted insurance company.

SB450,5,21 (i) "Member" means any of the following:

SB450,5,24 1. For a converting mutual insurance company, a policyholder who, by the records of the converting insurance company and by its articles of incorporation and bylaws, is a holder of a membership interest in the converting insurance company.

SB450,6,3 2. For a converting service insurance corporation, a policyholder shown on the books and records of the converting insurance company on the effective date of the restructuring.

SB450,6,13 (j) "Membership interests" means the voting rights of a member arising under the statutes and the articles of incorporation and bylaws of the converting insurance company, including the right to vote for the board and the right to vote on any plan of conversion, voluntary dissolution or amendment of the articles of incorporation. On and after the effective date of the restructuring, "membership interests" means the voting rights of a member arising under the statutes and the articles of incorporation and bylaws of the mutual holding company, including the right to vote for the board and the right to vote on any plan of conversion, voluntary dissolution or amendment of the articles of incorporation. "Membership interests" does not include members' rights in surplus, if any.

SB450,6,14 (k) "Mutual holding company" means a mutual insurance holding company.

SB450,6,16 (L) "Policyholder" means the person identified in the records of the converting insurance company or the converted insurance company under s. 611.51 (9) (c).

SB450,7,5 (m) "Rights in surplus" means any rights of a member arising under the converting insurance company's articles of incorporation or ch. 611 to a return of the surplus in respect of policies or contracts of the converting insurance company that may exist with regard to the surplus not apportioned or declared by its board as divisible surplus, including rights of members to a distribution of such surplus in dissolution or conversion proceedings under ch. 611. On and after the effective date of the restructuring, "rights in surplus" means any rights of a member of the mutual holding company arising under its articles of incorporation or this chapter to the net worth of the mutual holding company, including rights of members of the mutual holding company to a distribution of any portion of the net worth of the mutual holding company in conversion proceedings under s. 644.25 or dissolution proceedings under s. 644.28 or 644.29. "Rights in surplus" shall not include any right to divisible surplus expressly conferred solely by the terms of an insurance policy or annuity contract.

SB450,7,10 (n) "Voting stock" means stock of any class or any ownership interest having voting power for the election of directors, trustees or management. All references to a specified percentage of voting stock shall mean stock having the specified percentage of the voting power for the election of directors, trustees or management, including stock having such power only by reason of the happening of a contingency.

SB450,7,14 (2) Except when inconsistent with the definitions given in this chapter, the definitions of ss. 600.03 and 610.01 apply to this chapter. In the provisions of chs. 181 and 611 that are made applicable to this chapter or incorporated into this chapter by reference, all of the following apply:

SB450,7,16 (a) "Corporation" includes a mutual holding company formed under this chapter.

SB450,7,17 (b) "Department" means the commissioner.

SB450,7,18 (c) "Mutual" includes a mutual holding company.

SB450,7,19 (d) "Nonassessable mutual" includes a mutual holding company.

SB450,7,20 (e) "Policyholder" includes a member.

SB450,7,21 (f) "This chapter" includes this chapter.

SB450,7,23 644.03 Scope and purposes. (1) Scope. This chapter applies to all mutual insurance holding companies organized under the laws of this state.

SB450,8,5 (2) Purposes. The purposes of this chapter are to provide complete, self-contained procedures for the formation of mutual insurance holding companies. A corporation organized as a mutual insurance holding company under this chapter may be organized for any lawful purpose and shall hold directly or indirectly as a subsidiary at least one stock insurance company converted from a mutual insurance company or from a service insurance corporation that converted to a mutual insurance company. A mutual holding company is not an insurer.

SB450,8,7 644.04 Restructuring. (1) On the effective date of a restructuring under this chapter, all of the following shall occur:

SB450,8,9 (a) The converting insurance company shall become a domestic stock insurance company.

SB450,8,14 (b) All membership interests and rights in surplus of the converting insurance company shall be extinguished and the members of the converting insurance company shall become members of the mutual holding company in accordance with this chapter and the articles of incorporation and bylaws of the mutual holding company.

SB450,8,17 (c) All shares of the voting stock of the converting insurance company shall be acquired and retained by the mutual holding company or, if created, an intermediate stock holding company.

SB450,8,19 (d) All of the shares of voting stock of any intermediate stock holding company shall be acquired and retained by the mutual holding company.

SB450,8,23 (2) Any intermediate stock holding company created at the time of the restructuring to hold the stock of the converting insurance company shall be incorporated under ch. 180 and may engage in any business or activity permitted by ch. 180.

SB450,9,2 (3) Subject to s. 611.33, the converted insurance company and any intermediate stock holding company may thereafter issue to 3rd parties debt securities, stock other than voting stock and, subject to s. 644.15, voting stock, so long as all of the following are true:

SB450,9,5 (a) No shares of stock representing more than 49% of the voting power of all issued and outstanding voting stock of either the converted insurance company or the intermediate stock holding company, if any, are issued to 3rd parties.

SB450,9,20 (b) At least 51% of the voting stock of the converted insurance company is at all times owned by the mutual holding company or by the intermediate stock holding company, at least 51% of whose voting stock is held by the mutual holding company, and such 51% interests in the converted insurance company and any intermediate stock holding company are not conveyed, transferred, assigned, pledged, subjected to a security interest or lien, placed in a voting trust, encumbered or otherwise hypothecated or alienated by the mutual holding company or by the intermediate stock holding company. Any conveyance, transfer, assignment, pledge, security interest, lien, placement in a voting trust, encumbrance, or hypothecation or alienation of, in or on the 51% of the voting shares of the converted insurance company or the intermediate stock holding company in violation of this paragraph shall be void in inverse chronological order of the date of such conveyance, transfer, assignment, pledge, security interest, lien, placement in a voting trust, encumbrance, hypothecation or alienation as to the shares necessary to constitute 51% of such voting stock.

SB450,9,24 (4) For purposes of the calculations under this section and under s. 644.13, any issued and outstanding securities of the converted insurance company or any intermediate stock holding company that are convertible into voting stock are considered to be issued and outstanding voting stock.

SB450,10,2 644.05 General corporate powers and procedures. (1) Powers. Section 181.04 applies to mutual holding companies.

SB450,10,4 (2) Effect of unauthorized corporate acts. Section 181.057 (1) and (2) applies to mutual holding companies.

SB450,10,5 (3) Omission of seal. Section 181.665 applies to mutual holding companies.

SB450,10,7 (4) Waiver of notice and informal action by members or directors. Sections 181.70 and 181.72 apply to mutual holding companies.

SB450,10,12 644.06 Registered agent for service of process. Sections 601.715, 601.72 (1) (a), (2) and (3) to (5) and 601.73 apply to mutual holding companies, except that, for purposes of this chapter, "authorized insurer" used in s. 601.715 means mutual holding company and "insurer" used in s. 601.72 (1) (a) and (2) means mutual holding company.

SB450,10,15 SUBCHAPTER II MUTUAL INSURANCE HOLDING COMPANIES

SB450,10,18 644.07 Restructuring procedures. (1) Formation of mutual holding company. (a) 1. A domestic mutual insurance company organized under ch. 611 may restructure by forming a mutual holding company in accordance with this section.

SB450,10,22 2. A domestic service insurance corporation organized under ch. 613 may restructure by simultaneously converting to a mutual insurance company that is subject to ch. 611 and forming a mutual holding company in accordance with this section.

SB450,11,4 (b) The mutual holding company may use the word "mutual" in its name. The restructuring shall continue the corporate existence of the converting insurance company as a stock insurance company subsidiary of the mutual holding company or as a stock insurance company subsidiary of an intermediate stock holding company that is a subsidiary of the mutual holding company. The converted insurance company may continue to use the word "mutual" in its name if the name includes the abbreviation "SI" for stock insurer, or the words "stock insurer".

SB450,11,8 (2) Resolution of the board. The board shall pass a resolution to the effect that restructuring is fair and equitable to policyholders. The resolution shall specify the reasons for and the purposes of the proposed restructuring, and explain the manner in which the restructuring is expected to benefit policyholders.

SB450,11,14 (3) Adoption of plan. The board shall adopt a mutual holding company plan. The mutual holding company plan shall set forth the reasons for and the purposes of the proposed restructuring, explain how the restructuring is expected to benefit policyholders and provide for amending the converting insurance company's articles of incorporation to give effect to the restructuring from a mutual, nonstock corporation into a stock corporation.

SB450,11,16 (4) Submission of plan. The board shall submit the mutual holding company plan to the commissioner for approval, together with all of the following:

SB450,11,19 (a) The proposed articles and bylaws of the mutual holding company, which shall comply with s. 644.09, of the converted insurance company, which shall comply with s. 611.12, and of any intermediate stock holding company.

SB450,11,21 (b) So much of the following information pertaining to the mutual holding company as the commissioner reasonably requires:

SB450,11,23 1. The names and, for the preceding 10 years, all addresses and all occupations of all proposed directors and officers.

SB450,11,25 2. All agreements relating to the mutual holding company to which any proposed director or officer is a party.

SB450,12,2 3. The amount and sources of the funds available for organization expenses and initial operating expenses.

SB450,12,3 4. The proposed compensation of directors and officers.

SB450,12,4 5. The proposed capital.

SB450,12,6 6. A business plan of the mutual holding company for the first 5 years of operation.

SB450,12,8 (c) Such other relevant documents or information as the commissioner reasonably requires.

SB450,12,9 (5) Plan contents. (a) The plan shall include all of the following:

SB450,12,13 1. A description of any plans for the initial sale of voting stock to 3rd parties by the converted insurance company or any intermediate stock holding company, or a statement that the converted insurance company or intermediate stock holding company has no current plans for the sale of voting stock.