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 1An Act to amend 610.01 (intro.) and 613.03 (3); and to create 20.145 (1) (h) and
2chapter 644 of the statutes; relating to: formation of mutual insurance holding
3companies, requiring the exercise of rule-making authority and making an
4appropriation.
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 1Section 1. 20.145 (1) (h) of the statutes is created to read:
SB450,3,52 20.145 (1) (h) Holding company restructuring expenses. All moneys received
3from converting mutual insurance companies under s. 644.07 (11) for expenses,
4including prorated salaries, incurred by the commissioner and office staff related to
5restructurings under ch. 644.
SB450, s. 2 6Section 2. 610.01 (intro.) of the statutes is amended to read:
SB450,3,8 7610.01 Definitions. (intro.) In chs. 610 to 620 and 644, unless the context
8requires otherwise:
SB450, s. 3 9Section 3. 613.03 (3) of the statutes, as affected by 1997 Wisconsin Act 27, is
10amended to read:
SB450,3,1511 613.03 (3) Applicability of insurance laws. Except as otherwise specifically
12provided, service insurance corporations organized or operating under this chapter
13are subject to ss. 610.01, 610.11, 610.21, 610.23 and 610.24 and chs. 600, 601, 609,
14617, 620, 623, 625, 627, 628, 631, 632, 635, 644 and 645 and to no other insurance
15laws.
SB450, s. 4 16Section 4. Chapter 644 of the statutes is created to read:
SB450,3,1917 CHAPTER 644
18 Domestic Mutual iNSURANCE
19 HOLDING COMPANIES
SB450,4,2
1SUBCHAPTER I
2GENERAL PROVISIONS
SB450,4,3 3644.02 Definitions. (1) In this chapter, unless the context otherwise requires:
SB450,4,54 (a) "Board" means the board of directors or board of trustees, as the case may
5be, of the converting insurance company.
SB450,4,96 (b) "Converted insurance company" means an insurance company that
7converted under this chapter from a mutual insurance company to a stock insurance
8company, or from a service insurance corporation to a mutual insurance company
9and then to a stock insurance company, and formed a mutual holding company.
SB450,4,1210 (c) "Converted life insurance company" means a life insurance company that
11converted under this chapter from a mutual life insurance company to a stock
12insurance company and formed a mutual holding company.
SB450,4,1513 (d) "Converting insurance company" means a domestic mutual insurance
14company or a domestic service insurance corporation undergoing restructuring
15under this chapter.
SB450,4,2016 (e) "Dividend plan" means a plan to provide reasonable assurances as to the
17policyholder dividend scales of the participating individual policies and contracts of
18a converted insurance company in the life insurance business in force on the date
19specified in the dividend plan for which the insurer had an experience-based
20dividend scale payable in the year of the plan by creating any of the following:
SB450,4,2221 1. Covenants of the converted insurance company or the mutual holding
22company, or both.
SB450,5,723 2. One or more closed blocks. Assets of the converted insurance company shall
24be allocated to the closed block in an amount that produces cash flows, together with
25anticipated revenues from the closed block business, expected to be sufficient to

1support the closed block business, including provision for payment of claims and
2those expenses and taxes specified in the dividend plan, and provision for
3continuation of the dividend scales in effect on the effective date of the restructuring
4under this chapter if the experience underlying such dividend scales continues. Any
5plan under this subdivision may provide for conditions under which the converted
6insurance company may cease to maintain any closed block and for the allocation of
7assets to that closed block.
SB450,5,98 3. A combination of subds. 1. and 2. or any other means of providing reasonable
9assurances that the commissioner approves.
SB450,5,1110 (f) "Dividend scales" means the equitable apportionment of divisible surplus
11by the board.
SB450,5,1312 (g) "Divisible surplus" means the annual distribution described in s. 632.62 (4)
13(b) as a payment made to policyholders as determined by the board.
SB450,5,1514 (h) "Intermediate stock holding company" means a corporation that satisfies
15all of the following:
SB450,5,1616 1. The corporation was incorporated under ch. 180.
SB450,5,1817 2. At least 51% of the corporation's voting stock is held directly or indirectly by
18a mutual holding company.
SB450,5,2019 3. The corporation holds directly or indirectly at least 51% of the voting stock
20of a converted insurance company.
SB450,5,2121 (i) "Member" means any of the following:
SB450,5,2422 1. For a converting mutual insurance company, a policyholder who, by the
23records of the converting insurance company and by its articles of incorporation and
24bylaws, is a holder of a membership interest in the converting insurance company.
SB450,6,3
12. For a converting service insurance corporation, a policyholder shown on the
2books and records of the converting insurance company on the effective date of the
3restructuring.
SB450,6,134 (j) "Membership interests" means the voting rights of a member arising under
5the statutes and the articles of incorporation and bylaws of the converting insurance
6company, including the right to vote for the board and the right to vote on any plan
7of conversion, voluntary dissolution or amendment of the articles of incorporation.
8On and after the effective date of the restructuring, "membership interests" means
9the voting rights of a member arising under the statutes and the articles of
10incorporation and bylaws of the mutual holding company, including the right to vote
11for the board and the right to vote on any plan of conversion, voluntary dissolution
12or amendment of the articles of incorporation. "Membership interests" does not
13include members' rights in surplus, if any.
SB450,6,1414 (k) "Mutual holding company" means a mutual insurance holding company.
SB450,6,1615 (L) "Policyholder" means the person identified in the records of the converting
16insurance company or the converted insurance company under s. 611.51 (9) (c).
SB450,7,517 (m) "Rights in surplus" means any rights of a member arising under the
18converting insurance company's articles of incorporation or ch. 611 to a return of the
19surplus in respect of policies or contracts of the converting insurance company that
20may exist with regard to the surplus not apportioned or declared by its board as
21divisible surplus, including rights of members to a distribution of such surplus in
22dissolution or conversion proceedings under ch. 611. On and after the effective date
23of the restructuring, "rights in surplus" means any rights of a member of the mutual
24holding company arising under its articles of incorporation or this chapter to the net
25worth of the mutual holding company, including rights of members of the mutual

1holding company to a distribution of any portion of the net worth of the mutual
2holding company in conversion proceedings under s. 644.25 or dissolution
3proceedings under s. 644.28 or 644.29. "Rights in surplus" shall not include any right
4to divisible surplus expressly conferred solely by the terms of an insurance policy or
5annuity contract.
SB450,7,106 (n) "Voting stock" means stock of any class or any ownership interest having
7voting power for the election of directors, trustees or management. All references to
8a specified percentage of voting stock shall mean stock having the specified
9percentage of the voting power for the election of directors, trustees or management,
10including stock having such power only by reason of the happening of a contingency.
SB450,7,14 11(2) Except when inconsistent with the definitions given in this chapter, the
12definitions of ss. 600.03 and 610.01 apply to this chapter. In the provisions of chs.
13181 and 611 that are made applicable to this chapter or incorporated into this chapter
14by reference, all of the following apply:
SB450,7,1615 (a) "Corporation" includes a mutual holding company formed under this
16chapter.
SB450,7,1717 (b) "Department" means the commissioner.
SB450,7,1818 (c) "Mutual" includes a mutual holding company.
SB450,7,1919 (d) "Nonassessable mutual" includes a mutual holding company.
SB450,7,2020 (e) "Policyholder" includes a member.
SB450,7,2121 (f) "This chapter" includes this chapter.
SB450,7,23 22644.03 Scope and purposes. (1) Scope. This chapter applies to all mutual
23insurance holding companies organized under the laws of this state.
SB450,8,5 24(2) Purposes. The purposes of this chapter are to provide complete,
25self-contained procedures for the formation of mutual insurance holding companies.

1A corporation organized as a mutual insurance holding company under this chapter
2may be organized for any lawful purpose and shall hold directly or indirectly as a
3subsidiary at least one stock insurance company converted from a mutual insurance
4company or from a service insurance corporation that converted to a mutual
5insurance company. A mutual holding company is not an insurer.
SB450,8,7 6644.04 Restructuring. (1) On the effective date of a restructuring under this
7chapter, all of the following shall occur:
SB450,8,98 (a) The converting insurance company shall become a domestic stock insurance
9company.
SB450,8,1410 (b) All membership interests and rights in surplus of the converting insurance
11company shall be extinguished and the members of the converting insurance
12company shall become members of the mutual holding company in accordance with
13this chapter and the articles of incorporation and bylaws of the mutual holding
14company.
SB450,8,1715 (c) All shares of the voting stock of the converting insurance company shall be
16acquired and retained by the mutual holding company or, if created, an intermediate
17stock holding company.
SB450,8,1918 (d) All of the shares of voting stock of any intermediate stock holding company
19shall be acquired and retained by the mutual holding company.
SB450,8,23 20(2) Any intermediate stock holding company created at the time of the
21restructuring to hold the stock of the converting insurance company shall be
22incorporated under ch. 180 and may engage in any business or activity permitted by
23ch. 180.
SB450,9,2 24(3) Subject to s. 611.33, the converted insurance company and any
25intermediate stock holding company may thereafter issue to 3rd parties debt

1securities, stock other than voting stock and, subject to s. 644.15, voting stock, so long
2as all of the following are true:
SB450,9,53 (a) No shares of stock representing more than 49% of the voting power of all
4issued and outstanding voting stock of either the converted insurance company or
5the intermediate stock holding company, if any, are issued to 3rd parties.
SB450,9,206 (b) At least 51% of the voting stock of the converted insurance company is at
7all times owned by the mutual holding company or by the intermediate stock holding
8company, at least 51% of whose voting stock is held by the mutual holding company,
9and such 51% interests in the converted insurance company and any intermediate
10stock holding company are not conveyed, transferred, assigned, pledged, subjected
11to a security interest or lien, placed in a voting trust, encumbered or otherwise
12hypothecated or alienated by the mutual holding company or by the intermediate
13stock holding company. Any conveyance, transfer, assignment, pledge, security
14interest, lien, placement in a voting trust, encumbrance, or hypothecation or
15alienation of, in or on the 51% of the voting shares of the converted insurance
16company or the intermediate stock holding company in violation of this paragraph
17shall be void in inverse chronological order of the date of such conveyance, transfer,
18assignment, pledge, security interest, lien, placement in a voting trust,
19encumbrance, hypothecation or alienation as to the shares necessary to constitute
2051% of such voting stock.
SB450,9,24 21(4) For purposes of the calculations under this section and under s. 644.13, any
22issued and outstanding securities of the converted insurance company or any
23intermediate stock holding company that are convertible into voting stock are
24considered to be issued and outstanding voting stock.
SB450,10,2
1644.05 General corporate powers and procedures. (1) Powers. Section
2181.04 applies to mutual holding companies.
SB450,10,4 3(2) Effect of unauthorized corporate acts. Section 181.057 (1) and (2)
4applies to mutual holding companies.
SB450,10,5 5(3) Omission of seal. Section 181.665 applies to mutual holding companies.
SB450,10,7 6(4) Waiver of notice and informal action by members or directors. Sections
7181.70 and 181.72 apply to mutual holding companies.
SB450,10,12 8644.06 Registered agent for service of process. Sections 601.715, 601.72
9(1) (a), (2) and (3) to (5) and 601.73 apply to mutual holding companies, except that,
10for purposes of this chapter, "authorized insurer" used in s. 601.715 means mutual
11holding company and "insurer" used in s. 601.72 (1) (a) and (2) means mutual holding
12company.
SB450,10,1513 SUBCHAPTER II
14MUTUAL INSURANCE
15 HOLDING COMPANIES
SB450,10,18 16644.07 Restructuring procedures. (1) Formation of mutual holding
17company.
(a) 1. A domestic mutual insurance company organized under ch. 611 may
18restructure by forming a mutual holding company in accordance with this section.
SB450,10,2219 2. A domestic service insurance corporation organized under ch. 613 may
20restructure by simultaneously converting to a mutual insurance company that is
21subject to ch. 611 and forming a mutual holding company in accordance with this
22section.
SB450,11,423 (b) The mutual holding company may use the word "mutual" in its name. The
24restructuring shall continue the corporate existence of the converting insurance
25company as a stock insurance company subsidiary of the mutual holding company

1or as a stock insurance company subsidiary of an intermediate stock holding
2company that is a subsidiary of the mutual holding company. The converted
3insurance company may continue to use the word "mutual" in its name if the name
4includes the abbreviation "SI" for stock insurer, or the words "stock insurer".
SB450,11,8 5(2) Resolution of the board. The board shall pass a resolution to the effect
6that restructuring is fair and equitable to policyholders. The resolution shall specify
7the reasons for and the purposes of the proposed restructuring, and explain the
8manner in which the restructuring is expected to benefit policyholders.
SB450,11,14 9(3) Adoption of plan. The board shall adopt a mutual holding company plan.
10The mutual holding company plan shall set forth the reasons for and the purposes
11of the proposed restructuring, explain how the restructuring is expected to benefit
12policyholders and provide for amending the converting insurance company's articles
13of incorporation to give effect to the restructuring from a mutual, nonstock
14corporation into a stock corporation.
SB450,11,16 15(4) Submission of plan. The board shall submit the mutual holding company
16plan to the commissioner for approval, together with all of the following:
SB450,11,1917 (a) The proposed articles and bylaws of the mutual holding company, which
18shall comply with s. 644.09, of the converted insurance company, which shall comply
19with s. 611.12, and of any intermediate stock holding company.
SB450,11,2120 (b) So much of the following information pertaining to the mutual holding
21company as the commissioner reasonably requires:
SB450,11,2322 1. The names and, for the preceding 10 years, all addresses and all occupations
23of all proposed directors and officers.
SB450,11,2524 2. All agreements relating to the mutual holding company to which any
25proposed director or officer is a party.
SB450,12,2
13. The amount and sources of the funds available for organization expenses and
2initial operating expenses.
SB450,12,33 4. The proposed compensation of directors and officers.
SB450,12,44 5. The proposed capital.
SB450,12,65 6. A business plan of the mutual holding company for the first 5 years of
6operation.
SB450,12,87 (c) Such other relevant documents or information as the commissioner
8reasonably requires.
SB450,12,9 9(5) Plan contents. (a) The plan shall include all of the following:
SB450,12,1310 1. A description of any plans for the initial sale of voting stock to 3rd parties
11by the converted insurance company or any intermediate stock holding company, or
12a statement that the converted insurance company or intermediate stock holding
13company has no current plans for the sale of voting stock.
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