1st Engrossment - 82nd Legislature (2001 - 2002) Posted on 12/15/2009 12:00am
1.1 A bill for an act 1.2 relating to insurance; authorizing the reorganization 1.3 of a mutual insurance holding company into a stock 1.4 company; modifying accounting provisions for certain 1.5 ceding transactions; amending Minnesota Statutes 2000, 1.6 sections 60A.075; 60A.09, subdivision 5. 1.7 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA: 1.8 Section 1. Minnesota Statutes 2000, section 60A.075, is 1.9 amended to read: 1.10 60A.075 [MUTUAL COMPANY CONVERSION TO STOCK COMPANY.] 1.11 Subdivision 1. [DEFINITIONS.] (a) For the purposes of this 1.12 section, the terms in this subdivision have the meanings given 1.13 them. 1.14
(a)(b) "Converting mutual insurer" means a Minnesota 1.15 domestic mutual insurance company seeking to reorganize 1.16 according to this section. 1.17 (c) "Converting mutual holding company" means a Minnesota 1.18 domestic mutual insurance holding company seeking to reorganize 1.19 according to this section. 1.20 (d) "Converting mutual company" means a converting mutual 1.21 insurer or a converting mutual holding company seeking to 1.22 convert according to this section. 1.23 (e) "Reorganized company" means a converting mutual insurer 1.24 or a converting mutual holding company, as the case may be, that 1.25 has reorganized according to this section. 1.26 (f) "Eligible member" means: 2.1 (1) for converting mutual insurers, a policyholder whose 2.2 policy is in force as of the record date , which is the date that2.3 the mutual company's board of directors adopts a plan of2.4 conversion or some other date specified as the record date in2.5 the plan of conversion and approved by the commissioner. Unless 2.6 otherwise provided in the plan, a person insured under a group 2.7 policy is not an eligible member, unless on the record date: 2.8 (1)(i) the person is insured or covered under a group life 2.9 policy or group annuity contract under which funds are 2.10 accumulated and allocated to the respective covered persons; 2.11 (2)(ii) the person has the right to direct the application 2.12 of the funds so allocated; 2.13 (3)(iii) the group policyholder makes no contribution to 2.14 the premiums or deposits for the policy or contract; and 2.15 (4)(iv) the converting mutual company has the names and 2.16 addresses of the persons covered under the group life policy or 2.17 group annuity contract .; 2.18 (b) "Reorganized company" means a Minnesota domestic stock2.19 insurance company that has converted from a Minnesota domestic2.20 mutual insurance company according to this section.2.21 (2) for converting mutual holding companies, a person who 2.22 is a member of the converting mutual holding company, as defined 2.23 by the converting mutual holding company's articles of 2.24 incorporation and bylaws, determined as of the record date. 2.25 (c)(g) "Plan of conversion" or "plan" means a plan adopted 2.26 by a Minnesota domesticconverting mutual insurancecompany's 2.27 board of directors under this section to convert the mutual2.28 company into a Minnesota domestic stock insurance company. 2.29 (d)(h) "Policy" means a policy or contract of 2.30 insurance issued by a converting mutual company, including an 2.31 annuity contract, issued by a converting mutual insurer or 2.32 issued by a stock insurance company subsidiary of a mutual 2.33 holding company. 2.34 (i) "Active participating policy" means an individual 2.35 policy of a converting mutual company or its subsidiary that: 2.36 (1) is a participating policy; (2) is among a class of similar 3.1 policies that have been credited with policy dividends at any 3.2 time within the twelve months preceding the effective date of 3.3 the conversion or that will, under the then current dividend 3.4 scale, be credited with policy dividends if in force on a future 3.5 policy anniversary; (3) gives rise to membership interests in 3.6 the converting mutual company; and (4) is in force on the 3.7 effective date or some other reasonable date identified in the 3.8 plan. 3.9 (e)(j) "Commissioner" means the commissioner of commerce. 3.10 (f) "Converting mutual company" means a Minnesota domestic3.11 mutual insurance company seeking to convert to a Minnesota3.12 domestic stock insurance company according to this section.3.13 (g)(k) "Effective date of a conversion" means the date 3.14 determined according to subdivision 6. 3.15 (l) "Record date" means the date that the converting mutual 3.16 company's board of directors adopts a plan of conversion, unless 3.17 another date is specified in the plan of conversion and approved 3.18 by the commissioner. 3.19 (h)(m) "Membership interests" means all policyholders'3.20 rights as members of the converting mutual company, including, 3.21 but not limited to, the rights to vote and to participate in any 3.22 distributions of surplusdistributable net worth, whether or not 3.23 incident to the company's liquidation. 3.24 (i) "Equitable surplus" means the converting mutual3.25 company's surplus as regards policyholders as of the record date3.26 of the conversion or other date approved by the commissioner3.27 determined in a manner that is not unfair or inequitable to3.28 policyholders.3.29 (n) "Distributable net worth" means the value of the 3.30 converting mutual company as of the record date of the 3.31 conversion, or other date approved by the commissioner, 3.32 determined as set forth in the plan and approved by the 3.33 commissioner. The commissioner may approve a valuation method 3.34 based on any of the following: (1) the surplus as regards 3.35 policyholders of a converting mutual insurer determined 3.36 according to statutory accounting principles, which may be 4.1 adjusted to reflect the current market values of assets and 4.2 liabilities, together with any other adjustments that are 4.3 appropriate in the circumstances; (2) the net equity of a 4.4 converting mutual holding company or a converting mutual insurer 4.5 determined according to generally accepted accounting 4.6 principles, which may be adjusted to reflect the current market 4.7 values of assets and liabilities, together with any other 4.8 adjustments that are appropriate in the circumstances; (3) the 4.9 fair market value of the converting mutual company determined by 4.10 an independent, qualified person; or (4) any other reasonable 4.11 valuation method. 4.12 (j)(o) "Permitted issuer" means: (1) a corporation 4.13 organized and owned by the converting mutual company or by any 4.14 other insurance company or insurance holding company for the 4.15 purpose of purchasing and holding securities representing a 4.16 majority of voting control of the reorganized company; (2) a 4.17 stock insurance company owned by the converting mutual company 4.18 or by any other insurance company or insurance holding company 4.19 into which the converting mutual company will be merged; or (3) 4.20 any other corporation approved by the commissioner. 4.21 Subd. 2. [AUTHORIZATION.] In accordance with a plan of 4.22 conversion established and approved in the manner provided by 4.23 this section: (1) a mutual insurance company may become a stock 4.24 insurance company according to a plan of conversion established4.25 and approved in the manner provided by this section.; and (2) a 4.26 mutual insurance holding company may: (i) become a corporation 4.27 organized under chapter 302A; (ii) reorganize according to a 4.28 plan in which a majority or all of the common stock of the 4.29 reorganized company is acquired by another institution, which 4.30 may include a subsidiary of the converting mutual holding 4.31 company; (iii) reorganize as a part of a liquidation or 4.32 dissolution of the converting mutual holding company; or (iv) 4.33 undertake any other reorganization or combination of the 4.34 foregoing approved by the commissioner. 4.35 Subd. 3. [ADOPTION OF A PLAN OF CONVERSION BY THE BOARD OF 4.36 DIRECTORS.] (a) A converting mutual company shall, by the 5.1 affirmative vote of a majority of its board of directors, adopt 5.2 a plan of conversion consistent with the requirements of this 5.3 section. 5.4 (b) At any time before approval of a plan by the5.5 commissioner,The converting mutual company, by the affirmative 5.6 vote of a majority of its board of directors, may amend or5.7 withdrawthe plan at any time before approval of the plan by the 5.8 commissioner and may withdraw the plan at any time before the 5.9 effective date of the plan. 5.10 (c) The duties of the board of directors of a converting 5.11 mutual company, in considering or acting upon a proposed plan of 5.12 conversion or related transaction, shall be as set forth in 5.13 section 302A.251 and, to the extent not inconsistent with that 5.14 section, the converting mutual company's articles of 5.15 incorporation and bylaws. 5.16 Subd. 4. [ APPROVALFILING OF THE PLAN OF CONVERSION 5.17 BYWITH THE COMMISSIONER.] (a) [DOCUMENTS TO BE FILED.] After5.18 adoption of the plan by the converting mutual company's board of5.19 directors, but before the members' approval of the plan,The 5.20 converting mutual company shall file the following documents5.21 with the commissioner for review and approvalan application for 5.22 approval of, and permission to reorganize according to, the plan 5.23 of conversion. The application must include the following: 5.24 (1) the plan of conversion , including an independent5.25 evaluation of the pro forma market value and of the equitable5.26 surplus of the company and of the estimated value of any shares5.27 to be issued and an independent actuarial opinion, if required; 5.28 (2) the form of notice of meeting for eligible members to 5.29 vote on the plan; 5.30 (3) the form of any proxies to be solicited from eligible 5.31 members; 5.32 (4) the proposed articles of incorporation and bylaws of 5.33 the converted stock company; 5.34 (5) information required under chapter 60D if the plan 5.35 results in a change of control of the converting mutual company; 5.36 and6.1 (6) a basis for determining the converting mutual company's 6.2 distributable net worth for use in the plan of conversion; 6.3 (7) if required by the commissioner, an independent 6.4 evaluation of the estimated distributable net worth and of the 6.5 estimated value of any shares to be issued; 6.6 (8) if required by the commissioner, an independent 6.7 actuarial opinion on matters affecting the structure or fairness 6.8 of the plan; and 6.9 (9) other information or documentation requested by the 6.10 commissioner or required by rule. 6.11 (b) [ REQUIRED FINDINGSDETERMINATION OF COMPLETENESS.] The6.12 commissioner shall approve or conditionally approve the plan6.13 upon finding that:6.14 (1) the provisions of this section have been fully met; and6.15 (2) the plan will not be unfair or inequitable to6.16 policyholders.6.17 (c) [TIME.] The plan of conversion shall, by order, be6.18 approved, conditionally approved, or disapproved by the6.19 commissioner within the later of 30 days from the commissioner's6.20 receipt of all required information from the converting mutual6.21 company or 30 days after the conclusion of a public hearing held6.22 according to paragraph (e). An approval or conditional approval6.23 of a plan expires if the reorganization is not completed within6.24 180 days after the approval or conditional approval unless this6.25 time period is extended by the commissioner for good cause shown6.26 The commissioner shall determine, within 30 days of submission 6.27 of the application, whether the application is complete. 6.28 (d)(c) [CONSULTANTS.] The commissioner may retain, at the 6.29 converting mutual company's expense, qualified experts not 6.30 otherwise a part of the commissioner's staff to assist in 6.31 reviewing the plan and supplemental materials and valuations. 6.32 (e)(d) [HEARING.] The commissioner may, but need not, 6.33 conduct a public hearing regarding the proposed plan of 6.34 conversion. The hearing must begin no later than 30 days after6.35 submission to the commissioner of a plan of conversion and all6.36 required information. The commissioner shall give the7.1 converting mutual company at least 20 days' notice of the7.2 hearing. At the hearing, the converting mutual company, its7.3 policyholders, and any other person whose interest may be7.4 affected by the proposed conversion may present evidence,7.5 examine and cross-examine witnesses, and offer oral and written7.6 arguments or comments according to the procedure for contested7.7 cases under chapter 14. The persons participating may conduct7.8 discovery proceedings in the same manner as prescribed for the7.9 district courts of this state. All discovery proceedings must7.10 be concluded no later than three days before the scheduled7.11 commencement date of the public hearing.If a hearing is to be 7.12 held, the commissioner shall designate a date for the public 7.13 hearing promptly upon determining that the application is 7.14 complete and that the forms of notice are adequate. The public 7.15 hearing must be held on one or more days, the first beginning 7.16 within 90 days after the date on which the commissioner 7.17 determines the application is complete, unless the converting 7.18 mutual company requests, and the commissioner agrees to, a 7.19 longer period for the purpose of preparing and distributing the 7.20 notices required by this paragraph and by subdivision 5, 7.21 paragraph (b). The hearing must be in the nature of a 7.22 legislative hearing and must not constitute or be considered a 7.23 contested case under chapter 14. The hearing may be conducted 7.24 by the commissioner or by a person designated by the 7.25 commissioner, which designee may be an administrative law 7.26 judge. The converting mutual company shall provide its eligible 7.27 members with at least 45 days' notice of the hearing, the notice 7.28 to be in the form, and provided in a manner, approved by the 7.29 commissioner. The purpose of the hearing is to receive comments 7.30 and information for the purpose of aiding the commissioner in 7.31 making a decision on the plan of conversion. Persons wishing to 7.32 make comments and submit information may submit written 7.33 statements before the public hearing and may appear and be heard 7.34 at the hearing. The commissioner's order or determination must 7.35 be issued within 45 days after the closing of the record of the 7.36 hearing by the commissioner or the hearing officer, as 8.1 applicable, which record must not be closed until the record 8.2 includes certification of the vote on the plan of reorganization 8.3 by the eligible members by the converting mutual company. The 8.4 commissioner shall issue a written decision detailing the 8.5 reasons why the converting mutual company's plan of conversion 8.6 is approved or disapproved. 8.7 (e) The commissioner shall approve the application and 8.8 permit the reorganization according to the plan of conversion if 8.9 the commissioner finds that: (1) the provisions of this section 8.10 have been fully met; and (2) the plan is not unfair or 8.11 inequitable to the members of the converting mutual company. 8.12 The commissioner's order approving or disapproving a plan of 8.13 conversion is a final agency decision subject to appeal 8.14 according to sections 14.63 to 14.68. 8.15 Subd. 5. [APPROVAL OF THE PLAN BY THE ELIGIBLE MEMBERS.] 8.16 (a) [NOTICE.] Following approval or conditional approval of the8.17 plan by the commissioner,Within 90 days following the date of 8.18 the public hearing, if any, or the date the commissioner 8.19 determines the application is complete if no hearing is held, 8.20 the converting mutual company shall give all eligible members 8.21 shall be givennotice of a regular or special meeting of the 8.22 policyholdersmembers called for the purpose of considering the 8.23 plan and any corporate actions that are a part of, or are 8.24 reasonably attendant to, the accomplishment of the plan. 8.25 (b) [NOTICE REQUIREDREQUIREMENTS.] A copy of the plan or 8.26 a summary of the plan must accompany the notice. The notice 8.27 must be mailed to each eligible member's last known address, as 8.28 shown on the converting mutual company's records, withinnot 8.29 less than 45 days ofbefore the commissioner's approval of the8.30 plandate of the meeting, unless the commissioner directs an8.31 earliera later date for mailing. The meeting to vote upon the8.32 plan must be set for a date no less than 45 days after the date8.33 when the notice of the meeting is mailed by the converting8.34 mutual company unless the commissioner directs an earlier date8.35 for the meeting.If the meeting to vote upon the plan is held 8.36 coincident with the converting mutual company's annual meeting 9.1 of policyholdersmembers, only one combined notice of meeting is 9.2 required. The notice of the meeting of eligible members may be 9.3 combined with the notice of hearing described in subdivision 4, 9.4 paragraph (d). 9.5 (c) [FAILURE TO GIVE NOTICE.] If the converting mutual 9.6 company complies substantially and in good faith with the notice 9.7 requirements of this section, the converting mutual company's 9.8 failure to give any member or members any required notice does 9.9 not impair the validity of any action taken under this section. 9.10 (d) [VOTING.] (1) The plan must be adopted upon receiving 9.11 the affirmative vote of a majority of the votes cast by eligible 9.12 members. 9.13 (2) Eligible members may vote in person or by proxy. The 9.14 form of any proxy must be filed with and approved by the 9.15 commissioner. 9.16 (3) The number of votes each eligible member may cast shall 9.17 be determined by the converting mutual company's bylaws. If the 9.18 bylaws are silent, or if the commissioner determines that the 9.19 voting requirements under the bylaws would be unfair or would 9.20 prejudice the rights of the eligible members, each eligible 9.21 member may cast one vote. 9.22 Subd. 6. [CONVERSION.] (a) [FILING.] Following approval 9.23 by the eligible members, the converting mutual company shall 9.24 file a copy of the company's amended or restated articles of 9.25 incorporation with the commissioner, together with a certified 9.26 copy of the minutes of the meeting at which the plan was adopted 9.27 and a certified copy of the plan. The commissioner shall review 9.28 and, if appropriate, approve the amended or restated articles. 9.29 After approval by the commissioner, thea converting mutual 9.30 companyinsurer shall file the articles with the secretary of 9.31 state as provided by chapter 300, or a converting mutual holding 9.32 company shall file the articles with the secretary of state as 9.33 provided by chapter 302A. 9.34 (b) [EFFECTIVE DATE.] EffectiveThe reorganization of a 9.35 converting mutual company is effective on the date of filing an 9.36 amendment or restatement of the articles of incorporation with 10.1 the secretary of state as provided by chapter 300, or on a later 10.2 date if the plan so specifies , the converting mutual corporation10.3 shall become a stock corporation and shall no longer be a mutual10.4 corporation. 10.5 Subd. 7. [PLAN NOT UNFAIR OR INEQUITABLE.] A plan of 10.6 conversion shall not be unfair or inequitable to 10.7 policyholdersmembers. A plan of conversion is not unfair or 10.8 inequitable if it satisfies the conditions of subdivision 8 ,or 10.9 9 , or 10. The commissioner may determine that a plan proposed 10.10 under subdivision 10 or that any other plan proposed by a10.11 converting mutual companyunder subdivision 12 is not unfair or 10.12 inequitable to policyholdersmembers. 10.13 Subd. 8. [SHARE CONVERSION.] A plan of conversion under 10.14 this subdivision shall provide for exchange of policyholders'10.15 membership interests in return for shares in the reorganized 10.16 company or a permitted issuer, according to paragraphs (a) to 10.17 (c), and shall provide for the reasonable dividend expectations 10.18 of policyholders of active participating policies as set forth 10.19 in subdivision 16a. 10.20 (a) The policyholders'membership interests of the eligible 10.21 members shall be exchanged, in a manner that takes into account10.22 the estimated proportionate contribution of equitable surplus of10.23 each class of participating policies and contracts,for all of 10.24 the common shares of the reorganized company or common shares of10.25 its parent company ora permitted issuer, or for a combination 10.26 of the common shares of the reorganized company or a permitted 10.27 issuer, or for a combination of: (1) common shares of its10.28 parentthe reorganized company or a permitted issuer; and (2) 10.29 consideration equal to the proceeds of the public sale in the 10.30 market of the common shares by the issuer or by a trust 10.31 established according to subdivision 11. The consideration must 10.32 be allocated among the eligible members in a manner that takes 10.33 into account the estimated proportionate contribution of each 10.34 class of eligible members to the aggregate consideration being 10.35 given. 10.36 (b) Unless the anticipated issuance within a shorter period 11.1 is disclosed in the plan of conversion, the issuer of common 11.2 shares shall not, within two years after the effective date of 11.3 reorganization, issue either of the following: 11.4 (1) any of its common shares or any securities convertible 11.5 with or without consideration into the common shares or carrying 11.6 any warrant to subscribe to or purchase common shares; and 11.7 (2) any warrant, right, or option to subscribe to or 11.8 purchase the common shares or other securities described in 11.9 paragraph (a), except for the issue of common shares to or for 11.10 the benefit of policyholderseligible members according to the 11.11 plan of conversion and the issue of nontransferable subscription 11.12 rights for the purchase of common shares being granted to 11.13 officers, directors, or a tax qualified employee benefit plan of 11.14 the reorganized company or its parent company, if any, or a 11.15 permitted issuer, according to subdivision 11. 11.16 (c) Unless the common shares have a public market when 11.17 issued, the issuer shall use its best efforts to encourage and 11.18 assist in the establishment of a public market for the common 11.19 shares within two years of the effective date of the conversion 11.20 or a longer period as disclosed in the plan of conversion. 11.21 Within one year after any offering of stock other than the 11.22 initial distribution, but no later than six years after the 11.23 effective date of the conversion, the reorganized company shall 11.24 offer to make available to policyholderseligible members who 11.25 received and retained shares of common stock or securities 11.26 described in paragraph (b), clause (1), a procedure to dispose 11.27 of those shares of stock at market value without brokerage 11.28 commissions or similar fees. 11.29 Subd. 9. [ SURPLUSDISTRIBUTION OF DISTRIBUTABLE NET 11.30 WORTH.] A plan of conversion under this subdivision shall 11.31 provide for the exchange of the policyholders'membership 11.32 interests of the eligible members in return for the operationa 11.33 distribution of the converting mutual company's participating11.34 policies as a closed block of business and for the distribution11.35 of the company's equitable surplus to11.36 policyholders,distributable net worth and shall provide for the 12.1 issuance of new shares of the reorganized company or its parent12.2 corporation, each according to paragraphs (a) to (i)or a 12.3 permitted issuer, and shall provide for the reasonable 12.4 expectations of policyholders of active participating policies 12.5 as set forth in subdivision 16a. 12.6 (a) The converting mutual company's participating business,12.7 comprised of its participating policies and contracts in force12.8 on the effective date of the conversion or other reasonable date12.9 as provided in the plan, shall be operated by the reorganized12.10 company as a closed block of participating business. However,12.11 at the option of the converting mutual company, group policies12.12 and group contracts may be omitted from the closed block.12.13 (b) Assets of the converting mutual company must be12.14 allocated to the closed block of participating business in an12.15 amount equal to the reserves and liabilities for the converting12.16 mutual life insurer's participating policies and contracts in12.17 force on the effective date of the conversion. The plan must be12.18 accompanied by an opinion of an independent qualified actuary12.19 who meets the standards set forth in the insurance laws or12.20 regulations for the submission of actuarial opinions as to the12.21 adequacy of reserves or assets. The opinion must relate to the12.22 adequacy of the assets allocated to support the closed block of12.23 business. The actuarial opinion must be based on methods of12.24 analysis considered appropriate for those purposes by the12.25 Actuarial Standards Board.12.26 (c) The reorganized company shall keep a separate12.27 accounting for the closed block and shall make and include in12.28 the annual statement to be filed with the commissioner each year12.29 a separate statement showing the gains, losses, and expenses12.30 properly attributable to the closed block.12.31 (d) Notwithstanding the establishment of a closed block,12.32 the entire assets of the reorganized company shall be available12.33 for the payment of benefits to policyholders. Payment must12.34 first be made from the assets supporting the closed block until12.35 exhausted, and then from the general assets of the reorganized12.36 company.13.1 (e)(a) Distributions by the converting mutual company's13.2 equitable surpluscompany under this subdivision shall be 13.3 distributed to eligible participating policyholdersmembers in a 13.4 form or forms selected by the converting mutual company. The 13.5 form of distribution may consist of cash, securities of the 13.6 reorganized company, securities of another institution, a 13.7 certificate of contribution, additional life insurance, annuity 13.8 benefits, increased dividends, reduced premiums, or other 13.9 equitable consideration or any combination of forms of 13.10 consideration. The consideration, if any, given to a class or 13.11 category of policyholderseligible members may differ from the 13.12 consideration given to another class or category 13.13 of policyholderseligible members. A certificate of 13.14 contribution must be repayable in ten years, be equal to 100 13.15 percent of the value of the policyholders'eligible members' 13.16 membership interest, and bear interest at the highest rate 13.17 charged by the reorganized company or its insurance company 13.18 subsidiary for policy loans on the effective date of the 13.19 conversion. 13.20 (f)(b) The consideration must be allocated among the 13.21 policyholderseligible members in a manner that is fair and 13.22 equitable to the policyholdersand that takes into account the 13.23 estimated proportionate contribution of each class of eligible 13.24 members to the aggregate consideration being given. 13.25 (g)(c) The reorganized company or its parent corporation 13.26 shall issue and sell shares of one or more classes having a 13.27 total price equal to the estimated value in the market of the 13.28 shares on the initial offering date. The estimated value must 13.29 take into account all of the following: 13.30 (1) the pro forma fair market value of the reorganized 13.31 company; 13.32 (2) the consideration to be given to policyholders 13.33 according to paragraph (e)(a); 13.34 (3) the proceeds of the sale of the shares; and 13.35 (4) any additional value attributable to the shares as a 13.36 result of a purchaser or a group of purchasers who acted in 14.1 concert to obtain shares in the initial offering, attaining, 14.2 through such purchase, control of the reorganized company or its 14.3 parent corporation. 14.4 (h)(d) If a purchaser or a group of purchasers acting in 14.5 concert is to attain control in the initial offering, 14.6 the converting mutual company shall not, directly or indirectly, 14.7 pay for any of the costs or expenses of conversion of 14.8 the converting mutual company, whether or not the conversion is 14.9 effected, except with permission of the commissioner. 14.10 (i) Periodically, with the commissioner's approval, the14.11 reorganized company may share in the profits of the closed block14.12 of participating business for the benefit of stockholders if the14.13 assets allocated to the closed block are in excess of those14.14 necessary to support the closed block.14.15 Subd. 10. [SUBSCRIPTION RIGHTS.] A plan of conversion 14.16 under this subdivision shall provide for exchange of the 14.17 policyholders'eligible members' membership interests in return 14.18 for the operation of the converting mutual company's14.19 participating policies as a closed block of businessprotection 14.20 of the reasonable dividend expectations of the policyholders of 14.21 active participating policies, for the creation of a liquidation 14.22 account to protect the interests of policyholders, andeligible 14.23 members, for the issuance of subscription rights to 14.24 eligible policyholdersmembers, and shall provide for the 14.25 issuance of shares by the reorganized company, each according to 14.26 paragraphs (a) to (j). 14.27 (a) The converting mutual company's participating business,14.28 comprised of its participating policies and contracts in force14.29 on the effective date of the conversion, or such other14.30 reasonable date specified in the plan, and excluding at the14.31 converting mutual company's option any group policies or group14.32 contracts, shall be operated by the reorganized company as a14.33 closed block of participating business according to subdivision14.34 9, paragraphs (a) to (d)plan of conversion shall provide for 14.35 the protection of the reasonable dividend expectations of 14.36 policyholders of active participating policies as provided in 15.1 subdivision 16a. 15.2 (b) The reorganized company or its parent corporation or a 15.3 permitted issuer shall issue and sell shares of one or more 15.4 classes having a total price equal to the estimated value of the 15.5 shares in the market on the initial offering date taking into 15.6 account the proceeds of the sale of shares and the consideration 15.7 given to policyholderseligible members. 15.8 (c) The policyholderseligible members shall receive 15.9 nontransferable preemptive subscription rights to purchase all 15.10 of the common shares of the issuer according to paragraph (b). 15.11 (d) The preemptive subscription rights to purchase the 15.12 common shares must be allocated among the participating15.13 policyholderseligible members in whole shares in a fair and 15.14 equitable manner and as provided in the plan that takes, taking 15.15 into account the estimated proportionate contribution of each 15.16 class of participating policies and contractseligible members 15.17 to the total amount of the policyholders'eligible members' 15.18 consideration. The plan must provide a fair and equitable means 15.19 for the allocation of shares in the event of an 15.20 oversubscription. The plan must further provide that any shares 15.21 of capital stock not subscribed by eligible members mustmay be 15.22 sold in a public offering through an underwriter, unless the 15.23 number of shares unsubscribed is so small in number so as not to 15.24 warrant the expense of a public offering, in which case the plan 15.25 may provide for the purchase of the unsubscribed shares by 15.26 private placement or through any fair and equitable alternative 15.27 means approved by the commissioner. 15.28 (e) The number of the common shares that a person, together 15.29 with any affiliates or group of persons acting in concert, may 15.30 subscribe or purchase in the reorganization, must be limited to 15.31 not more than five percent of the common shares. For this 15.32 purpose, neither the members of the board of directors of the 15.33 reorganized company nor its parent corporation, if any, isare 15.34 considered to be affiliates or a group of persons acting in 15.35 concert solely by reason of their board membership. 15.36 (f) Unless the common shares have a public market when 16.1 issued, officers and directors of the issuer and their 16.2 affiliates shall not, for at least three years after the date of 16.3 conversion, purchase common shares of the issuer, except with 16.4 the approval of the commissioner. 16.5 (g) Unless the common shares have a public market when 16.6 issued, the issuer shall use its best efforts to encourage and 16.7 assist in the establishment of a public market for the common 16.8 shares. 16.9 (h) The issuer shall not, for at least three years 16.10 following the conversion, repurchase any of its common shares 16.11 except according to a pro rata tender offer to all shareholders, 16.12 or with the approval of the commissioner. 16.13 (i) A liquidation account must be established for the 16.14 benefit of policyholderseligible members in the event of a 16.15 complete liquidation of the reorganized company. The 16.16 liquidation account must be equal to the equitable surplus16.17 distributable net worth of the converting mutual company as of 16.18 the effective date of the conversion. The function of the 16.19 liquidation account is solely to establish a priority on 16.20 liquidation and its existence does not restrict the use or 16.21 application of the surplusdistributable net worth of the 16.22 reorganized company except as specified in paragraph (j). The 16.23 liquidation account must be allocated equitably as of the 16.24 effective date of conversion among the then participating16.25 policyholderseligible members. The amount allocated to a 16.26 policy or contractan eligible member must not increase and must 16.27 be reduced to zero when the policy or contract giving rise to 16.28 the membership interests of the owner terminates. In the event 16.29 of a complete liquidation of the reorganized company, the 16.30 policyholderseligible members among which the liquidation 16.31 account is allocated are entitled to receive a liquidation 16.32 distribution in the amount of the liquidation account before any 16.33 liquidation distribution is made with respect to shares. 16.34 (j) Until the liquidation account has been reduced to zero, 16.35 the issuerreorganized company shall not declare or pay a cash 16.36 dividend on, or repurchase any of, its common shares in(i) in 17.1 case of a converting mutual insurer, in an amount in excess of 17.2 its cumulative earned surplus generated after the conversion 17.3 determined according to statutory accounting principles, or (ii) 17.4 in the case of a converting mutual holding company, in an amount 17.5 in excess of its retained earnings, if the effect would be to 17.6 cause the amount of the statutory surplusdistributable net 17.7 worth of the reorganized company to be reduced below the then 17.8 amount of the liquidation account. 17.9 Subd. 11. [OPTIONAL PROVISIONS.] A plan under subdivision 17.10 8, 9, or 10 may include, with the approval of the commissioner, 17.11 any of the provisions in paragraphs (a) and (b). 17.12 (a) A plan may provide that any shares of the stock of the 17.13 reorganized company or its parent corporation or a permitted 17.14 issuer included in the policyholders'eligible members' 17.15 consideration must be placed on the effective date of the 17.16 conversion in a trust or other entity existing for the exclusive 17.17 benefit of the participating policyholderseligible members and 17.18 established solely for the purposes of effecting the 17.19 reorganization. Under this option, the shares placed in trust 17.20 must be sold over a period of not more than ten40 years and the 17.21 proceeds of the shares must be distributed using the 17.22 distribution priorities prescribed in the plan. Eligible 17.23 members shall have the option to sell their shares at any time 17.24 following the date specified in the plan, which date may not be 17.25 later than two years following the effective date of the plan. 17.26 (b) A plan may provide that the directors and officers of17.27 the converting mutual company shall receive, without payment,17.28 nontransferable subscription rights to purchase capital stock of17.29 the reorganized company, its parent, or a permitted issuer.17.30 Those subscription rights must be allocated among the directors17.31 and officers by a fair and equitable formula.17.32 (1) The total number of shares that may be purchased under17.33 this clause, may not exceed 35 percent of the total number of17.34 shares to be issued in the case of a converting mutual company17.35 with total assets of less than $50,000,000 or 25 percent of the17.36 total shares to be issued in the case of a converting mutual18.1 company with total assets of more than $500,000,000. For18.2 converting mutual companies with total assets between18.3 $50,000,000 and $500,000,000, the total number of shares that18.4 may be purchased may not exceed an interpolated percentage18.5 between 25 and 35 percent.18.6 (2) Stock purchased by a director or officer under clause18.7 (1) may not be sold within one year following the effective date18.8 of the conversion.18.9 (3) The plan may also provide that a director or officer,18.10 or person acting in concert with a director or officer of the18.11 converting mutual company, may not acquire any capital stock of18.12 the reorganized company for three years after the effective date18.13 of the conversion, except through a licensed securities broker18.14 or dealer, without the permission of the commissioner. That18.15 provision may not apply to prohibit the directors and officers18.16 from purchasing stock through subscription rights received in18.17 the plan under clause (1).18.18 (c) A plan may allocate to a tax-qualified employee benefit18.19 plan nontransferable subscription rights to purchase up to ten18.20 percent of the capital stock of the reorganized company, its18.21 parent, or a permitted issuer. The employee benefit plan must18.22 be entitled to exercise its subscription rights regardless of18.23 the amount of shares purchased by other personsA plan may 18.24 provide that the directors and officers of the converting mutual 18.25 company may receive warrants, options, or nontransferable 18.26 subscription rights to purchase capital stock of the reorganized 18.27 company or its parent or a permitted issuer. 18.28 (c) A plan may provide that only eligible members whose 18.29 policies were in force as of a specified date are eligible to 18.30 receive compensation under the plan, which date must be no 18.31 earlier than one year before the effective date of the plan. 18.32 Subd. 12. [ALTERNATIVE PLAN OF CONVERSION.] In lieu of 18.33 selecting a plan of conversion provided for in this18.34 sectionsubdivision 8, 9, or 10, the converting mutual company 18.35 may convert according to a plan approved by the commissioner if 18.36 the commissioner finds that the plan does not prejudice the 19.1 interests of the eligible members, is fair and equitable, and is 19.2 based upon an independent appraisal of the market value of the19.3 mutual company by a qualified personthe fair market value of 19.4 the converting mutual company, and is a fair and equitable 19.5 allocation of any consideration to be given eligible members. 19.6 The commissioner may retain, at the converting mutual company's 19.7 expense, any qualified expert not otherwise a part of the 19.8 commissioner's staff to assist in reviewing the fair market 19.9 value of the company and in determining whether the alternative 19.10 plan may be approved and the valuation of the company. 19.11 Subd. 13. [EFFECT OF CONVERSION.] (a) Upon the conversion 19.12 of a converting mutual company to a reorganized company 19.13 according to this section, the corporate existence of the 19.14 converting mutual company must beis continued in the 19.15 reorganized company. All the rights, franchises, and interests 19.16 of the converting mutual company in and to all property and 19.17 things in action belonging to this property, is considered 19.18 transferred to and vested in the reorganized company without any 19.19 deed or transfer. Simultaneously, the reorganized company is 19.20 considered to have assumed all the obligations and liabilities 19.21 of the converting mutual company. 19.22 (b) The directors and officers of the converting mutual 19.23 company, unless otherwise specified in the plan of conversion, 19.24 shall serve as directors and officers of the reorganized company 19.25 until new directors and officers of the reorganized company are 19.26 duly elected according to the articles of incorporation and 19.27 bylaws of the reorganized company. 19.28 (c) All policies in force on the effective date of the 19.29 conversion continue to remain in force under the terms of those 19.30 policies, except that any voting rights of the policyholders19.31 members provided for under the policies are extinguished on the 19.32 effective date of the conversion. 19.33 (d) All membership interests in the converting mutual 19.34 company are extinguished on the effective date of a conversion. 19.35 Subd. 14. [CONFLICT OF INTEREST.] No director, officer, 19.36 agent, employee of the converting mutual company, or any other 20.1 person shall receive a fee, commission, or other valuable 20.2 consideration, other than the person's usual regular salary and 20.3 compensation, for in any manner aiding, promoting, or assisting 20.4 in the conversion except as set forth in the plan approved by 20.5 the commissioner. This provision does not prohibit the payment 20.6 of reasonable fees and compensation to attorneys, accountants, 20.7 investment bankers, and actuaries for services performed in the 20.8 independent practice of their professions. 20.9 Subd. 15. [COSTS AND EXPENSES.] All the costs and expenses 20.10 connected with a plan of conversion must be paid for or 20.11 reimbursed by the converting mutual company or the reorganized 20.12 company except where the plan provides otherwise. 20.13 Subd. 16. [LIMITATION OF ACTIONS.] (a) An action 20.14 challenging the validity of or arising out of acts taken or 20.15 proposed to be taken according to this section must be commenced 20.16 within 180 days after the effective date of the conversion. 20.17 (b) The converting mutual company, the reorganized company, 20.18 or any defendant in an action described in paragraph (a), may 20.19 petition the court in the action to order a party to give 20.20 security for the reasonable attorney fees that may be incurred 20.21 by a party to the action. The amount of security may be 20.22 increased or decreased in the discretion of the court having 20.23 jurisdiction if a showing is made that the security provided is 20.24 or may become inadequate or excessive. 20.25 Subd. 16a. [CONTINUANCE OF PARTICIPATING POLICY 20.26 DIVIDENDS.] (a) To the extent required by this section, the plan 20.27 of reorganization of a converting mutual insurer that is a 20.28 mutual life insurance company or of a converting mutual holding 20.29 company that has a life insurance company subsidiary shall make 20.30 adequate provision for the protection of the reasonable dividend 20.31 expectations of the policyholders of active participating 20.32 policies, either through the establishment of a closed block or 20.33 other method acceptable by the commissioner. 20.34 (b) A closed block must be operated as follows: 20.35 (1) The converting mutual company's active participating 20.36 policies may be operated by the reorganized company as a closed 21.1 block of participating business. 21.2 (2) Assets must be allocated to the closed block of 21.3 participating business in an amount that ensures that the 21.4 assets, together with the anticipated revenue from the closed 21.5 block, are reasonably expected to be sufficient to permit the 21.6 closed block to pay all policy benefits, including dividends 21.7 according to the current dividend scale, and other items as 21.8 appropriate. The plan must be accompanied by an opinion of an 21.9 independent qualified actuary who meets the standards set forth 21.10 in the insurance laws or rules for the submission of actuarial 21.11 opinions as to the adequacy of reserves or assets. The opinion 21.12 must relate to the adequacy of the assets allocated to support 21.13 the closed block of business. The actuarial opinion must be 21.14 based on methods of analysis considered appropriate for those 21.15 purposes by the actuarial standards board. 21.16 (3) The reorganized company shall keep a separate 21.17 accounting for the closed block and shall make and include in 21.18 the annual statement to be filed with the commissioner each year 21.19 a separate statement showing the gains, losses, and expenses 21.20 properly attributable to the closed block. 21.21 (4) The closed block must be reviewed periodically by an 21.22 independent, qualified actuary for compliance with the 21.23 requirements of the plan and this subdivision and a copy of the 21.24 report must be provided to the commissioner and the reorganized 21.25 company. 21.26 (5) Notwithstanding the establishment of a closed block, 21.27 the entire assets of the company that issued the policies must 21.28 be available for the payment of benefits to policyholders. 21.29 Payment must first be made from the assets supporting the closed 21.30 block until exhausted, and then from the general assets of the 21.31 company which issued the policies. 21.32 Subd. 17. [SUPERVISORY CONVERSIONS.] The commissioner may 21.33 waive or alter any of the requirements of this section to 21.34 protect the interests of policyholders or members if the 21.35 converting mutual company is subject to the commissioner's 21.36 administrative supervision under chapter 60G or rehabilitation 22.1 under chapter 60B. 22.2 Subd. 18. [POSTCONVERSION ACQUISITION.] Prior to and for a 22.3 period of fivethree years following the date when the 22.4 distribution of consideration to the eligible members in 22.5 exchange for their membership interests is completed under a 22.6 plan of conversion according to this section, no person other 22.7 than the reorganized company shall directly or indirectly 22.8 acquire or offer to acquire in any manner ownership or 22.9 beneficial ownership of ten percent or more of any class of 22.10 voting security of the reorganized company, or of any affiliate 22.11 of the reorganized company which controls, directly or 22.12 indirectly, a majority of the voting power of the reorganized 22.13 company, without the prior approval of the commissioner. For 22.14 the purposes of this subdivision, the terms "affiliate" and 22.15 "person" have the meanings given in section 60D.15, and the term 22.16 "reorganized company" includes any successor of the reorganized 22.17 company. 22.18 Sec. 2. Minnesota Statutes 2000, section 60A.09, 22.19 subdivision 5, is amended to read: 22.20 Subd. 5. [REINSURANCE.] (1) [DEFINITIONS.] For the 22.21 purposes of this subdivision, the word "insurer" shall be deemed 22.22 to include the word "reinsurer," and the words "issue policies 22.23 of insurance" shall be deemed to include the words "make 22.24 contracts of reinsurance." 22.25 (2) [REINSURANCE OF MORE THAN 50 PERCENT OF INSURANCE 22.26 LIABILITIES.] Any contract of reinsurance whereby an insurer 22.27 cedes more than 50 percent of the total of its outstanding 22.28 insurance liabilities shall, if such insurer is incorporated by 22.29 or, if an insurer of a foreign country, has its principal office 22.30 in this state, be subject to the approval, in writing, by the 22.31 commissioner. 22.32 (3) [ACTUAL UNEARNED PREMIUM RESERVE TO BE CARRIED AS22.33 LIABILITY.] Nothing in this subdivision shall be deemed to22.34 permit the ceding insurer to receive, through the cession of the22.35 whole of any risk or risks, any advantage in respect to its22.36 unearned premium reserve that would reduce the same below the23.1 actual amount thereof.23.2 (4)[AIRCRAFT RISKS.] An insurer authorized to transact the 23.3 business specified in section 60A.06, subdivision 1, clauses (4) 23.4 and (5)(a), may through reinsurance assume any risk arising 23.5 from, related to, or incident to the manufacture, ownership, or 23.6 operation of aircraft and may retrocede any portion thereof; 23.7 provided, however, that no insurer may undertake any such 23.8 reinsurance business without the prior approval of the 23.9 commissioner and such reinsurance business shall be subject to 23.10 any regulations which may be promulgated by the commissioner. 23.11 Any such reinsurance business may be provided through pooling 23.12 arrangements with other insurers for purposes of spreading the 23.13 insurance risk.