MUTUAL LIFE INSURANCE COMPANY REORGANIZATION ACT - REPEALED — 1992 Pa. Act 33 (historical enacted text)

Historical Act text

PRIOR PRINTER'S NO. 1697 PRINTER'S NO. 1912
INTRODUCED BY HOLL, NOVEMBER 18, 1991
SENATOR HOLL, BANKING AND INSURANCE, AS AMENDED,
FEBRUARY 11, 1992
AN ACT
1 Providing procedures for the reorganization of a domestic mutual
2 life insurance company into a domestic stock life insurance
3 company.
4 TABLE OF CONTENTS
5 Section 1. Short title.
6 Section 2. Definitions.
7 Section 3. Plan of reorganization.
8 Section 4. Fair and equitable plan.
9 Section 5. Types of plans.
10 Section 6. Members eligible to notice of and vote on plan.
11 Section 7. Consultants.
12 Section 8. Approval of plan by members.
13 Section 9. Duties of commissioner.
14 Section 10. Fees and expenses. <--
15 SECTION 10. HEARINGS. <--
16 SECTION 11. FEES AND EXPENSES.
17 Section 11 12. Continuation of reorganized insurer. <--
1 Section 12 13. Directors and officers. <--
2 Section 13 14. Amendment of plan of reorganization. <--
3 Section 14 15. Limitation on stock acquisitions by directors. <--
4 Section 15 16. Limitation of actions. <--
5 Section 16 17. Security for attorney fees. <--
6 Section 17 18. Filing of plan. <--
7 Section 18 19. Repeals. <--
8 Section 19 20. Effective date. <--
9 The General Assembly of the Commonwealth of Pennsylvania
10 hereby enacts as follows:
11 Section 1. Short title.
12 This act shall be known and may be cited as the Mutual Life
13 Insurance Company Reorganization Act.
14 Section 2. Definitions.
15 The following words and phrases when used in this act shall
16 have the meanings given to them in this section unless the
17 context clearly indicates otherwise:
18 "Assets." Admitted assets listed on the mutual life
19 insurer's annual convention statement in accordance with laws
20 and regulations of this Commonwealth relating to mutual life
21 insurers, and the rules of the National Association of Insurance
22 Commissioners.
23 "Commissioner." The Insurance Commissioner of the
24 Commonwealth.
25 "Member." A person who, by the records of the mutual life
26 insurer and by its charter or bylaws, is deemed to be an owner
27 of a membership interest.
28 "Membership interest." The interests of members arising
29 under this act and the charter and bylaws of the mutual life
30 insurer, or otherwise by law, including the right to vote for
19910S1435B1912 - 2 -
1 directors or trustees of the mutual life insurer.
2 "Mutual life insurer." A domestic mutual life insurance
3 company.
4 "Nonparticipating policy." An individual or group life,
5 health or accident insurance policy or annuity contract which by
6 its terms does not provide that the policy or contract will
7 share in any divisible surplus of the mutual life insurer, as
8 apportioned or allocated to the policy or contract by the mutual
9 life insurer.
10 "Nonparticipating policyholder." The owner of a
11 nonparticipating policy.
12 "Participating policy." An individual or group life, health
13 or accident insurance policy or annuity contract which by its
14 terms provides that the policy or contract will share in any
15 divisible surplus of the mutual life insurer, as apportioned or
16 allocated to the policy or contract by the mutual life insurer.
17 "Participating policy interest." The rights and interests
18 afforded to participating policyholders under their
19 participating policies under this act, under the charter and
20 bylaws of the mutual life insurer or otherwise by law.
21 "Participating policyholder." The owner of a participating
22 policy and the beneficiary and the payee (whether or not the
23 beneficiary or payee was the owner of the participating policy)
24 of death benefits pursuant to a settlement option under a
25 participating policy providing that the beneficiary or payee
26 will share in divisible surplus of the mutual life insurer as
27 apportioned or allocated to such settlement option by the mutual
28 life insurer.
29 "Person." An individual, partnership, firm, association,
30 corporation, joint-stock company, trust or any similar entity or
19910S1435B1912 - 3 -
1 any combination of the foregoing acting in concert.
2 "Plan of reorganization." A plan of demutualization or
3 demutualization and merger as described in this act.
4 "Policyholder." The owner or holder of a participating
5 policy or a nonparticipating policy or both.
6 "Reorganized insurer." The domestic stock life insurance
7 company into which a mutual life insurer has been reorganized in
8 accordance with this act.
9 "Separate block of business." The portfolio of insurance
10 policies and annuity contracts of the mutual life insurer in
11 existence as of the date the plan of reorganization is adopted
12 by the mutual life insurer's board of directors or trustees.
13 Policies or contracts which have not been issued as of the date
14 of adoption of the plan, but for which applications have been
15 received by the mutual life insurer prior to the adoption date
16 where the policies are issued after the effective date of the
17 reorganization, shall be part of the separate block of business.
18 Policies and contracts for which applications have been received
19 after the date of adoption of the reorganization plan, but prior
20 to the effective date of the reorganization shall not be part of
21 the separate block of business provided notice of the pending
22 reorganization has been given by the mutual life insurer to the
23 applicant. Notice may be given by a rider to the application
24 form. The plan of reorganization may, at the election of the
25 mutual life insurer, exclude from the separate block of business
26 any class of group insurance policies and group annuity
27 contracts which are participating policies, but where the
28 participation in divisible surplus is based on the experience of
29 the class.
30 "Statement date." The December 31 THE END OF THE CALENDAR <--
19910S1435B1912 - 4 -
1 QUARTER immediately prior to the date the plan of reorganization
2 was adopted by the board of directors or trustees of the mutual
3 life insurer or the effective date of the reorganization of the
4 mutual life insurer, as the case may be.
5 Section 3. Plan of reorganization.
6 (a) Options.--Notwithstanding any other provision of law to
7 the contrary, upon completion of the proceedings prescribed by
8 this act, a mutual life insurer may do the following:
9 (1) reorganize pursuant to a plan of reorganization into
10 a domestic stock life insurer; or
11 (2) reorganize pursuant to a plan of reorganization in
12 which a majority or all of the common shares of the
13 reorganized insurer is acquired by another person which may
14 be a person organized for such purpose.
15 (b) Merger of reorganized insurer.--As part of the
16 reorganization, the reorganized insurer may merge with a
17 domestic stock insurer, provided, that other provisions of law
18 applicable to mergers and acquisitions of stock life insurance
19 companies shall not be applicable to a merger under this act
20 which is contemplated and provided for by the plan of
21 reorganization. Prior to submission under this act of a plan of
22 reorganization by a mutual life insurer to the commissioner
23 under section 9, the board of directors or trustees of such
24 mutual life insurer shall first approve the plan of
25 reorganization at a regular or special meeting held in
26 accordance with the provisions of this act.
27 Section 4. Fair and equitable plan.
28 (a) Determination.--A plan of reorganization shall be fair
29 and equitable. A plan of reorganization proposed by a mutual
30 life insurer is fair and equitable if it satisfies the
19910S1435B1912 - 5 -
1 conditions of one of the plans described in section 5 AND IS <--
2 DETERMINED BY THE COMMISSIONER TO BE FAIR AND EQUITABLE TO
3 MEMBERS SUBJECT TO THE PROVISIONS OF SECTION 9. The commissioner
4 may, however, determine that a plan of reorganization proposed
5 by a mutual life insurer which does not comply with the
6 conditions of one of the plans described in section 5 is fair
7 and equitable to the MUTUAL LIFE INSURER AND ITS members. <--
8 (b) Administration of certain participating policies.--For
9 certain plans of reorganization described in section 5, there
10 shall be included a procedure by which the mutual life insurer's
11 participating policies in the separate block of business are
12 administered by the reorganized insurer as a separate block of
13 participating business for dividend purposes only.
14 (C) NOTICE OF PLAN.--A PLAN OF REORGANIZATION SHALL BE FILED <--
15 WITH THE COMMISSIONER, WITH A FEE TO BE ESTABLISHED BY THE
16 COMMISSIONER, THAT SETS FORTH THE MUTUAL LIFE INSURER'S
17 COMPLIANCE WITH SECTION 9. UPON RECEIPT OF THE PLAN OF
18 REORGANIZATION BY THE COMMISSIONER, THE COMMISSIONER SHALL
19 PUBLISH A NOTICE IN THE PENNSYLVANIA BULLETIN THAT THE PLAN OF
20 REORGANIZATION HAS BEEN FILED. ONCE PUBLISHED IN THE
21 PENNSYLVANIA BULLETIN, THE MUTUAL LIFE INSURER SHALL PROVIDE
22 NOTICE OF THE FILING OF THE PLAN OF REORGANIZATION TO ITS
23 MEMBERS AND INFORM THEM THAT THE PLAN OF REORGANIZATION OR A
24 SUMMARY THEREOF IS AVAILABLE UPON REQUEST.
25 Section 5. Types of plans.
26 (a) Plan 1.--A reorganization under this plan shall provide
27 all of the following:
28 (1) The participating policyholders' interests, if any,
29 shall be exchanged in a manner which takes into account the
30 estimated proportionate contribution to surplus of each class
19910S1435B1912 - 6 -
1 of participating policies. The participating policyholders'
2 interests, if any, shall be exchanged, subject to any common
3 shares allocated to nonparticipating policyholders, as
4 provided in this subsection, for all of the common shares of
5 the reorganized insurer or its parent company, if any, or for
6 a combination of the common shares of the reorganized insurer
7 or its parent company, if any, and consideration equal to the
8 proceeds of the sale of the common shares by the reorganized
9 insurer from the initial distribution of the shares or by a
10 trust or other entity existing for the exclusive benefit of
11 members and established solely for the purpose of effecting
12 the reorganization, to which trust or other entity, the
13 common shares, or the options to acquire or securities
14 convertible into the common shares, shall be issued by the
15 reorganized insurer on the effective date of the
16 reorganization. The consideration shall be distributed to
17 members and participating policyholders during a process of <--
18 reorganization specified in the plan of reorganization which
19 shall not last more than ten years after the effective date
20 of the reorganization or until the death of the former member <--
21 or policyholder, whichever occurs first. At the option of the
22 mutual life insurer, nonparticipating policyholders may be
23 granted preemptive rights to acquire common shares of the
24 reorganized insurer, or its parent company, if any. The
25 price, number of shares which may be acquired and the
26 allocation and manner of exercise of preemptive rights shall
27 be as established by the mutual life insurer.
28 (2) Unless the anticipated issuance within a shorter
29 period is disclosed, the issuer of common shares shall not,
30 within two years after the effective date of the
19910S1435B1912 - 7 -
1 reorganization, issue either of the following:
2 (i) Any of its common shares or any securities
3 convertible, with or without consideration, into the
4 common shares or carrying any warrant to subscribe to or
5 purchase common shares.
6 (ii) Any warrant, right or option to subscribe to or
7 purchase the common shares or other securities described
8 in subparagraph (i), except for the issuance of common
9 shares to or for the benefit of members and policyholders
10 pursuant to the plan of reorganization and except for the
11 issuance of stock in anticipation of options for the
12 purchase of common shares being granted to officers or
13 employees of the reorganized insurer or its parent
14 company, if any, pursuant to this act.
15 (3) Unless the common shares have a public market when
16 issued, the issuer shall use its best efforts to encourage
17 and assist in the establishment of a public market for the
18 common shares within two years after the effective date of
19 the reorganization or a longer period as disclosed in the
20 plan of reorganization. Within one year after the offering of
21 stock other than the initial distribution, but no later than
22 six years after the effective date of the reorganization, the
23 reorganized insurer shall offer to make available to persons
24 who received and retained shares of stock with minimal values
25 at the time of the reorganization, a procedure to dispose of
26 those shares of stock at market value without brokerage
27 commissions or similar fees.
28 (b) Plan 2.--A reorganization under this plan shall satisfy
29 all of the following except for the options provided in
30 paragraphs (4), (6) and (12):
19910S1435B1912 - 8 -
1 (1) The reorganized insurer or its parent company, if
2 any, shall issue and sell shares of one or more classes
3 having a total price equal to the estimated fair market value
4 of the mutual life insurer as set forth in the plan of
5 reorganization as of the initial offering taking into account
6 the values to be given to participating and nonparticipating
7 policyholders pursuant to paragraphs (3), (4) and (6) of this
8 plan and the proceeds of the sale.
9 (2) Assets of the mutual life insurer shall be allocated
10 to the separate block of business in an amount equal to the
11 statutory reserves and liabilities, MSVR, and any voluntary
12 reserves attributable to the separate block of business.
13 (3) The participating policyholders' equity value shall
14 be based on the annual statement filed as of the statement
15 date prior to the date of the adoption of the plan of
16 reorganization by the board of directors and shall be equal
17 to the excess of the total amount of the mutual life
18 insurers' assets on the statement date over the sum of the
19 total amount of assets allocated to the separate block of
20 business as determined under paragraph (2), plus an amount
21 equal to reserves and other liabilities not attributable to
22 the separate block of business.
23 (4) (i) At the option of the mutual life insurer, the
24 consideration to be given in exchange for the
25 participating policy interests may consist of cash,
26 securities of the reorganized insurer, securities of
27 another company, a certificate of contribution,
28 additional life insurance, annuity benefits, increased
29 dividends, or other consideration or any combination of
30 such forms of consideration. The consideration, if any,
19910S1435B1912 - 9 -
1 given to any class or category of participating
2 policyholders may differ from the consideration given to
3 another class or category of participating policyholders.
4 (ii) The certificate of contribution shall be
5 repayable in ten years, equal to 100% of the value of the
6 participating policy interests and bear interest at the
7 highest rate charged by the reorganized insurer for
8 policy loans ON POLICIES BEING ISSUED on the effective <--
9 date of the reorganization.
10 (iii) To the extent that the participating
11 policyholders' consideration under paragraph (3) and this
12 paragraph is paid in cash, securities or other financial
13 instruments as set forth above, a liquidation account as
14 described in paragraph (5) shall not be required. To the
15 extent of the statutory liability of any additional life
16 insurance, annuity benefits or other such enhancements
17 provided by the options under this paragraph, a
18 liquidation account shall not be required.
19 (5) (i) The liquidation account must be equal to the
20 amount of the excess of the total amount of the assets of
21 the mutual life insurer as of the statement date prior to
22 the reorganization over the sum of the total amount of
23 assets as set forth in paragraph (2), and all reserves
24 and liabilities attributed to policies and contracts not
25 included in the separate block of business but in force
26 on the statement date.
27 (ii) The value determinations shall be based on the
28 annual statement of the mutual life insurer filed on the
29 statement date prior to the effective date of the
30 reorganization. The function of the liquidation account
19910S1435B1912 - 10 -
1 shall be solely to establish a priority on liquidation
2 and its existence shall not operate to restrict the use
3 or application of the surplus of the reorganized insurer
4 except as provided in paragraph (11). The liquidation
5 account shall be allocated equitably as of the effective
6 date of the reorganization among the then participating
7 policyholders.
8 (iii) The amount allocated to any policy or contract
9 shall not increase and will be reduced by any amount of
10 consideration given in exchange for the participating
11 policy interests as set forth in paragraph (4). The
12 amount shall be reduced to zero when the participating
13 policy terminates. In the event of a complete liquidation
14 of the reorganized insurer, the participating
15 policyholders among whom the liquidation account is
16 allocated shall be entitled to receive a liquidation
17 distribution in the amount of the liquidation account at
18 the time of liquidation before any liquidation
19 distribution is made with respect to nonparticipating
20 policies and shares of the reorganized insurer.
21 (6) The consideration to be given in exchange for the
22 participating policy interests shall consist of the
23 participating policyholders' equity value as determined in
24 accordance with paragraph (3). In addition to such
25 consideration, (but in the case of nonparticipating
26 policyholders the only consideration), nontransferable
27 preemptive subscription rights to acquire shares of the
28 reorganized insurer, or its parent company, if any, expiring
29 on the effective date of the reorganization, may be issued to
30 the policyholders. The number of shares which may be
19910S1435B1912 - 11 -
1 acquired, the price of such shares, and the allocation and
2 manner of exercise of such preemptive rights shall be as
3 established by the mutual life insurer subject to paragraph
4 (7). Under certain options set forth in paragraph (4), the
5 reorganized insurer shall establish a liquidation account for
6 the benefit of the participating policyholders in the event
7 of a subsequent complete liquidation of the reorganized
8 insurer. Additional amounts may become payable to the
9 participating policyholders as set forth in paragraph (12).
10 (7) The consideration and the preemptive subscription
11 rights, if any, to purchase the common shares shall be
12 allocated among the policyholders in a manner determined by
13 the mutual life insurer which takes into account the
14 estimated contribution of each class of participating
15 policies, to the total amount of the participating
16 policyholders' equity value. Preemptive rights, if any,
17 allocated to nonparticipating policyholders shall be valued
18 by the mutual life insurer in a manner which it believes is
19 equitable, and may reflect the fact that nonparticipating
20 policyholders do not receive distributions from divisible
21 surplus.
22 (8) Unless the common shares have a public market when
23 issued, the reorganized insurer shall use its best efforts to
24 encourage and assist in the establishment of a public market
25 for the common shares.
26 (9) The reorganized insurer shall not, for at least
27 three years following the reorganization, repurchase any of
28 its common shares except pursuant to a pro rata tender offer
29 to all of its shareholders.
30 (10) Until the liquidation account has been reduced to
19910S1435B1912 - 12 -
1 zero, the reorganized insurer shall not declare or pay a cash
2 dividend on, or repurchase any of, its common shares in an
3 amount in excess of its cumulative earned surplus generated
4 after the reorganization determined in accordance with
5 statutory accounting principles, if the effect would be to
6 cause the statutory surplus of the reorganized insurer to be
7 reduced below the amount then in the liquidation account.
8 (11) (i) An equitable A portion of any profit available <--
9 after the sufficient support of business, including
10 existing business, as of the effective date of the
11 reorganization and insurance business obtained
12 thereafter, may be paid in an equitable manner and form
13 to the then participating policyholders of the former
14 mutual life insurer, no less than annually. IF ANY <--
15 PORTION OF SUCH PROFIT IS TO BE PAID TO THE SHAREHOLDERS
16 OF THE REORGANIZED INSURER, THEN AN EQUITABLE PORTION, AS
17 PROVIDED IN THE PLAN OF REORGANIZATION, OF SUCH PROFIT
18 SHALL ALSO BE PAID TO SAID PARTICIPATING POLICYHOLDERS. A
19 PLAN FOR DISTRIBUTION OF SUCH PROFITS TO SHAREHOLDERS AND
20 PARTICIPATING POLICYHOLDERS SHALL BE INCLUDED IN THE PLAN
21 OF REORGANIZATION FILED WITH AND APPROVED BY THE
22 COMMISSIONER. Allocation of such portion of profit among
23 the various classes of participating policyholders in the
24 same manner as profits or dividends were allocated by the
25 mutual life insurer prior to the reorganization shall be
26 deemed fair and equitable. Sufficient support of the
27 business includes, but is not limited to, provisions for
28 payment of current claims, reasonable current expenses,
29 and continuation of current dividend scales, unless
30 experience changes, for the separate block of business,
19910S1435B1912 - 13 -
1 as of the effective date of the reorganization. Fair and
2 equitable allocation shall take into account the
3 estimated contribution of each class of participating
4 policies in the separate block of business to the total
5 amount of profit available, and may include a special
6 terminal dividend for those policies and contracts that
7 terminated with a remaining liquidation account
8 allocation.
9 (ii) In cases where the form of compensation does
10 not include, explicitly or implicitly, interest on
11 deferred compensation, the reorganized insurer shall, no
12 less than annually, in an equitable manner and form, give
13 to participating policyholders an amount equal to the net
14 investment earnings (after Federal and State taxes) on
15 assets equal to the liquidation account balance from the
16 prior year.
17 (12) At the option of the mutual life insurer, any
18 shares of the reorganized insurer, or its parent company, if
19 any, included in the PARTICIPATING policyholders' <--
20 consideration shall be placed on the effective date of the
21 reorganization in a trust or other entity existing for the
22 exclusive benefit of the members PARTICIPATING POLICYHOLDERS <--
23 and established solely for the purpose of effecting the
24 reorganization. Under this option, the shares placed in trust
25 shall be sold over a period of not more than ten years and
26 the proceeds of the shares shall be distributed using the
27 distribution priorities prescribed in the plan of
28 reorganization.
29 (c) Plan 3.--A reorganization under this plan shall satisfy
30 all of the following except for the options provided in
19910S1435B1912 - 14 -
1 paragraphs (4), (6) and (12):
2 (1) The reorganized insurer or its parent company, if
3 any, shall issue and sell shares of one or more classes
4 having a total price equal to the estimated market value as
5 set forth in the plan of reorganization of the mutual life
6 insurer as of the initial offering taking into account the
7 value to be given to participating and nonparticipating
8 policyholders pursuant to paragraphs (3) and (4) and the
9 proceeds of the sale.
10 (2) Assets of the mutual life insurer shall be allocated
11 to the separate block of business in an amount which,
12 together with anticipated revenues from the assets and
13 policies included as of the effective date of the
14 reorganization in the separate block of business, is
15 reasonably expected to be sufficient to support such
16 business, including, without limitation, provisions for
17 payment of claims and reasonable expenses, and provisions for
18 continuation of current dividend scales if the experience
19 underlying the scales continues unchanged.
20 (3) The participating policyholders' equity value shall
21 be based on the annual statement filed as of the statement
22 date prior to the date of the adoption of the plan of
23 reorganization by the board of directors and shall be equal
24 to the excess of the total amount of the mutual life
25 insurer's assets accumulated on the statement date over the
26 sum of the total amount of assets as determined under
27 paragraph (2), plus an amount equal to the reserve and other
28 liabilities not attributable to the separate block of
29 business.
30 (4) (i) At the option of the mutual life insurer, the
19910S1435B1912 - 15 -
1 consideration to be given in exchange for the
2 participating policy interests may consist of cash,
3 securities of the reorganized insurer, securities of
4 another company, a certificate of contribution,
5 additional life insurance, annuity benefits, increased
6 dividends, or other consideration or any combination of
7 such forms of consideration. The consideration, if any,
8 given to any class or category of participating
9 policyholders may differ from the consideration given to
10 another class or category of participating policyholders.
11 (ii) The certificate of contribution shall be
12 repayable in ten years, equal to 100% of the value of the
13 participating policy interests and bear interest at the
14 highest rate charged by the reorganized insurer for
15 policy loans ON POLICIES BEING ISSUED on the effective <--
16 date of the reorganization.
17 (iii) To the extent that the participating
18 policyholders' consideration under paragraph (3) and this
19 paragraph is paid in cash, securities or other financial
20 instruments, a liquidation account described in paragraph
21 (5) shall not be required. To the extent of the statutory
22 liability of any additional life insurance, annuity
23 benefits or other such enhancements provided by the
24 options under this paragraph, a liquidation account shall
25 not be required.
26 (5) (i) The liquidation account must be equal to the
27 amount of the excess of the total amount of the assets of
28 the mutual life insurer as of the statement date prior to
29 the reorganization over the sum of the total amount of
30 assets as set forth in paragraph (2), and all reserves
19910S1435B1912 - 16 -
1 and liabilities attributed to policies and contracts not
2 included in the separate block of business, but in force
3 on the statement date.
4 (ii) The value determinations shall be based on the
5 annual statement of the mutual life insurer filed on the
6 statement date prior to the effective date of the
7 reorganization. The function of the liquidation account
8 shall be solely to establish a priority on liquidation
9 and its existence shall not operate to restrict the use
10 or application of the surplus of the reorganized insurer
11 except as provided in paragraph (11). The liquidation
12 account shall be allocated equitably as of the effective
13 date of the reorganization among the then participating
14 policyholders.
15 (iii) The amount allocated to any policy or contract
16 shall not increase and will be reduced by any amount of
17 consideration given in exchange for the participating
18 policy interest as set forth in paragraph (4). The amount
19 shall be reduced to zero when the participating policy
20 terminates. In the event of a complete liquidation of the
21 reorganized insurer, the participating policyholders
22 among whom the liquidation account is allocated shall be
23 entitled to receive a liquidation distribution in the
24 amount of the liquidation account at the time of
25 liquidation before any liquidation distribution is made
26 with respect to nonparticipating policies and stock of
27 the reorganized insurer.
28 (6) The consideration to be given in exchange for the
29 participating policyholders' interests shall consist of the
30 participating policyholders' equity value as defined in
19910S1435B1912 - 17 -
1 paragraph (3). In addition to such consideration (but in the
2 case of nonparticipating policyholders the only
3 consideration), nontransferable preemptive subscription
4 rights to acquire shares of the reorganized insurer, or its
5 parent company, if any, expiring on the effective date of the
6 reorganization, may be issued to the policyholders. The
7 number of shares which may be acquired, the price of the
8 shares, the allocation and manner of exercise of preemptive
9 rights shall be as established by the mutual life insurer
10 subject to paragraph (7). Under certain options set forth in
11 paragraph (4), the reorganized insurer shall establish a
12 liquidation account for the benefit of the participating
13 policyholders in the event of a subsequent complete
14 liquidation of the reorganized insurer. Additional amounts
15 may become payable to the participating policyholders as set
16 forth in paragraph (12).
17 (7) The consideration and the preemptive subscription
18 rights, if any, to purchase the common shares shall be
19 allocated among the policyholders in a manner determined by
20 the mutual life insurer which takes into account the
21 estimated contribution of each class of participating
22 policies, as provided in paragraph (3), to the total amount
23 of the participating policyholders' equity value. Preemptive
24 rights, if any, allocated to nonparticipating policyholders
25 shall be valued by the mutual life insurer in a manner which
26 it believes is equitable, and may reflect the fact that
27 nonparticipating policyholders do not receive distributions
28 from divisible surplus.
29 (8) Unless the common shares have a public market when
30 issued, the reorganized insurer shall use its best efforts to
19910S1435B1912 - 18 -
1 encourage and assist in the establishment of a public market
2 for the common shares.
3 (9) The reorganized insurer shall not, for at least
4 three years following the reorganization, repurchase any of
5 its common shares except pursuant to a pro rata tender offer
6 to all of its shareholders.
7 (10) Until the liquidation account has been reduced to
8 zero, the reorganized insurer shall not declare or pay a cash
9 dividend on, or repurchase any of, its common shares in an
10 amount in excess of its cumulative earned surplus generated
11 after the reorganization determined in accordance with
12 statutory accounting principles if the effect would be to
13 cause the statutory surplus of the reorganized insurer to be
14 reduced below the amount then in the liquidation account.
15 (11) (i) An equitable A portion of any profit available <--
16 after the sufficient support of business, including
17 existing business, as of the effective date of the
18 reorganization and insurance business obtained
19 thereafter, may be paid in an equitable manner and form
20 to the then participating policyholders of the former
21 mutual life insurer, no less than annually. IF ANY <--
22 PORTION OF SUCH PROFIT IS TO BE PAID TO THE SHAREHOLDERS
23 OF THE REORGANIZED INSURER, THEN AN EQUITABLE PORTION, AS
24 PROVIDED IN THE PLAN OF REORGANIZATION, OF SUCH PROFIT
25 SHALL ALSO BE PAID TO SAID PARTICIPATING POLICYHOLDERS. A
26 PLAN FOR DISTRIBUTION OF SUCH PROFITS TO SHAREHOLDERS AND
27 PARTICIPATING POLICYHOLDERS SHALL BE INCLUDED IN THE PLAN
28 OF REORGANIZATION FILED WITH AND APPROVED BY THE
29 COMMISSIONER. Allocation of such portion of profit among
30 the various classes of policyholders in the same manner
19910S1435B1912 - 19 -
1 as profits or dividends were allocated by the mutual life
2 insurer prior to the reorganization shall be deemed fair
3 and equitable. Sufficient support of the business
4 includes, but is not limited to, provisions for payment
5 of claims, reasonable expenses, and continuation of
6 current dividend scales unless such experience changes,
7 for the separate block of business, as of the effective
8 date of the reorganization. Allocation in a fair and
9 equitable manner shall take into account the estimated
10 contribution of each class of participating policies in
11 the separate block of business to the total amount
12 available and may include a special terminal dividend for
13 those policies and contracts that terminated with a
14 remaining liquidation account allocation.
15 (ii) In cases where the form of compensation does
16 not include, explicitly or implicitly, interest on
17 deferred compensation, the reorganized insurer shall, no
18 less than annually in an equitable manner and form, give
19 to the participating policyholders an amount equal to the
20 net investment earnings (after Federal and State taxes),
21 on assets equal to the liquidation account balance from
22 the prior year.
23 (12) At the option of the mutual life insurer, any
24 shares of the reorganized insurer or its parent company, if
25 any, included in the PARTICIPATING policyholders' <--
26 consideration shall be placed on the effective date of the
27 reorganization in a trust or other entity existing for the
28 exclusive benefit of the PARTICIPATING policyholders and <--
29 established solely for the purpose of effecting the
30 reorganization. Under this option, the shares placed in trust
19910S1435B1912 - 20 -
1 shall be sold over a period of not more than ten years and
2 the proceeds of the shares shall be distributed using the
3 distribution priorities prescribed in the plan of
4 reorganization.
5 Section 6. Members eligible to notice of and vote on plan.
6 The members who are entitled to notice of and to vote upon
7 approval of a plan of reorganization and entitled to notice of a
8 public hearing are the members whose policies or contracts are
9 participating or nonparticipating and are in force on the date
10 of adoption by the board of directors or trustees of the plan of
11 reorganization. Each owner or holder of a participating or
12 nonparticipating policy which has been in force for at least one
13 year prior to such date is entitled to the consideration, if
14 any, provided for the policy holder in the plan of
15 reorganization based on the policyholder's interest determined
16 pursuant to this act, but only to the extent that the
17 policyholder's interest arose from policies in force on the
18 effective date of the reorganization and which were in force for
19 at least one year prior to the date of adoption of the plan of
20 reorganization by the board of directors or trustees. For this
21 purpose, any changes in status of a policyholder, or payment of
22 premiums in excess of those required on the policies or
23 contracts occurring or made within one year prior to the date of
24 adoption of the plan of reorganization shall be disregarded.
25 Section 7. Consultants.
26 (a) Appointment.--A plan of reorganization may provide for
27 the appointment by the mutual life insurer of one or more
28 persons as consultants. The appointment of a consultant shall be
29 reviewed by the commissioner. Unless the commissioner finds
30 reasonable cause to believe the consultant to be unqualified,
19910S1435B1912 - 21 -
1 the consultant shall carry out the duties required by the mutual
2 life insurer and this act. The commissioner may appoint one or <--
3 more consultants as the commissioner shall reasonably deem
4 necessary to enable him to make the determination under this act
5 whether the proposed plan of reorganization meets the
6 requirements applicable to the plan under this act. The mutual
7 life insurer shall be responsible for the reasonable fees and
8 expenses of any such consultants.
9 (b) Duties.--A consultant may assist in determining the
10 policyholders' interests and the value of the mutual life
11 insurer. A consultant may consider the value of the
12 consideration to be given to the participating and
13 nonparticipating policyholders in exchange for their interests
14 or the value of the consideration into which such interests are
15 to be converted. A consultant may also consider the valuations
16 necessary to carry out the plans provided for under section 5.
17 Valuations shall take into account the latest filed statutory
18 annual statement of the mutual life insurer and any significant
19 developments occurring subsequent to the statement date.
20 (c) Findings of consultant.--The findings of a consultant
21 may be modified by the mutual life insurer at any time so long
22 as the results are not unfair or inequitable to the members.
23 (d) Appointment of underwriter as consultant.--If it can be
24 shown by the mutual life insurer to the commissioner that any
25 proposed underwriter of the shares of the proposed reorganized
26 insurer or its parent, if any, is a qualified person, the
27 underwriter may be appointed as a consultant.
28 Section 8. Approval of plan by members.
29 After the plan of reorganization has been approved by the
30 commissioner as provided in section 9, the plan of
19910S1435B1912 - 22 -
1 reorganization shall be submitted to the members of the mutual
2 life insurer. The plan shall not take effect until approved by a <--
3 majority TWO-THIRDS of the members of the mutual life insurer <--
4 actually voting on the plan of reorganization. Notice of a
5 meeting for the purpose of voting on the plan of reorganization
6 shall be provided by mail to each member entitled to vote in
7 accordance with the articles of incorporation or bylaws of the
8 mutual life insurer. Voting shall be by ballot, in person or by
9 proxy. A quorum shall consist of a quorum as defined in the
10 articles of incorporation or bylaws of the mutual life insurer.
11 A copy of the plan of reorganization, or a summary of the plan
12 of reorganization, shall accompany the notice of meeting. The
13 notice of the meeting may contain the notice of any planned
14 public hearing. An approved plan of reorganization shall take
15 effect on the date specified in the plan.
16 Section 9. Duties of commissioner.
17 The commissioner shall review the plan of reorganization. The <--
18 commissioner shall approve the plan of reorganization if he
19 finds the plan of reorganization complies with a plan provided
20 for under section 5 or may approve such other plan of
21 reorganization if the commissioner finds the plan to be fair and
22 equitable to the mutual life insurer and its policyholders, and
23 that the reorganized insurer will have the amount of capital and
24 surplus deemed by the commissioner to be reasonably necessary
25 for its future solvency. The commissioner may order a hearing on
26 whether the terms of the plan of reorganization comply with a
27 plan provided for in section 5, or such other plan of
28 reorganization proposed by the commissioner that is fair and
29 equitable, after giving written notice of the hearing to the
30 mutual life insurer, its members and other interested persons,
19910S1435B1912 - 23 -
1 all of whom shall have the right to appear at the hearing.
2 (A) REVIEW OF PLAN.--THE COMMISSIONER SHALL REVIEW THE PLAN <--
3 OF REORGANIZATION. THE COMMISSIONER SHALL ISSUE AN ORDER
4 APPROVING THE PLAN OF REORGANIZATION IF HE FINDS IT COMPLIES
5 WITH SECTION 5 UNLESS THE COMMISSIONER FINDS AFTER A HEARING
6 THAT THE DISTRIBUTION OF THE EQUITY VALUE TO THE MEMBERS UNDER
7 SUCH PLAN IS NOT FAIR AND EQUITABLE. THE COMMISSIONER MAY
8 APPROVE ANY SUCH OTHER PLAN OF REORGANIZATION AS THE
9 COMMISSIONER SHALL FIND TO BE FAIR AND EQUITABLE TO THE MUTUAL
10 LIFE INSURER AND ITS MEMBERS. WHEN APPROVING ANY PLAN OF
11 REORGANIZATION, THE COMMISSIONER SHALL DETERMINE THAT THE
12 REORGANIZED INSURER WILL HAVE THE AMOUNT OF CAPITAL AND SURPLUS
13 DEEMED BY THE COMMISSIONER TO BE REASONABLY NECESSARY FOR ITS
14 FUTURE SOLVENCY.
15 (B) HEARING.--THE COMMISSIONER MAY ORDER A HEARING ON
16 WHETHER THE TERMS OF THE PLAN OF REORGANIZATION COMPLY WITH THE
17 PROVISIONS OF SECTION 5 OR SUCH OTHER PLAN OF REORGANIZATION
18 THAT IS FAIR AND EQUITABLE AS AFORESAID, AFTER GIVING WRITTEN
19 NOTICE OF THE HEARING TO THE MUTUAL LIFE INSURER, ITS MEMBERS
20 AND OTHER INTERESTED PERSONS, ALL OF WHOM HAVE THE RIGHT TO
21 APPEAR AT THE HEARING.
22 (C) CONSULTANTS.--THE COMMISSIONER MAY APPOINT ONE OR MORE
23 CONSULTANTS AS THE COMMISSIONER SHALL REASONABLY DEEM NECESSARY
24 TO ENABLE THE COMMISSIONER TO MAKE THE DETERMINATION WHETHER THE
25 PROPOSED PLAN OF REORGANIZATION MEETS THE REQUIREMENTS
26 APPLICABLE TO SUCH PLAN. THE MUTUAL LIFE INSURER SHALL BE
27 RESPONSIBLE FOR THE REASONABLE FEES AND EXPENSES OF ANY SUCH
28 CONSULTANTS.
29 SECTION 10. HEARINGS.
30 PURSUANT TO SECTION 9, THE COMMISSIONER MAY HOLD A HEARING ON
19910S1435B1912 - 24 -
1 THE PLAN OF REORGANIZATION. IN ADDITION, ANY MEMBER OF THE
2 MUTUAL LIFE INSURER MAY REQUEST A HEARING ON THE PLAN OF
3 REORGANIZATION, PROVIDED SUCH A REQUEST IS MADE WITHIN 60 DAYS
4 OF THE DATE OF THE NOTICE BY THE MUTUAL LIFE INSURER AS PROVIDED
5 FOR IN SECTION 4.
6 Section 10 11. Fees and expenses. <--
7 A director, officer, agent or employee of a mutual life
8 insurer shall not receive a fee, commission or other valuable
9 consideration, other than regular salary and compensation, for
10 aiding, promoting or assisting in the reorganization except as
11 set forth in the plan of reorganization approved by the
12 commissioner. This section does not prohibit the payment of
13 reasonable fees and compensation to a consultant, attorneys at
14 law, accountants, actuaries or other persons specifically
15 employed for services performed in the practice of their
16 profession while completing the plan of reorganization, even if
17 these persons are directors of the mutual life insurer.
18 Section 11 12. Continuation of reorganized insurer. <--
19 (a) Issuance of new certificate of authority.--When the
20 commissioner and the policyholders approve the plan of
21 reorganization, the commissioner shall issue a new certificate
22 of authority to the reorganized insurer effective as of the date
23 specified in the plan of reorganization.
24 (b) Existing suits, contracts and liabilities.--The
25 reorganized insurer is a continuation of the mutual life insurer
26 and the reorganization shall not annul or modify any of the
27 mutual life insurer's existing suits, contracts or liabilities
28 except as provided in the approved plan of reorganization. All
29 rights, franchises and interests of the mutual life insurer in
30 and to property, assets and other interests shall be transferred
19910S1435B1912 - 25 -
1 to and shall vest in the reorganized insurer and the reorganized
2 insurer shall assume all obligations and liabilities of the
3 mutual life insurer.
4 (c) Retention of rights.--The reorganized insurer shall
5 exercise all rights and powers and perform all duties conferred
6 or imposed by law on life insurance companies writing the
7 classes of insurance written by it, and shall retain the rights
8 and contracts existing before reorganization, subject to
9 provisions of the plan of reorganization.
10 Section 12 13. Directors and officers. <--
11 The directors and officers of the mutual life insurer shall
12 serve as the directors and officers of the reorganized insurer
13 until new directors and officers are elected and qualify
14 pursuant to the articles of incorporation and bylaws of the
15 reorganized insurer.
16 Section 13 14. Amendment of plan of reorganization. <--
17 At any time before approval of the plan of reorganization by
18 the members of the mutual life insurer and pursuant to rules
19 issued by the commissioner, the board of directors or trustees
20 of a mutual life insurer may amend the plan of reorganization.
21 The board of directors or trustees of a mutual life insurer may
22 withdraw the plan of reorganization at any time prior to the
23 approval of the plan of reorganization by its members.
24 Section 14 15. Limitation on stock acquisitions by directors. <--
25 (a) Limitation imposed.--Prior to the effective date of the
26 reorganization plan and for a period of five years following the
27 effective date of the reorganization plan, an officer or
28 director, including family members and their spouses, of the
29 mutual life insurer or the reorganized insurer, shall not
30 directly or indirectly offer to acquire or acquire any
19910S1435B1912 - 26 -
1 beneficial ownership of the reorganized insurer unless the
2 acquisition is made pursuant to a stock option plan approved by
3 the commissioner, made pursuant to the plan of reorganization,
4 or made after the initial public offering from a broker or
5 dealer of registered securities at the quoted price on the date
6 of purchase.
7 (b) Definitions.--As used in this section, the following
8 words and phrases shall have the meanings given to them in this
9 subsection:
10 "Beneficial ownership." With respect to any security, the
11 sole or shared power to vote or direct the voting of the
12 security or the sole power to dispose or direct the disposition
13 of the security.
14 "Family member." A brother, sister, spouse, parent,
15 grandparent, ancestor or descendant of the officer or director.
16 Section 15 16. Limitation of actions. <--
17 An action challenging the validity of a plan of
18 reorganization, or any part of a plan, shall not be commenced
19 more than 180 days following the date of approval by the
20 commissioner.
21 Section 16 17. Security for attorney fees. <--
22 The court may require the plaintiff in an action against a
23 reorganized insurer to give security for the reasonable attorney
24 fees which may be incurred by any party to the action. The
25 amount of the security may be increased or decreased in the
26 discretion of the court having jurisdiction if a showing is made
27 that the security provided is or may become inadequate or
28 excessive.
29 Section 17 18. Filing of plan. <--
30 After approval of the plan of reorganization by the
19910S1435B1912 - 27 -
1 commissioner and the policyholders, the Secretary of the
2 Commonwealth shall accept for filing a verified copy of the
3 amended articles of incorporation.
4 Section 18 19. Repeals. <--
5 All acts and parts of acts are repealed insofar as they are
6 inconsistent with this act.
7 Section 19 20. Effective date <--
8 This act shall take effect in 60 days.
J21L40PJP/19910S1435B1912 - 28 -