§ 10-16-324 — Conversion of corporation to a stock insurance company
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(1) It is
the intent of the general assembly by the enactment of this section to create a
procedure for nonprofit hospital, medical-surgical, and health service corporations
subject to the provisions of part 1 of this article and this part 3 to elect to convert to
a stock insurance company subject to article 3 of this title. The general assembly in
so doing recognizes the substantial and recent changes in market and health-care
conditions that are affecting such corporations and further recognizes the need for
equal regulatory treatment and competitive equality for health-care insurers. The
general assembly further finds that a procedure for conversion to a stock insurance
company will be in the best interests of policyholders by providing greater financial
stability for such company's policyholders and a greater opportunity to remain a
financially independent Colorado company.
(2) Any nonprofit hospital, medical-surgical, and health service corporation,
referred to in this section as corporation, subject to the provisions of part 1 of this
article and this part 3 may convert, without reincorporation, to a stock insurance
company subject to article 3 of this title under a plan that complies with this
section and has been approved by the commissioner pursuant to this section.
(3) In order to convert to a stock insurance company, the corporation shall
file with the commissioner a plan for such conversion and apply for an amended
certificate of authority pursuant to part 1 of article 3 of this title. The plan shall be
available to the public for inspection both at the office of the commissioner and at
the office of the proponent of the plan.
(4) The plan shall set forth with specificity the terms and conditions of the
proposed conversion and shall do all of the following:
(a) Certify that the plan has been adopted by a majority vote of the board of
directors of the corporation;
(b) Establish that the plan and the proposed conversion will not be
prejudicial to the subscribers of the corporation or the citizens of the state of
Colorado;
(c) Provide a comparative premium rate analysis of the corporation's major
plans and product offerings, comparing actual premium rates for the three-year
period prior to the filing of the plan and projected premium rates for the three-year
period following any proposed conversion. Any such rate analysis shall address the
projected impact, if any, of the proposed conversion upon the cost to subscribers as
well as the projected impact, if any, of the proposed conversion upon the
corporation's underwriting profit, investment income, and loss and claim reserves,
including the effect, if any, of adverse market or risk selection upon such reserves.
(d) Provide for the protection of all existing contractual rights of the
corporation's subscribers or contract holders for medical and hospital service or
claims for reimbursement thereof;
(e) (I) Specify a reasonable treatment for the benefit of the citizens of the
state of Colorado of the value of the corporation on all of the following terms that
must be approved by the commissioner:
(A) Such treatment shall be deemed to be reasonable if consideration,
determined by the commissioner to be equal to the fair market value of the
corporation, is conveyed or issued to one or more qualifying entities;
(B) The commissioner shall determine the fair market value of the
corporation at the time of conversion, determined as if it had voting stock
outstanding and one hundred percent of its stock were freely transferable and
available for purchase without restrictions. Consideration shall be given to market
value, investment or earnings value, net asset value, and a control premium, if any.
If a qualifying entity or entities receive, at the time of conversion, one hundred
percent of the shares of the then-outstanding stock of the corporation, the
qualifying entity or entities shall be regarded as having acquired the fair market
value of the corporation, unless the commissioner finds that such outstanding stock
does not represent the fair market value of the corporation.
(C) Nothing contained in sub-subparagraphs (A) and (B) of this subparagraph
(I) shall require the auction, sale, or marketing of the corporation or require the
commissioner to fix a dollar valuation of the corporation at the time of conversion;
(D) During the first three years after conversion, to avoid dilution of the value
of the qualifying entity's ownership of stock, the corporation or its affiliates may
not issue stock greater in seniority, including voting rights, or dividends, than the
stock, if any, initially transferred to the qualifying entity. The commissioner may
waive the requirements of this sub-subparagraph (D) regarding voting rights, if the
commissioner determines that the corporation has transferred to the qualifying
entity or entities a benefit equivalent to such voting rights.
(E) Each qualifying entity, its directors, officers, and staff shall be and
remain independent of the converted stock insurance company and its affiliates
and no person who is an officer, director, or staff member of the corporation at the
time the plan is submitted or at the time of conversion or thereafter shall be
qualified to be an officer, director, or staff member of the qualifying entity. Nothing
in this sub-subparagraph (E) shall prohibit a single member of the board of each
qualifying entity, selected by such qualifying entity, from serving on the board of
the corporation or the board of a holding company that owns the corporation. No
director, officer, agent, or employee of the corporation shall benefit directly or
indirectly from the conversion of the corporation.
(F) The charitable mission and grant-making functions of each qualifying
entity must be dedicated to promoting or serving the health-care needs of the
citizens of Colorado; except that in no event shall any qualifying entity use the
consideration, or any proceeds or gains thereon, transferred to it by the corporation
to compete directly as a licensed carrier with the corporation or any of its affiliates;
(G) The commissioner may permit all or a portion of the consideration
conveyed to any qualifying entity to consist of stock of the corporation or a holding
company which owns the corporation. Stock transferred to a qualifying entity may
be restricted as set out in the plan approved by the commissioner.
(H) Repealed.
(I) At the time of the conversion, the corporation or a holding company that
owns the corporation may issue additional voting shares of stock through an initial
public offering or private placement, which stock shall not be included in the
consideration transferred to a qualifying entity.
(II) (A) For purposes of this paragraph (e), a qualifying entity means an
independent tax-exempt charitable or social welfare organization, operating under
sections 501(c)(3) or 501(c)(4) of title 26 of the United States Code, the federal
Internal Revenue Code of 1986, as amended.
(B) Whether the qualifying entity is organized under said sections 501 (c)(3)
or 501 (c)(4) of the federal Internal Revenue Code of 1986, as amended, the
articles of incorporation of the qualifying entity shall contain at least the following
provisions: The qualifying entity shall be organized and operated exclusively for
charitable, educational, or scientific purposes consistent with sub-subparagraph (F)
of subparagraph (I) of this paragraph (e); the qualifying entity shall engage in
lobbying or political activities only to the extent permitted an organization exempt
under section 501 (c)(3) of the internal revenue code; the qualifying entity shall not
engage in campaign activity or the making of political contributions; no part of the
net earnings of the qualified entity may inure to the benefit of any individual; the
qualifying entity may not engage in any self dealing for the benefit of its directors,
officers, or employees; the qualifying entity shall report to the public at least
annually information equivalent to that required of organizations qualified under
section 501 (c)(3) of the federal Internal Revenue Code of 1986, as amended.
Nothing in this sub-subparagraph (B), however, shall require that a qualified entity
divest itself of stock of the corporation.
(C) A qualifying entity shall be newly established for purposes of the
conversion authorized in this section, unless otherwise approved by the
commissioner.
(f) Specify the proposed amendments to the corporation's articles of
incorporation, bylaws, and other documents of organization to effectuate the
conversion;
(g) Specify the proposed form of notice of the proposed conversion to be
published as set forth in subsection (6) of this section; and
(h) Provide such other information as determined by the commissioner to be
reasonably necessary and relevant to the evaluation of the plan.
(5) The commissioner may retain, upon notice to the corporation, any
qualified expert, such as attorneys, accountants, actuaries, and financial analysts,
not otherwise a part of the commissioner's staff, to assist in reviewing the proposed
plan, with such reasonable expenses incurred during the review to be borne by the
corporation.
(6) Within thirty days after filing the plan of conversion and application for
an amended certificate of authority, the corporation shall:
(a) Publish notice, in a form and in newspapers to be approved by the
commissioner, of the proposed plan of conversion once a week for three
consecutive weeks in at least one daily newspaper of general circulation in the
counties in which the corporation does business;
(b) Cause notice, in a form and manner to be approved by the commissioner,
of the proposed plan of conversion to be delivered by regular mail to all current
subscribers; and
(c) Submit to the commissioner proof of publication of the notice required by
paragraph (a) of this subsection (6) and properly executed amendments to the
corporation's articles of incorporation, bylaws, and other organizational documents
to effectuate the conversion authorized by this section.
(7) The commissioner shall hold a hearing pursuant to article 4 of title 24,
C.R.S., before making a final decision to approve or disapprove the plan of
conversion within sixty days after completion of publication of notice of the hearing
thereon. The commissioner shall issue an order approving or disapproving the plan
or approving an amended plan within sixty days after completion of the hearing.
(8) Upon mutual agreement of the corporation and the commissioner, the
commissioner may enter an order extending any time limits within this section.
(9) The commissioner shall approve the plan of conversion if the
commissioner finds that:
(a) The plan meets the requirements of subsection (4) of this section;
(b) The plan is fair and reasonable and not contrary to law or to the interests
of subscribers, contract holders, or the public; and
(c) Upon conversion, the corporation will meet the standards and conditions
applicable to stock insurance companies, including minimum surplus required of
such companies.
(10) The conversion shall become effective as specified in the plan of
conversion and when the revised articles of incorporation have been adopted.
(11) The corporate existence of the corporation shall not terminate upon
conversion as provided for in this section, but the converted stock company shall be
deemed to be a continuation of the corporation and to have been organized on the
date the corporation was originally organized. Conversion under this section will not
cause a dissolution of the corporation.
(12) Except as specifically provided for in this section, upon completion of its
conversion to a stock insurance company as provided in this section, the
corporation shall no longer be subject to this article and shall be subject to and
comply with all laws and regulations applicable to a stock insurance company as
provided in article 3 of this title, including all other requirements of a stock insurer
as contained in this title.
(13) In the year of conversion, the corporation shall be obligated to pay the
subscriber fee provided in section 10-16-110 (1)(c) for the portion of the year before
the effective date of the conversion and premium taxes as a stock insurer pursuant
to section 10-3-209 for premiums collected or contracted for the portion of the year
from and including the effective date of the conversion.
(14) The converted stock insurance company shall be a member insurer
under the Life and Health Insurance Protection Association Act as provided by
article 20 of this title. All subscribers of the corporation existing on the date of
conversion will be afforded coverage and protection in accordance with the terms
and conditions of the said act. The converted stock insurance company will be
subject to assessments as provided in article 20 of this title, and its share of any
class B assessment made under section 10-20-109 (3)(b) shall be calculated, as
applicable, based upon any Colorado premium or subscriber fees received by it
during the calendar years immediately preceding its conversion to a stock
insurance company; except that nothing in this subsection (14) shall require the
converted stock insurance company to be assessed for insolvencies relating to
member insurers who became insolvent insurers prior to the effective date of the
conversion.
(15) Any final action by the commissioner pursuant to subsection (7) of this
section shall be subject to judicial review by the court of appeals pursuant to
section 24-4-106 (11), C.R.S., at the initiation of the corporation seeking conversion
to a newly created stock insurance company, or any person that was a party to the
agency proceeding and was adversely affected or aggrieved by the final agency
decision. The remedies set forth in this subsection (15) are exclusive remedies for
any person aggrieved by a final action of the commissioner under this section.
Colorado § 10-16-324 (Conversion of corporation to a stock insurance company) — published by Counsel Stack Legal Research, free access to 12M+ legal documents.