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90_SB1298
215 ILCS 5/57 from Ch. 73, par. 669
215 ILCS 5/59.2 new
Amends the Illinois Insurance Code. Authorizes the
formation of mutual insurance holding companies. Provides
for the conversion of subsidiary mutual companies to stock
companies. Requires approval of the Director of Insurance
and of the members. Defines terms. Effective immediately.
LRB9008861JSgc
LRB9008861JSgc
1 AN ACT to amend the Illinois Insurance Code by changing
2 Section 57 and adding Section 59.2.
3 Be it enacted by the People of the State of Illinois,
4 represented in the General Assembly:
5 Section 5. The Illinois Insurance Code is amended by
6 changing Section 57 and adding Section 59.2 as follows:
7 (215 ILCS 5/57) (from Ch. 73, par. 669)
8 Sec. 57. Amendment of articles of incorporation.
9 (1) A company subject to the provisions of this Article
10 may amend its articles of incorporation in any respect not in
11 violation of law, but may not amend such articles to insert
12 any provision prohibited, or to delete any provision
13 required, in original articles of incorporation for a similar
14 domestic company organized under this Code except as
15 otherwise provided in Section 59.1 or 59.2 of this Code.
16 (2) Amendments to the articles of incorporation for the
17 various classes of companies shall be made in the following
18 manner:
19 (a) Class 1. The board of directors or trustees
20 shall adopt a resolution setting forth the proposed
21 amendment and directing that it be submitted to a vote of
22 the policyholders at either an annual or special meeting.
23 Written or printed notice shall be given to policyholders
24 in the same manner as is required in the case of notices
25 to shareholders of stock companies by Section 29. The
26 proposed amendment shall be adopted upon receiving the
27 affirmative vote of 2/3 of the policyholders present in
28 person or by proxy at such meeting. Restated articles of
29 incorporation setting forth the articles of incorporation
30 as amended shall thereupon be executed in duplicate by
31 the company or its president or vice president, and its
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1 secretary or assistant secretary, and duplicate originals
2 of such restated articles of incorporation and an
3 affidavit of the secretary of the company setting forth
4 the facts to show that this section has been fully
5 complied with shall be delivered to the Director.
6 (b) Classes 2 and 3. The board of directors or
7 trustees shall adopt the amendment and deliver to the
8 Director duplicate original restated articles of
9 incorporation setting forth the articles of incorporation
10 as amended and a copy of the resolution of the board of
11 directors or trustees adopting such an amendment
12 certified to by the secretary of the company.
13 (3) The restated articles of incorporation of any
14 company subject to the provisions of this article so
15 delivered to the Director may be approved or disapproved by
16 the Director in the same manner as the original articles of
17 incorporation. If approved, the Director shall place on file
18 in his office all of the documents so delivered to him except
19 one of the duplicate originals of the restated articles of
20 incorporation, and shall endorse upon such duplicate original
21 his approval thereof and the month, day and year of such
22 approval, and deliver it to the company. The amendment shall
23 be effective as of the date of the approval thereof by the
24 Director. Such duplicate original shall be filed for record,
25 within 15 days after it has been delivered to the company, in
26 the office of the recorder of the county where the principal
27 office of the company is located.
28 (Source: P.A. 88-662, eff. 9-16-94.)
29 (215 ILCS 5/59.2 new)
30 Sec. 59.2. Formation of mutual insurance holding company
31 and conversion of mutual company to stock company.
32 (1) Definitions. For the purposes of this Section, the
33 following terms shall have the meanings indicated:
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1 (a) "Converted company" means an Illinois domiciled
2 stock insurance company subject to the provisions of
3 Article II, except as otherwise provided in this Section,
4 that continues in existence after a reorganization under
5 this Section in connection with the formation of a mutual
6 holding company.
7 (b) "Converted mutual holding company" means the
8 stock corporation into which a mutual holding company has
9 been converted in accordance with Section 59.1 and
10 subsection (13) of this Section.
11 (c) "Eligible member" means a member as of the date
12 the board of directors adopts a plan of MHC conversion
13 under this Section. For the conversion of a mutual
14 holding company, "eligible member" means a member of the
15 mutual holding company who is of record as of the date
16 the mutual holding company board of directors adopts a
17 plan of conversion under Section 59.1.
18 (d) "Intermediate holding company" means a
19 corporation authorized to issue one or more classes of
20 capital stock, the corporate purposes of which include
21 holding directly or indirectly the voting stock of a
22 converted company.
23 (e) "Member" means a person who, on the records of
24 the mutual company and pursuant to its articles of
25 incorporation or bylaws, is deemed to be a holder of a
26 membership interest in the mutual company and shall also
27 include a person or persons insured under a group policy,
28 subject to the following conditions:
29 (i) the person is insured or covered under a
30 group life policy or group annuity contract under
31 which funds are accumulated and allocated to the
32 respective covered persons;
33 (ii) the person has the right to direct the
34 application of the funds so allocated;
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1 (iii) the group policyholder makes no
2 contribution to the premiums or deposits for the
3 policy or contract; and
4 (iv) the mutual company has the names and
5 addresses of the persons covered under the group
6 life policy or group annuity contract.
7 On and after the effective date of a plan of MHC
8 conversion under this Section, the term "member" shall mean a
9 member of the mutual holding company created thereby.
10 (f) "Mutual holding company" or "MHC" means a
11 corporation resulting from a reorganization of a mutual
12 company under this Section. A mutual holding company
13 shall be subject to the provisions of this Article and to
14 any other provisions of this Code applicable to mutual
15 companies, except as otherwise provided in this Section.
16 The articles of incorporation of a mutual holding company
17 shall include provisions setting forth the following:
18 (i) that it is a mutual holding company
19 organized under this Article;
20 (ii) that the mutual holding company may hold
21 not less than a majority of the shares of voting
22 stock of a converted company or an intermediate
23 holding company, which in turn holds directly or
24 indirectly all of the voting stock of a converted
25 company;
26 (iii) that it is not authorized to issue any
27 capital stock except pursuant to a conversion in
28 accordance with the provisions of Section 59.1 and
29 subsection (13) of this Section;
30 (iv) that its members shall have the rights
31 specified in this Section and in its articles of
32 incorporation and bylaws; and
33 (v) that its assets shall be subject to
34 inclusion in the estate of the converted company in
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1 any proceedings initiated by the Director against
2 the converted company under Article XIII.
3 (g) "Mutual company" means for purposes of this
4 Section a mutual life insurer or mutual property-casualty
5 insurer that may convert pursuant to a plan of MHC
6 conversion under this Section.
7 (h) "Plan of MHC conversion," or "plan" when used
8 in this Section means a plan adopted pursuant to this
9 Section by the board of directors of an Illinois domestic
10 mutual company for the conversion of the mutual company
11 into a direct or indirect stock subsidiary of a mutual
12 holding company.
13 (i) "Policy" includes any group or individual
14 insurance policy or contract issued by a mutual company,
15 including an annuity contract. The term policy does not
16 include a certificate of insurance issued in connection
17 with a group policy or contract.
18 (j) "Policyholder" means the holder of a policy
19 other than a reinsurance contract.
20 (2) Formation of mutual holding company and conversion
21 of mutual company. A mutual company, upon approval of the
22 Director, may reorganize by forming a mutual holding company
23 and continue the corporate existence of the reorganizing
24 mutual company as a stock insurance company in accordance
25 with this Section. Upon effectiveness of a plan of MHC
26 conversion, and without any further action:
27 (a) The mutual company shall become a stock
28 corporation, the membership interests of the
29 policyholders in the mutual company shall be deemed
30 extinguished and all eligible members of the mutual
31 company shall be and become members of the mutual holding
32 company, in accordance with the articles of incorporation
33 and bylaws of the mutual holding company and the
34 applicable provisions of this Section and Article III;
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1 and
2 (b) all of the shares of the capital stock of the
3 converted company shall be issued to the mutual holding
4 company, which at all times shall own a majority of the
5 shares of the voting stock of the converted company,
6 except that either at the time of conversion, or at a
7 later time with the approval of the Director, an
8 intermediate holding company or companies may be created,
9 so long as the mutual holding company at all times owns
10 directly or indirectly a majority of the shares of the
11 voting stock of the converted company.
12 (3) MHC membership interests.
13 (a) No member of a mutual holding company may
14 transfer membership in the mutual holding company or any
15 right arising from the membership.
16 (b) A member of a mutual holding company shall not,
17 as a member, be personally liable for the acts, debts,
18 liabilities, or obligations of the company.
19 (c) No assessments of any kind may be imposed upon
20 the members of a mutual holding company by the directors
21 or members, or because of any liability of any company
22 owned or controlled by the mutual holding company or
23 because of any act, debt, liability, or obligation of the
24 mutual holding company itself.
25 (d) A membership interest in a domestic mutual
26 holding company shall not constitute a security under any
27 law of this State.
28 (4) Adoption of the plan of MHC conversion by the board
29 of directors.
30 (a) A mutual company seeking to convert to a mutual
31 holding company structure shall, by the affirmative vote
32 of two-thirds of its board of directors, adopt a plan of
33 MHC conversion consistent with the requirements of
34 subsection (8) of this Section.
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1 (b) At any time before approval of a plan by
2 eligible members, the mutual company, by the affirmative
3 vote of two-thirds of its board of directors, may amend
4 or withdraw the plan of MHC conversion.
5 (5) Approval of the plan of MHC conversion by the
6 Director.
7 (a) Required findings. After adoption by the
8 mutual company's board of directors, the plan of MHC
9 conversion shall be submitted to the Director for review
10 and approval. The Director shall approve the plan upon
11 finding that:
12 (i) the provisions of this Section have been
13 complied with; and
14 (ii) the plan will not prejudice the interests
15 of the members.
16 (b) Documents to be filed.
17 (i) Prior to the members' approval of the plan
18 of MHC conversion, a mutual company seeking the
19 Director's approval of a plan shall file the
20 following documents with the Director for review and
21 approval:
22 (A) the plan of MHC conversion;
23 (B) the form of notice required by item
24 (b) of subsection (6) of this Section for
25 eligible members to vote on the plan;
26 (C) any proxies to be solicited from
27 eligible members and any other soliciting
28 materials;
29 (D) the proposed articles of
30 incorporation and bylaws of the mutual holding
31 company, each intermediate holding company, if
32 any, and the revised articles of incorporation
33 and bylaws of the converted company.
34 Once filed, these documents shall be approved
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1 or disapproved by the Director within a reasonable
2 time.
3 (ii) After the members have approved the plan,
4 the converted company shall file the following
5 documents with the Director:
6 (A) the minutes of the meeting of the
7 members at which the plan of MHC conversion was
8 voted upon; and
9 (B) the articles and bylaws of the mutual
10 holding company and each intermediate holding
11 company, if any, and the revised articles of
12 incorporation and bylaws of the converted
13 company.
14 (c) The Director's approval of a plan pursuant to
15 this subsection (5) may be made conditional at the sole
16 discretion of the Director whenever he determines that
17 such conditions are reasonably necessary to protect
18 policyholder interests. Such conditions may include, but
19 shall not be limited to, limitations, requirements, or
20 prohibitions as follows:
21 (i) prior approval of any acquisition or
22 formation of affiliate entities of the MHC;
23 (ii) prior approval of the capital structure
24 of any intermediate holding company or any changes
25 thereto;
26 (iii) prior approval of any initial public
27 offering or other issuance of equity or debt
28 securities of an intermediate holding company or the
29 converted company in a private sale or public
30 offering;
31 (iv) prior approval of the expansion of the
32 mutual holding company system into lines of
33 business, industries, or operations not presented at
34 the time of the conversion;
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1 (v) limitations on dividends and distributions
2 if the effect would be to reduce capital and surplus
3 of the converted company, in addition to any
4 limitations which may otherwise be authorized by
5 law; and
6 (vi) limitations on the pledge, incumbrance,
7 or transfer of the stock of the converted company.
8 (d) Consultant. The Director may retain, at the
9 mutual company's expense, any qualified expert not
10 otherwise a part of the Director's staff to assist in
11 reviewing the plan of MHC conversion.
12 (6) Approval of the plan by the members.
13 (a) Members entitled to notice of and to vote on
14 the plan. All eligible members shall be given notice of
15 and an opportunity to vote upon the plan of MHC
16 conversion.
17 (b) Notice required. All eligible members shall be
18 given notice of the members' meeting to vote upon the
19 plan of MHC conversion. A copy of the plan of MHC
20 conversion or a summary of the plan shall accompany the
21 notice. The notice shall be mailed to each member's last
22 known address, as shown on the mutual company's records,
23 within 45 days of the Director's approval of the plan.
24 The meeting to vote upon the plan shall not be set for a
25 date less than 60 days after the date when the notice of
26 the meeting is mailed by the mutual company. If the
27 meeting to vote upon the plan is held coincident with the
28 mutual company's annual meeting of policyholders, only
29 one combined notice of meeting is required.
30 (c) Vote required for approval.
31 (i) After approval by the Director, the plan
32 of MHC conversion shall be adopted upon receiving
33 the affirmative vote of at least two-thirds of the
34 votes cast by eligible members.
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1 (ii) Members entitled to vote upon the
2 proposed plan may vote in person or by proxy. Any
3 proxies to be solicited from eligible members,
4 together with the related proxy statement and any
5 other soliciting materials, shall be filed with and
6 approved by the Director.
7 (iii) The number of votes each eligible member
8 may cast shall be determined by the mutual company's
9 bylaws. If the bylaws are silent, each eligible
10 member may cast one vote.
11 (7) Adoption of articles of incorporation. Adoption of
12 articles of incorporation for the mutual holding company,
13 each intermediate holding company, if any, and revised
14 articles of incorporation for the converted company is
15 necessary to implement the plan of MHC conversion.
16 Procedures for adoption or revision of such articles shall be
17 governed by the applicable provisions of this Code or, in the
18 case of an intermediate holding company, the business
19 corporation law of the state in which the intermediate
20 holding company is incorporated. For a Class I mutual
21 holding company, the members may adopt revised articles of
22 incorporation at the same meeting at which the members
23 approve the plan. For a Class 2 or 3 mutual company, the
24 articles of incorporation may be adopted solely by the board
25 of directors or trustees, as provided in Section 57 of this
26 Code.
27 (8) Required provisions in a plan of MHC conversion.
28 The following provisions shall be included in the plan of MHC
29 conversion:
30 (a) The plan shall set forth the reasons for the
31 proposed conversion.
32 (b) Effect of MHC conversion on existing policies.
33 (i) The plan shall provide that all policies
34 of the converted company in force on the effective
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1 date of conversion shall continue to remain in force
2 under the terms of those policies, except that any
3 voting or other membership rights of the
4 policyholders provided for under the policies or
5 under this Code and any contingent liability policy
6 provisions of the type described in Section 55 of
7 this Code shall be extinguished on the effective
8 date of the conversion.
9 (ii) The plan shall further provide that
10 holders of participating policies in effect on the
11 date of conversion shall continue to have the right
12 to receive dividends as provided in the
13 participating policies, if any.
14 (iii) Except for a mutual company's life
15 policies, guaranteed renewable accident and health
16 policies, and non-cancelable accident and health
17 policies, the converted stock company may issue the
18 insured a nonparticipating policy as a substitute
19 for the participating policy upon the renewal date
20 of a participating policy.
21 (iv) The plan shall provide that a Class I
22 mutual company's participating life policies in
23 force on the effective date of the conversion shall
24 be operated by the converted company for dividend
25 purposes as a closed block of participating business
26 except that any or all classes of group
27 participating policies may be excluded from the
28 closed block. The plan shall establish one or more
29 segregated accounts for the benefit of the closed
30 block of business and shall allocate to those
31 segregated accounts enough assets of the mutual
32 company so that the assets together with the revenue
33 from the closed block of business are sufficient to
34 support the closed block including, but not limited
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1 to, the payment of claims, expenses, taxes, and any
2 dividends that are provided for under the terms of
3 the participating policies with appropriate
4 adjustments in the dividends for experience changes.
5 The plan shall be accompanied by an opinion of a
6 qualified actuary or an appointed actuary who meets
7 the standards set forth in the insurance laws or
8 regulations for the submission of actuarial opinions
9 as to the adequacy of reserves or assets. The
10 opinion shall relate to the adequacy of the assets
11 allocated to the segregated accounts in support of
12 the closed block of business. The actuarial opinion
13 shall be based on methods of analysis deemed
14 appropriate for those purposes by the Actuarial
15 Standards Board. The amount of assets allocated to
16 the segregated accounts of the closed block shall be
17 based upon the mutual company's last annual
18 statement that is updated to the effective date of
19 the conversion. The converted stock company shall
20 keep a separate accounting for the closed block and
21 shall make and include in the annual statement to be
22 filed with the Director each year a separate
23 statement showing the gains, losses, and expenses
24 properly attributable to the closed block.
25 Periodically, upon the Director's approval, those
26 assets allocated to the closed block as provided
27 herein that are in excess of the amount of assets
28 necessary to support the remaining policies in the
29 closed block shall revert to the benefit of the
30 converted company. The Director may waive the
31 requirement for the establishment of a closed block
32 of business if the Director deems it to be in the
33 best interests of the participating policyholders of
34 the mutual company to do so.
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1 (c) The plan shall set forth the requirements for
2 granting membership interests to future policyholders of
3 the converted company.
4 (d) The plan shall include information sufficient
5 to demonstrate that the financial condition of the
6 converted company will not be diminished by the plan of
7 MHC conversion.
8 (e) The plan shall include a description of any
9 current proposal to issue shares of an intermediate
10 holding company or the converted company to the public or
11 to other persons who are not direct or indirect
12 subsidiaries of the mutual holding company.
13 (f) The plan shall include the identity of the
14 proposed officers and directors of the mutual holding
15 company and each intermediate holding company, if any,
16 together with such other biographical information as the
17 Director may request.
18 (g) The plan shall include such other information
19 as the Director may request or may prescribe by rule.
20 (9) Effective date of the plan of MHC conversion. A
21 plan shall become effective when the Director has approved
22 the plan, the members have approved the plan and the articles
23 of incorporation of the mutual holding company, each
24 intermediate holding company, if any, and the revised
25 articles of incorporation of the converted company have been
26 adopted and filed with the Director.
27 (10) Corporate existence.
28 (a) Upon the conversion of a mutual company to a
29 converted company according to the provisions of this
30 Section, the corporate existence of the mutual company
31 shall be continued in the converted company with the
32 original date of incorporation of the mutual company.
33 All the rights, franchises, and interests of the mutual
34 company in and to every type of property, real, personal,
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1 and mixed, and things in action thereunto belonging, is
2 deemed transferred to and vested in the converted company
3 without any deed or transfer. Simultaneously, the
4 converted company is deemed to have assumed all the
5 obligations and liabilities of the mutual company.
6 (b) The directors and officers of the mutual
7 company, unless otherwise specified in the plan of
8 conversion shall serve as directors and officers of the
9 converted company until new directors and officers of the
10 converted company are duly elected pursuant to the
11 articles of incorporation and bylaws of the converted
12 company.
13 (11) Regulation and authority of mutual holding company.
14 (a) A mutual holding company shall have the same
15 powers granted to domestic mutual companies and be
16 subject to the same requirements and provisions of
17 Article III and any other provisions of this Code
18 applicable to mutual companies that are not inconsistent
19 with the provisions of this Section, provided however
20 that a mutual holding company shall not have the
21 authority to transact insurance pursuant to Section
22 39(l).
23 (b) Neither the mutual holding company nor any
24 intermediate holding company shall issue or reinsure
25 policies of insurance.
26 (c) A mutual holding company may enter into an
27 affiliation agreement or a merger agreement either at the
28 time of conversion, or at some later time with the
29 approval of the Director, with any mutual insurance
30 company authorized to do business in this State or
31 another mutual holding company. Any such merger
32 agreement may authorize members of the mutual insurance
33 company or other mutual holding company to become members
34 of the mutual holding company. Any such affiliation
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1 agreement or merger agreement shall be subject to the
2 insurance laws of this State relating to such
3 transactions entered into by a domestic mutual company.
4 (d) The assets of the MHC shall be held in trust,
5 under such arrangements and on such terms as the Director
6 may approve, for the benefit of the policyholders of the
7 converted company. Any residual rights of the MHC in
8 such assets or any assets of the MHC determined not to be
9 held in trust shall be subject to a lien in favor of the
10 policyholders of the converted company under such terms
11 as the Director may approve. Upon conversion of the
12 mutual holding company as provided for in subsection (13)
13 of this Section, such assets shall be released from trust
14 in accordance with the plan of conversion approved by the
15 Director.
16 (12) Diversion of business to affiliates. Without prior
17 approval of the Director, neither the converted company nor
18 any other person affiliated with or controlling the converted
19 company shall divert business from the converted company to
20 any insurance company affiliate if the purpose or effect
21 would be to significantly reduce the number of members of the
22 mutual holding company.
23 (13) Conversion of mutual holding company. A mutual
24 holding company created pursuant to this Section may
25 reorganize by complying with the applicable provisions of
26 Section 59. For purposes of effecting a conversion under
27 that Section, the mutual holding company shall be deemed a
28 "mutual company" and the converted mutual holding company
29 shall be deemed a "converted stock company," as such terms
30 are defined in Section 59.1.
31 (14) Conflict of interest. No director, officer, agent,
32 or employee of the mutual company or any other person shall
33 receive any fee, commission, or other valuable consideration,
34 other than his or her usual regular salary and compensation,
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1 for in any manner aiding, promoting, or assisting in the
2 conversion except as set forth in the plan of MHC conversion
3 approved by the Director. This provision does not prohibit
4 the payment of reasonable fees and compensation to attorneys,
5 accountants, and actuaries for services performed in the
6 independent practice of their professions, even if the
7 attorney, accountant, or actuary is also a director of the
8 mutual company.
9 (15) Costs and expenses. All the costs and expenses
10 connected with a plan of MHC conversion shall be paid for or
11 reimbursed by the mutual company or the converted company.
12 (16) Failure to give notice. If the mutual company
13 complies substantially and in good faith with the notice
14 requirements of this Section, the mutual company's failure to
15 give any member or members any required notice does not
16 impair the validity of any action taken under this Section.
17 (17) Limitation of actions. Any action challenging the
18 validity of or arising out of acts taken or proposed to be
19 taken under this Section shall be commenced within 30 days
20 after the effective date of the plan of MHC conversion.
21 Section 99. Effective date. This Act takes effect upon
22 becoming law.