§ 7307 — Conversion of domestic mutual property/casualty insurance companies or advance premium corporations into domestic stock property/casualty...

New York § 7307

• Jurisdiction: New York
• Law ISC: Insurance
• Art. 73: Conversion to Different Type of Insurer

Text

§ 7307. Conversion of domestic mutual property/casualty insurance\ncompanies or advance premium corporations into domestic stock\nproperty/casualty insurance companies; insurers not in rehabilitation.\n(a) In this article:\n (1) "Affiliate" of a mutual insurer means any person who controls, is\ncontrolled by or is under common control with, the mutual insurer being\nconverted. A corporation is an affiliate of another corporation,\nregardless of ownership, if substantially the same group of persons\nmanage the two corporations.\n (2) "Control" has the meaning assigned to it in paragraph two of\nsubsection (a) of section one thousand five hundred one of this chapter.\n (3) A "domestic mutual insurer" or "mutual insurer" means a domestic\nmutual property/casualty insurance company organized under article\ntwelve of this chapter and licensed under article forty-one of this\nchapter, or a domestic advance premium corporation organized and\nlicensed under article sixty-six of this chapter, in either case\nauthorized to issue non-assessable policies only and not operating under\nan order of rehabilitation.\n (4) A "holder of a section 1307 agreement" means the holder of an\nagreement executed pursuant to section one thousand three hundred seven\nof this chapter.\n (b) A domestic mutual insurer may apply to the superintendent for\npermission to convert into a domestic stock property/casualty insurer\ncomplying with the relevant organization and licensing provisions of\narticles twelve and forty-one of this chapter. The application to the\nsuperintendent shall be pursuant to a resolution, adopted by no less\nthan a majority of the entire board of directors, specifying the reasons\nfor and the purposes of the proposed conversion, and the manner in which\nthe conversion is expected to benefit policyholders and the public. A\ncopy of the resolution, together with a statement of its adoption, both\ncertified by the president and secretary, or officers corresponding to\neither of them, and affirmed by them as true under the penalties of\nperjury and under the seal of the mutual insurer, shall accompany the\napplication. The superintendent may thereafter request any additional\ndocuments and information which he may reasonably require. Unless the\nsuperintendent finds that:\n (1) the resolution is defective upon its face;\n (2) the proposed conversion is contrary to law or is not in the best\ninterests of the policyholders or the public; or\n (3) the mutual insurer does not have a surplus to policyholders at\nleast equal to the minimum capital and surplus required to be maintained\nfor a newly organized stock insurer doing the same kinds of insurance,\nin which cases the proposed conversion shall terminate, the\nsuperintendent shall order an examination of the mutual insurer pursuant\nto section three hundred ten of this chapter as of the last day of the\nperiod covered in its latest filed statement. The superintendent may\nalso examine any affiliate of the mutual insurer.\n (c) The superintendent shall also appoint one or more qualified\ndisinterested persons to appraise and report to the superintendent the\nfair market value of the mutual insurer and, to the extent necessary,\nits affiliates, on the basis of its latest filed annual or quarterly\nstatement, and of any significant subsequent developments. Such persons\nshall consider the assets and liabilities of the mutual insurer and any\nfactors bearing on the value of the mutual insurer or its affiliates.\nThe appraisers shall receive reasonable compensation and be reimbursed\nfor reasonable expenses incurred in discharging their duties. They may,\nas necessary, employ consultants to advise them on any technical\nmatters.\n (d) The superintendent shall make copies of such examination report\nand appraisal report available to the board of directors within fifteen\ndays of his receipt of the reports. After receiving such reports the\nsuperintendent may grant or deny permission to the board of directors to\nsubmit to him a plan of conversion. If permission is granted, the plan\nshall include the provisions, and be submitted in the manner and under\nthe conditions, required by subsection (e) hereof. If permission is\ndenied, the superintendent shall make a written statement of his\nfindings and the board shall have the right to a hearing before the\nsuperintendent within thirty days of the date of denial.\n (e) Such plan shall be adopted by a majority of the entire board. It\nshall be signed by the president and attested by the secretary, or\nofficers corresponding to either of them, under the corporate seal of\nthe insurer. A copy of the plan and resolution, both certified by such\nofficers as true under the penalties of perjury and under the seal of\nthe insurer, shall be submitted to the superintendent not later than\nforty-five days after permission was granted under subsection (d)\nhereof. The plan shall include:\n (1) The proposed charter and by-laws of the insurer as a stock\ncorporation set out in accordance with paragraph five of subsection (a)\nof section one thousand two hundred one of this chapter.\n (2) The manner of treating a holder of a section 1307 agreement, if\nany; such holder, if otherwise qualified, may, at its option, exchange\nsuch agreement for an equitable share of the securities or other\nconsideration, or both, of the corporation into which the insurer is to\nbe converted.\n (3) The manner and basis of exchanging the equitable share of each\neligible mutual policyholder for securities or other consideration, or\nboth, of the stock corporation into which the mutual insurer is to be\nconverted and the disposition of any unclaimed shares. The plan shall\nalso provide that each person who had a policy of insurance in effect at\nany time during the three year period immediately preceding the date of\nadoption of the resolution described in subsection (b) hereof shall be\nentitled to receive in exchange for such equitable share, without\nadditional payment, consideration payable in voting common shares of the\ninsurer or other consideration, or both. The equitable share of the\npolicyholder in the mutual insurer shall be determined by the ratio\nwhich the net premiums (gross premiums less return premiums and dividend\npaid) such policyholder has properly and timely paid to the insurer on\ninsurance policies in effect during the three years immediately\npreceding the adoption of the resolution by the board of directors under\nsubsection (b) hereof bears to the total net premiums received by the\nmutual insurer from such eligible policyholders. In computing a\npolicyholder's equitable share, no credit shall be given for any net\npremiums which result from an endorsement which is effective on or after\nthe date of adoption of the resolution; except that credit shall be\ngiven for any net premiums resulting from an audit or retrospective\npremium adjustment which is billed within one hundred eighty days after\nsuch date, provided such premium is paid timely. If the equitable share\nof the eligible policyholder entitles such policyholder to the purchase\nof a fractional share of stock, the policyholder shall have the option\nto receive the value of the fractional share in cash or purchase a full\nshare by paying the balance in cash.\n (4) The number of voting common shares proposed to be authorized for\nthe stock corporation, their par value and the price at which they shall\nbe offered, which price may not exceed one-half of the median equitable\nshare of all policyholders under paragraph three hereof.\n (5) Any other features requested by the superintendent.\n (f) Prompt notice shall be given by the mutual insurer to all persons\nwho become policyholders or holders of section 1307 agreements on or\nafter the date of the adoption of the resolution described in subsection\n(b) hereof, of the pendency of a proposed conversion and of the effect\nthereof on them.\n (g) The superintendent shall hold a public hearing, adequate notice of\nwhich shall be mailed by the mutual insurer to each person who was a\npolicyholder on the day preceding the date of adoption of the resolution\ndescribed in subsection (b) hereof, accompanied by a copy of the plan of\nconversion and any comment the superintendent considers necessary for\nthe adequate information of the policyholders. In addition, the insurer\nshall give notice of the hearing by publication in a newspaper of\ngeneral circulation in the county in which the insurer has its principal\noffice and in the two largest cities in each state in which the insurer\nhas underwritten insurance within the five years preceding the date of\nthe adoption of the resolution described in subsection (b) hereof; such\nnotice shall be accompanied by a summary approved by the superintendent\nof the plan and any comment the superintendent considers necessary for\nthe adequate information of former policyholders and the public.\n (h) (1) After the hearing the superintendent shall approve the plan as\nsubmitted, refuse to approve the plan, or request modification of the\nplan before granting approval. If the superintendent finds that the plan\ndoes not violate this chapter, is not inconsistent with law, is fair and\nequitable and is in the best interests of the policyholders and the\npublic, he shall approve such plan. If the superintendent finds that the\nplan does not meet the foregoing standards for approval he shall either\nrefuse to approve the plan and the plan shall become null and void or\nreturn the plan to the mutual insurer for modification to meet his\nstated objections.\n (2) If within ninety days after receipt of the superintendent's\nrequest for modifications the insurer submits an amended plan which\nmeets the superintendent's objections and complies with the standards\nfor approval he shall approve such amended plan.\n (i) After approval by the superintendent the plan shall be submitted\nto a vote of the persons who were policyholders of the mutual insurer on\nthe day preceding the date of adoption of the resolution described in\nsubsection (b) hereof. The plan shall provide for proxy voting in a\nmanner to be prescribed by the superintendent. The board shall submit\nthe question of the plan to such policyholders at a meeting thereof, by\ncausing a full, true and correct copy or a summary thereof approved by\nthe superintendent, together with notice, stating the time, place and\npurpose of such meeting, to be delivered personally, or deposited in the\npost office, postage prepaid, at least thirty days (unless a shorter\ntime, not less than ten days, be approved by the superintendent) prior\nto the time fixed for such meeting, addressed to each such policyholder\nat his last post office address appearing on the records of the insurer.\n (j) Each such policyholder eligible to vote pursuant to subsection (i)\nhereof shall be entitled to such number of votes as may be provided for\nin the by-laws of the mutual insurer. The votes of two-thirds of all the\nvotes cast by policyholders represented at the meeting in person or by\nproxy, shall be necessary for the adoption of the plan. Upon the\nconclusion of the vote the insurer shall submit to the superintendent a\ncertified copy of the plan voted on together with a certificate setting\nforth the results of the vote, both of which shall be subscribed by the\npresident and attested by the secretary, or officers corresponding to\neither of them, under the corporate seal of the insurer, and affirmed by\nthem as true under the penalties of perjury.\n (k) No domestic mutual insurer which is affiliated with other mutual\ncompanies may be converted to a stock company unless all such affiliated\ncompanies are converted to stock companies at the same time, except to\nthe extent the superintendent may determine that the interests of the\npolicyholders of any of the other mutual companies can be permanently\nprotected by limitations on the corporate powers of the stock\ncorporation or on its authority to do business.\n (l) If at any stage in the process of a conversion under this section\nthe superintendent finds that the mutual insurer is impaired or that the\nfurther transaction of business will be hazardous to its policyholders,\nits creditors, or the public, the proposed conversion shall terminate.\n (m) If the conversion plan is adopted pursuant to subsection (j)\nhereof, the superintendent, upon being satisfied that the insurer will\nhave at least the minimum capital and surplus required to be maintained\nfor a newly organized domestic stock insurer doing the same kinds of\ninsurance, shall issue a new certificate of authority to the insurer,\nthereby converting the mutual insurer into a stock insurer. At the same\ntime, the superintendent may issue such license as may be required\npursuant to section one thousand two hundred four of this chapter.\n (n) Upon such conversion, the stock insurer shall give notice thereof\nby publication in a newspaper of general circulation in the county in\nwhich the insurer has its principal office and in the two largest cities\nin each state in which the insurer shall be licensed to do business. The\nnotice shall include a correct copy of the plan, or a summary thereof\napproved by the superintendent.\n (o) Upon the conversion of the mutual insurer in the manner herein\nprovided, all the rights, franchises and interests of the former mutual\ninsurer, in and to every species of property, real, personal and mixed,\nand things in action thereunto belonging, shall be deemed as transferred\nto and vested in the stock insurer, without any other deed or transfer;\nand simultaneously therewith such company shall be deemed to have\nassumed all of the obligations and liabilities of the former mutual\ninsurer.\n (p) No action or proceeding, pending at the time of the conversion to\nwhich the mutual insurer may be a party shall be abated or discontinued\nby reason of such conversion, but the same may be prosecuted to final\njudgment in the same manner as if the conversion had not taken place, or\nthe stock corporation may be substituted in place of such mutual insurer\nby order of the court in which the action or proceeding may be pending.\n (q) The directors and officers of the mutual insurer shall serve until\nnew directors and officers have been duly elected and qualified pursuant\nto the charter and by-laws of the stock insurer.\n (r) The insurer, whether before or after conversion, shall pay no\ncompensation of any kind to any person other than regular salaries to\nexisting personnel, in connection with the proposed conversion, other\nthan for clerical and mailing expenses, except that, with the\nsuperintendent's approval, payment may be made at reasonable rates for\nprinting costs, and for legal and other professional fees for services\nactually rendered. All expenses of the conversion, including the\nexpenses incurred by the department of financial services, shall be\nborne by the insurer.\n (s) No voting common shares shall be subscribed by or issued to\npersons other than eligible policyholders or holders of section 1307\nagreements until all subscriptions by such policyholders or agreement\nholders have been filled or other consideration has been provided in\naccordance with the plan. Thereafter, any new issue of common shares\nwithin three years after the conversion shall first be offered to the\npersons who have become voting common shareholders, pursuant to\nsubsection (e) hereof in proportion to their holdings of such shares.\n (t) No insurer becoming a domestic stock insurer under the provisions\nof this section shall: for a period of ten years after conversion,\nredomesticate directly or indirectly or remove its principal offices\nfrom within the state; or for a period of five years after conversion:\n (1) enter into any agreement by the terms of which any person,\npartnership or corporation agrees to pay all or a portion of the\nexpenses of management of the insurer in consideration of the insurer's\nagreement to pay him or it either commissions on premiums due the\ninsurer or any other compensation for his or its services, or\n (2) enter into any agreement with an officer or director of the\ninsurer or with any firm or corporation in which any officer or director\nof the insurer is pecuniarily interested, directly or indirectly, under\nwhich agreement the insurer agrees to pay, for the acquisition of\nbusiness, any commissions or other compensation which by the terms of\nsuch agreement varies with the amount of such business or with the\nearnings of the insurer on such business.\n (u) Any action taken pursuant to the provisions of this section shall\nin no way impede or impair the exercise by the superintendent of his\nauthority under any other provision of this chapter.\n