2013 Maryland Code
INSURANCE
§ 3-121 - Conversion of mutual insurer to stock insurer

§3-121.

(a) A domestic mutual insurer may become a stock insurer under a plan and procedure that is approved by the Commissioner.

(b) The Commissioner may not approve a plan or procedure for conversion of a mutual insurer to a stock insurer unless:

(1) the plan or procedure is equitable to the insurer’s members;

(2) the plan is subject to approval by vote of at least three-fourths of the insurer’s current members who vote on the plan in person, by proxy, or by mail at a meeting of members called for that purpose under reasonable notice and procedure approved by the Commissioner;

(3) for a life insurer, the right to vote may be limited to members who hold policies, other than term or group policies, that have been in force for at least 1 year;

(4) the plan provides as to any holder of a surplus note participating in the conversion that:

(i) the rights of the holder shall be governed by the terms of the surplus note; or

(ii) if the terms of the surplus note are silent regarding a conversion and the holder is not also a member, the holder may not vote on the planned conversion;

(5) the equity of each policyholder in the insurer:

(i) is determinable under a fair formula approved by the Commissioner; and

(ii) is based on not less than the insurer’s entire surplus, minus contributed or borrowed surplus funds, plus a reasonable present equity in reserves and in all nonadmitted assets;

(6) all current policyholders and all persons that were policyholders of the insurer within 3 years before the date the plan was submitted to the Commissioner are entitled to participate in the purchase of stock or distribution of assets;

(7) the plan gives to each policyholder specified in item (6) of this subsection a preemptive right:

(i) within a designated reasonable period, to acquire the policyholder’s proportionate part of all of the proposed capital stock of the insurer; and

(ii) to apply on the purchase of proposed capital stock the amount of the policyholder’s equity in the insurer as determined under item (5) of this subsection;

(8) stock is offered to policyholders at a price that is not greater than the price at which the stock will be offered to others in the initial offering, but that is not more than double the par value of the stock;

(9) the plan provides for payment to each policyholder who elects not to apply the policyholder’s equity in the insurer for or on the purchase price of stock to which the policyholder is preemptively entitled, in cash in an amount that equals not less than 50% of the amount of the policyholder’s equity that was not used for the purchase of stock, and which payment, together with any stock purchased, constitutes full payment and discharge of the policyholder’s equity as an owner of the insurer; and

(10) the completed plan provides that the converted insurer will have:

(i) paid-in capital stock equal to not less than the minimum paid-in capital required of a domestic stock insurer that transacts like kinds of insurance business; and

(ii) surplus funds equal to not less than 100% of the required capital.

(c) Within 60 days of the filing of a plan that contains all of the information required under this section and any regulations adopted under this section, the Commissioner shall approve or disapprove the plan.

(d) At the expense of the mutual insurer, the Commissioner may retain any qualified expert who is not a part of the staff of the Commissioner to assist in reviewing the plan.

(e) After written notice to the mutual insurer and any other interested person, the Commissioner may hold a hearing on whether the terms of the plan comply with this section.

(f) (1) If a mutual insurer is insolvent or, in the judgment of the Commissioner, is in a hazardous financial condition, the board of directors of the mutual insurer, by a majority vote, may request by a petition, as provided under paragraph (2) of this subsection, that the Commissioner waive the requirements concerning notice to, and approval by, policyholders of the planned conversion.

(2) The petition by the board of directors shall specify:

(i) the method and basis for issuance of the shares of capital stock of the converted stock insurer to an independent party in connection with an investment by the independent party in an amount sufficient to restore the converted stock insurer to sound financial condition; and

(ii) if the Commissioner finds that the value of the mutual insurer is insufficient to warrant financial consideration, that the conversion shall be accomplished without financial consideration to past, present, or future policyholders.

(3) (i) By written order, the Commissioner may waive the requirements of subsection (b)(2) of this section if the Commissioner finds that the mutual insurer no longer meets statutory requirements with respect to capital, surplus, deposits, or assets.

(ii) Any finding that results in a waiver under this paragraph shall be made after:

1. review of the plan; and

2. A. an audit of the mutual insurer’s quarterly or annual financial statement; or

B. a financial examination of the mutual insurer.

(g) The Commissioner may adopt regulations to enforce the provisions of this section.

§ 3-121 - 1. Mutual insurer reorganization as stock insurer; establishment of mutual insurance holding company

(a) Definitions. --

(1) In this section the following words have the meanings indicated.

(2) "Mutual insurance holding company" means a nonstock corporation that:

(i) is incorporated in the State in accordance with a plan of reorganization adopted and approved under this section; and

(ii) is the parent of a reorganized stock insurer.

(3) "Reorganized stock insurer" means the stock corporation into which a mutual insurer is reorganized in accordance with a plan of reorganization adopted and approved under this section.

(b) Reorganization as stock insurer; establishment of mutual insurance holding company. -- Subject to the provisions of this section and in accordance with a plan of reorganization approved by the Commissioner, a mutual insurer may:

(1) reorganize as a stock insurer; and

(2) establish a mutual insurance holding company.

(c) Issuance of stocks; dividend rights; subscription rights. -- A plan of reorganization shall provide that:

(1) all of the initial shares of capital stock of the reorganized stock insurer shall be issued to the mutual insurance holding company.

(2) the mutual insurance holding company shall own a majority of:

(i) the voting shares of the capital stock of the reorganized stock insurer; and

(ii) the total market value of all outstanding shares of the capital stock of the reorganized stock insurer.

(3) the class of capital stock owned by the mutual insurance holding company shall have dividend rights no less favorable than the dividend rights of any other class of stock of the reorganized stock insurer, unless:

(i) at least two-thirds of the board of directors of the mutual insurance holding company determines that such a requirement is not in the best interests of the members; and

(ii) the determination of the board of directors is approved by the Commissioner.

(4) in an initial public offering or initial private equity placement of stock, each eligible member of the mutual insurance holding company shall receive, without payment, nontransferable subscription rights to purchase stock, unless:

(i) at least two-thirds of the board of directors of the mutual insurance holding company determines that a subscription rights offering is not in the best interests of the members; and

(ii) the determination of the board of directors is approved by the Commissioner.

(5) (i) the following individuals may not acquire, by stock option or any other manner, the legal or beneficial ownership of any class of stock of the reorganized stock insurer for 6 months from the date of an initial public offering or initial private equity placement:

1. an officer or director of the mutual insurance holding company;

2. an officer or director of the reorganized stock insurer; and

3. any relative of an officer or director, who resides with the officer or director.

(ii) Notwithstanding subparagraph (i) of this paragraph, any individual who is a policyholder of the reorganized stock insurer may exercise subscription rights in accordance with paragraph (4) of this subsection.

(d) Membership. --

(1) Each policyholder of the reorganized stock insurer shall be a member of the mutual insurance holding company.

(2) On the effective date of the reorganization, the membership interests of a policyholder in the mutual insurer shall become nontransferable membership interests in the mutual insurance holding company.

(3) The plan of reorganization shall provide the terms and conditions under which future policyholders of the reorganized stock insurer shall become members of the mutual insurance holding company.

(4) At least two-thirds of those members of the board of directors of the mutual insurance holding company who are eligible or qualified to purchase a policy from the reorganized stock insurer, shall be members of the mutual insurance holding company.

(e) Policies in effect. --

(1) Except as provided in paragraph (2) of this subsection, each policy of the mutual insurer in effect on the effective date of the reorganization shall remain in effect in accordance with its terms and conditions.

(2) The following rights and obligations under the policy of the mutual insurer shall be void as of the effective date of the reorganization:

(i) voting rights of policyholders;

(ii) except as to the holder of a participating policy, a right of a policyholder to share in the surplus or profits of the insurer; and

(iii) assessment provisions.

(3) A reorganized stock insurer shall continue to pay dividends to the holder of a participating policy that was in force on the effective date of the reorganization, in accordance with the methodology or formula used by the mutual insurer before the reorganization.

(f) Requirements of reorganized stock insurer. -- The reorganized stock insurer shall have:

(1) paid-in capital stock not less than the minimum paid-in capital required of a domestic stock insurer that:

(i) transacts like kinds of insurance business; and

(ii) started business in the State on the date the mutual insurer received its original certificate of authority in the State; and

(2) surplus funds not less than 100% of the required capital.

(g) Plan of reorganization -- Approval by board and members. --

(1) The plan of reorganization shall be:

(i) approved by the vote of a majority of the board of directors of the mutual insurer; and

(ii) submitted to a meeting of members and approved by the vote of at least three-fourths of the members who vote on the plan of reorganization in person, by proxy, or by mail.

(2) Notice of the time, place, and purpose of the meeting of members shall be provided in the manner approved by the Commissioner.

(h) Plan of reorganization -- Submission to Commissioner. -- The plan of reorganization shall be submitted to the Commissioner for approval at least 60 days before the effective date of the reorganization, together with:

(1) the proposed articles of incorporation and bylaws of the mutual insurance holding company;

(2) the amendments to the articles of incorporation and bylaws of the mutual insurer to reorganize as a stock insurer;

(3) a 5-year plan of operation for the mutual insurance holding company and the reorganized stock insurer, including any plans for:

(i) an initial public offering of stock in the reorganized stock insurer; or

(ii) the transfer of assets or liabilities from the reorganized stock insurer or any subsidiaries of the reorganized stock insurer to the mutual insurance holding company;

(4) a list of the officers and directors of the mutual insurance holding company and the reorganized stock insurer;

(5) a biography of each officer and director of the mutual insurance holding company and the reorganized stock insurer; and

(6) any other documents or information requested by the Commissioner.

(i) Plan of reorganization -- Approval by Commissioner. --

(1) Unless disapproved by the Commissioner, a plan of reorganization is approved:

(i) on written notice from the Commissioner; or

(ii) 60 days after the plan and all information required under this section and under any regulations adopted in accordance with this section are submitted to the Commissioner.

(2) (i) Subject to subparagraph (ii) of this paragraph, the Commissioner shall approve the plan of reorganization if the plan of reorganization:

1. complies with this section; and

2. is equitable to the mutual insurer's members.

(ii) In approving a plan of reorganization, the Commissioner may impose additional conditions and requirements that the Commissioner determines are necessary to achieve the purposes of this section.

(3) At the expense of the mutual insurer, the Commissioner may retain a qualified expert who is not a part of the staff of the Commissioner to assist in reviewing the plan of reorganization.

(4) After written notice to the mutual insurer, the Commissioner may hold a hearing on whether the plan of reorganization:

(i) complies with this section; and

(ii) is equitable to the mutual insurer's members.

(j) Mutual insurance holding company -- Generally subject to Title 7; annual statements. --

(1) A mutual insurance holding company is subject to Title 7 of this article.

(2) The Commissioner may require the mutual insurance holding company to file annual statements with the Commissioner in the same manner as an insurer.

(3) The articles of incorporation and any amendments to such articles of the mutual insurance holding company are subject to the approval of the Commissioner in the same manner as those of an insurer.

(k) Mutual insurance holding company -- Requirements of Title 7, Subtitle 3. -- Compliance with the requirements for a plan of reorganization under this section exempts a mutual insurance holding company from the requirements of Title 7, Subtitle 3 of this article for the purpose of acquiring control of the reorganized stock insurer.

(l) Mutual insurance holding company -- Dissolution or liquidation. --

(1) A mutual insurance holding company:

(i) may not dissolve or liquidate except through proceedings under Title 9 of this article; and

(ii) shall be a party to any proceeding under Title 9 of this article involving a reorganized stock insurer that is a subsidiary of the mutual insurance holding company.

(2) In any proceeding under Title 9 involving a reorganized stock insurer that is a subsidiary of a mutual insurance holding company, the assets of the mutual insurance holding company shall be deemed to be assets of the estate of the reorganized stock insurer for purposes of satisfying the claims of the reorganized stock insurer's policyholders.

(m) Mutual insurance holding company -- Stock insurer. -- A mutual insurance holding company may become a stock insurer in accordance with § 3-121 of this subtitle.

(n) Regulations. -- The Commissioner may adopt regulations to enforce this section.