§ 3423. Converting mutual insurer or mutual insurance holding company

(a) A mutual insurer may become a stock insurer or a mutual insurance holding company may become a stock company or reorganize under such reasonable plan and procedure as may be approved by the Commissioner after a hearing thereon of which notice was given to the eligible members, all of whom shall have the right to appear at the hearing.

(b) The Commissioner shall not approve any such plan or procedure unless:

(1) Its terms and conditions are fair and equitable.

(2) The plan shall have been duly adopted by action of not less than three-fourths of the members of the board of directors or trustees of the mutual insurer or mutual insurance holding company, as the case may be.

(3) It is subject to approval by vote of not less than three-fourths of the eligible members actually voting thereon in person, by proxy, or by mail at a meeting of members called for the purpose, for which at least 30 days' notice has been provided to eligible members, pursuant to such reasonable notice and procedure as may be approved by the Commissioner.

(4) The plan provides the method by which the aggregate value of eligible members' interests will be determined. The method specified must be acceptable to the Commissioner and shall be based on the market value of the converted company, unless another method for determining this value is approved by the Commissioner.

(5) The plan provides for each eligible member to receive a fixed component of consideration or a variable component of consideration, or both, or any other component of consideration acceptable to the Commissioner. Any component shall reflect, based upon fair and equitable formulas, methods and assumptions, factors such as estimated proportionate contributions of classes, or groupings of policies and contracts to the aggregate component of consideration being distributed to eligible members, or other factors the Commissioner may approve.

(6) The plan specifies the consideration to the eligible members entitled thereto, which consideration may consist of cash, securities of the reorganized insurer or securities of another institution or institutions, subscription rights to purchase securities of the reorganized insurer or securities of another institution or institutions, a certificate of contribution, surplus notes, additional insurance or annuity benefits, policy credits, increased dividends or other consideration, or any combination of such forms of consideration as the Commissioner may approve. The form or forms of consideration to be distributed to any class or category of member need not be the same as the consideration to be distributed to any other class or category of member. The choice of the form or forms of consideration to be distributed may take into account such factors as the class or category of policy with respect to what consideration is being distributed, the country of residence or tax status of eligible members, the reasonableness of the cost of providing a particular form of consideration in relation to its value, or other appropriate factors. If the plan provides for the sale of securities to members, the securities shall be offered to members at a price not greater than that to be offered under the plan to others.

(7) If the plan relates to the conversion of a mutual life insurer, the plan shall provide for the reasonable expectations of policyholders through the establishment of a closed block or other method acceptable to the Commissioner. Any provision for dividend expectations may be limited to participating individual life insurance policies and participating individual annuity contracts in force or deemed to be in force by the plan of conversion on the effective date of the plan for which the insurer has an experience-based dividend scale due, paid or accrued by action of the board of directors of the mutual insurer in the year in which the plan is adopted; provided, however, that other categories of policies and benefits may be included or excluded, subject to approval of the Commissioner.

(8) If the plan relates to the conversion of a mutual insurer, the plan, when completed, would provide for the converted insurer paid-in capital stock in an amount not less than the minimum paid-in capital stock required of a domestic stock insurer upon initial authorization to transact like kinds of insurance, together with an amount of surplus which is no less than the amount that the Commissioner deems to be reasonably necessary for the insurer's future solvency.

(9) If the plan relates to the conversion or reorganization of a mutual insurance holding company, the plan shall provide for:

(A) the conversion of the mutual insurance holding company to a stock company followed by a merger or consolidation of the converted stock company with another stock company, which may include a subsidiary of the mutual insurance holding company;

(B) a sale of an intermediate stock holding company or stock insurer with shares or other consideration being distributed to members of the mutual insurance holding company, followed by the liquidation or dissolution of the mutual insurance holding company;

(C) a liquidation or dissolution of the mutual insurance holding company; or

(D) any combination of the foregoing or other reorganization or transfer of assets and assumption of liabilities approved by the Commissioner.

(10) The Commissioner finds that the insurer's management has not, through reduction in volume of new business written, or cancellation or through any other means sought to reduce, limit, or affect the number or identity of the insurer's members to be entitled to participate in such plan, in order to secure for the individuals comprising management any unfair financial advantage through such plan, or intentionally engaged in any other conduct designed to secure for the individuals comprising management any unfair financial advantage through such plan.

(c) Subsection (b) of this section shall not be deemed to prohibit the inclusion in the demutualization plan of provisions under which the individuals comprising the insurer's management or mutual insurance holding company's management, as the case may be, and employee group may receive employee benefit and compensation arrangements, including arrangements through the use of stock of the reorganized insurer or stock of its parent corporation or other entity, which are to become effective simultaneously with the plan of reorganization or, subsequently, provided such provisions are approved by the Commissioner. If the plan provides for the distribution or sale to members of capital stock of the converted company, nothing in subsection (b) of this section shall be deemed to prohibit the inclusion in the plan of provisions under which the converting company's directors, officers, agents, or employees shall be entitled to purchase for cash at the same price as offered to the insurer's members, shares of stock not taken by members in accordance with such terms and reasonable classifications of such individuals as may be included in the plan and approved by the Commissioner.

(d) No director, officer, agent, or employee of the insurer, the mutual insurance holding company, or any other person, shall receive any fee, commission, or other valuable consideration whatsoever, other than their usual regular salaries and compensation, for in any manner aiding, promoting, or assisting in such conversion except as set forth in the plan approved by the Commissioner. This provision shall not be deemed to prohibit the payment of reasonable fees and compensation to attorneys at law, accountants, and actuaries for services performed in the independent practice of their professions, even though also directors of the insurer.

(e) Upon the effective date of the plan, the rights of members in the mutual insurer or mutual insurance holding company shall be extinguished. All policies of a mutual insurer in force on the effective date of the plan shall remain in force under the terms of those policies, except for any terms affected by the extinguishment of those membership rights.

(f) If a plan provides for the distribution of common stock, but does not provide for registration and public trading of the common stock of the converted insurer or the parent corporation or the converted mutual insurance holding company or other entity as of the effective date of the plan, the plan shall require the appropriate entity or entities to use good faith efforts to encourage and assist in the establishment of a market for such stock as soon as reasonably possible and, in any event, not later than two years after the effective date of the reorganization unless otherwise approved by the Commissioner. Within two years after the effective date of the reorganization unless otherwise approved by the Commissioner, the converted insurer or the parent corporation or the converted mutual insurance holding company or other entity shall make available to each eligible policyholder or member who received and retained shares of common stock with minimal aggregate value upon reorganization, a procedure to dispose of shares of stock at market value without brokerage commissions or similar fees under a plan approved by the Commissioner.

(g) At the option of the mutual insurer or mutual insurance holding company, as the case may be, any common shares or other securities of the converted stock company or of any other institution, included in the members' consideration, other than those acquired as a result of a member exercising any subscription rights, may be placed in a trust or other entity existing for the exclusive benefit of the members, and established solely for the purpose of effectuating the reorganization to which such common shares or other securities are issued by the issuer on the effective date of the reorganization, such consideration to be distributed to members during a process specified in the plan and approved by the Commissioner.

(h) Except as otherwise specifically provided in the plan of conversion, prior to and for a period of five years following the effective date of such plan, no person other than the converted stock insurer or an institution controlling the converted stock insurer or a converted mutual insurance holding company or institutions controlling the converted mutual insurance holding company shall, directly or indirectly, offer to acquire or acquire in any manner the beneficial ownership of five percent or more of any class of a voting security of the new stock insurer or of an institution which owns a majority or all of the voting securities of the new stock insurer or converted mutual insurance holding company, without the prior approval of the Commissioner, of an application for acquisition filed by such person with the Commissioner. The Commissioner shall not approve an application for acquisition unless the Commissioner finds, after a public hearing, that the acquisition would not frustrate the plan of conversion as approved by the policyholders or members and the Commissioner, would be consistent with the purposes of this statute, and would be on terms and conditions that are fair and equitable to the policyholders or members, as the case may be. No security which is acquired or is to be acquired in contravention of this section or of any rule, regulation, or order of the Commissioner may be voted at any shareholders meeting. If the new stock insurer or converted mutual insurance holding company or any institution which owns a majority or all of the voting securities of the new stock insurer or converted mutual insurance holding company or the Commissioner believes that any voting securities have been or are about to be acquired in contravention of this section or of any rule, regulation, or order of the Commissioner, he or she may apply to any court of competent jurisdiction in the State of Vermont for an order to enjoin any offer or acquisition made or any voting of any security so acquired, or to void the vote of any such security in contravention of this section or any rule, regulation, or order of the Commissioner, and for such other equitable relief as may be appropriate.

(i) A failure by a mutual insurer or a mutual insurance company to provide a member or members with the notice required by this section shall not impair the validity of any action taken under this section, if such mutual insurer or mutual insurance holding company has complied substantially and in good faith with all notice requirements, as determined by the Commissioner.

(j) Documents submitted to the Commissioner by the mutual insurer or mutual insurance holding company in connection with obtaining approval of the plan of conversion shall be public documents, except that financial data, actuarial memoranda, and any other information which the Commissioner determines could result in harm to the mutual entity or the converted entity or to its members if disclosed, shall be considered confidential. This confidentiality shall not extend to information provided by the mutual entity which the Commissioner deems necessary to be provided to members to evaluate the plan of conversion.

(k) Any aggrieved party to a plan, within the meaning of section 77 of this title, may appeal an order of the Commissioner, pursuant to the provisions of such section, within 30 days after the issuance of an order of the Commissioner approving or disapproving such plan. Any review by the court shall be confined to the record before the Commissioner.

(l) As used in this section:

(1) "Eligible member" means, in the case of a mutual insurer, a person who owns or, pursuant to the terms of the plan, is deemed to own a policy which was in force as of the record date or, in the case of a mutual insurance holding company, a person who was or, pursuant to the terms of the plan, is deemed to have been a member as of the record date. For this purpose, the record date is the date when the mutual company's board of directors first adopts the plan of conversion, unless another date is specified in the plan of conversion and approved by the Commissioner. In the case of a mutual life insurance company or a mutual insurance holding company, the membership of which is derived from the purchase of contracts from a life insurance company, eligibility may be limited to members holding contracts which have been in force not less than one year.

(2) "Fair and equitable" means that any action undertaken, pursuant to this section, with respect to a plan of conversion, provides for full and proper consideration of the aggregate membership interests and corresponding values of eligible members, in no manner discriminates improperly among eligible members, and appropriately protects the interests of eligible members before and subsequent to the conversion. (Added 1967, No. 344 (Adj. Sess.), § 1 (ch. 1, subch. 4, § 2a); amended 1999, No. 86 (Adj. Sess.), § 1, eff. April 27, 2000.)