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NO. 100. AN ACT RELATING TO THE CONVERSION OR MERGER OF STOCK OR MUTUAL INSURANCE COMPANIES WITH OR INTO RECIPROCAL INSURERS.

(H.582)

It is hereby enacted by the General Assembly of the State of Vermont:

Sec. 1. 8 V.S.A. § 6020 is added to read:

§ 6020. CONVERSION TO OR MERGER WITH RECIPROCAL INSURER

(a) An association captive insurance company or industrial insured group formed as a stock or mutual corporation may be converted to or merged with and into a reciprocal insurer in accordance with a plan therefor and the provisions of this section.

(b) Any plan for such conversion or merger shall:

(1) be fair and equitable to the shareholders, in the case of a stock insurer, or the policyholders, in the case of a mutual insurer; and

(2) provide for the purchase of the shares of any nonconsenting shareholder of a stock insurer or the policyholder interest of any nonconsenting policyholder of a mutual insurer in substantially the same manner and subject to the same rights and conditions as are accorded a dissenting shareholder under section 3428 of this title, in the case of a stock insurer, or a dissenting policyholder under section 3429 of this title, in the case of a mutual insurer.

(c) In the case of a conversion authorized under subsection (a) of this section:

(1) such conversion shall be accomplished under such reasonable plan and procedure as may be approved by the commissioner; provided, however, that the commissioner shall not approve any such plan of conversion unless such plan:

(A) satisfies the provisions of subsection (b) of this section;

(B) provides for a hearing, of which notice has been given to the insurer, its directors, officers and stockholders, in the case of a stock insurer, or policyholders, in the case of a mutual insurer, all of whom shall have the right to appear at such hearing, except that the commissioner may waive or modify the requirements for such hearing; provided, however, that if a notice of hearing is required, but no hearing is requested, the commissioner may cancel such hearing;

(C) provides for the conversion of existing stockholder or policyholder interestsinto subscriber interests in the resulting reciprocal insurer, proportionate to stockholder or policyholder interests in the stock or mutual insurer; and

(D) is approved:

(i) in the case of a stock insurer, by a majority of the shares entitled to vote represented in person or by proxy at a duly called regular or special meeting at which a quorum is present;

(ii) in the case of a mutual insurer, by a majority of the voting interests of policyholders represented in person or by proxy at a duly called regular or special meeting thereof at which a quorum is present;

(2) the commissioner shall approve such plan of conversion if the commissioner finds that the conversion will promote the general good of the state in conformity with those standards set forth in subdivision 6006(d)(2) of this title;

(3) if the commissioner approves the plan, the commissioner shall amend the converting insurer's certificate of authority to reflect conversion to a reciprocal insurer and issue such amended certificate of authority to the company's attorney-in-fact;

(4) upon the issuance of an amended certificate of authority of a reciprocal insurer by the commissioner, the conversion shall be effective; and

(5) upon the effectiveness of such conversion the corporate existence of the converting insurer shall cease and the resulting reciprocal insurer shall notify the secretary of state of such conversion.

(d) A merger authorized under subsection (a) of this section shall be accomplished substantially in accordance with the procedures set forth in sections 3424, 3426 and 3431 of this title, except that, solely for purposes of such merger:

(1) the plan of merger shall satisfy the provisions of subsection (b) of this section;

(2) the subscribers' advisory committee of a reciprocal insurer shall be equivalent to the board of directors of a stock or mutual insurance company;

(3) the subscribers of a reciprocal insurer shall be the equivalent of the policyholders of a mutual insurance company;

(4) if a subscribers' advisory committee does not have a president or secretary, theofficers of such committee having substantially equivalent duties shall be deemed the president or secretary of such committee;

(5) the commissioner may, upon request of an insurer party to a merger authorized under subsection (a) of this section, waive the requirement of subdivision (6) of section 3424 of this title;

(6) subdivision (7) of section 3424 of this title shall not apply to such merger;

(7) the commissioner shall approve the articles of merger if the commissioner finds that the merger will promote the general good of the state in conformity with those standards set forth in subdivision 6006(d)(2) of this title. If the commissioner approves the articles of merger, the commissioner shall indorse his or her approval thereon and the surviving insurer shall present the same to the secretary of state at the secretary of state's office;

(8) notwithstanding section 6005 of this title, the commissioner may permit the formation, without surplus, of a captive insurance company organized as a reciprocal insurer, into which an existing captive insurance company may be merged for the purpose of facilitating a transaction under this section; provided, however, that there shall be no more than one authorized insurance company surviving such merger; and

(9) an alien insurer may be a party to a merger authorized under subsection (a) of this section; provided, that the requirements for a merger between a domestic and a foreign insurer under section 3431 of this title shall apply to a merger between a domestic and an alien insurer under this subsection. Such alien insurer shall be treated as a foreign insurer under section 3431 and such other jurisdictions shall be the equivalent of a state for purposes of section 3431.

(e) A conversion or merger under this section shall have all of the effects set forth in subdivisions (3), (4) and (5) of section 3430 of this title, to the extent such effects are not inconsistent with the provisions of this chapter.

Sec. 2. 8 V.S.A. § 6006(g) is amended to read:

(g) Captive insurance companies formed as corporations under the provisions of this chapter shall have the privileges and be subject to the provisions of the generalcorporation law as well as the applicable provisions contained in this chapter. In the event of conflict between the provisions of said general corporation law and the provisions of this chapter, the latter shall control. The provisions of subchapter 3, chapter 101 of this title, pertaining to mergers, consolidations, conversions, mutualizations and redomestications, shall apply in determining the procedures to be followed by captive insurance companies in carrying out any of the transactions described therein, except that:

(1) the commissioner may, upon request of an insurer party to a merger authorized under subsection (a) of this section, waive the requirement of subdivision (6) of section 3424 of this title; and

(2) the commissioner may waive or modify the requirements for public notice and hearing in accordance with rules which the commissioner may adopt addressing categories of transactions. If a notice of public hearing is required, but no one requests a hearing, then the commissioner may cancel the hearing.

Sec. 3. 8 V.S.A. § 6007(b) is amended to read:

(b) Prior to March 1 of each year, each captive insurance company shall submit to the commissioner a report of its financial condition, verified by oath of two of its executive officers. *[Each]* Except as provided in sections 6004 and 6005 of this title, each captive insurance company shall report using generally accepted accounting principles, unless the commissioner approves the use of statutory accounting principles, with any useful or necessary modifications or adaptations thereof required or approved or accepted by the commissioner for the type of insurance and kinds of insurers to be reported upon, and as supplemented by additional information required by the commissioner. Except as otherwise provided, each association captive insurance company and each industrial insured group defined in subdivision 6001(9)(B) of this title shall file its report in the form required by section 3561 of this title, and each industrial insured group defined in subdivision 6001(9)(B) of this title shall comply with the requirements set forth in section 3569 of this title. The commissioner shall by rule propose the forms in which pure captive insurance companies and industrial insured captive insurance companies defined in subdivision 6001(9)(A) shall report. Subdivision 6002(c)(3) of this title shall apply toeach report filed pursuant to this section, except that such subdivision shall not apply to reports filed by industrial insured groups as defined in subdivision 6001(9)(B) of this title.

Sec. 4. EFFECTIVE DATE

This act shall take effect upon passage.

Approved: April 16, 1998