1997 Minnesota Statutes

     60A.077 Mutual insurance holding companies. 

    Subdivision 1.    Formation.  (a) A domestic mutual 
 insurance company, upon approval of the commissioner, may 
 reorganize by forming an insurance holding company based upon a 
 mutual plan and continuing the corporate existence of the 
 reorganizing insurance company as a stock insurance company.  
 The commissioner, if satisfied that the interests of the 
 policyholders are properly protected and that the plan of 
 reorganization is fair and equitable to the policyholders, may 
 approve the proposed plan of reorganization and may require as a 
 condition of approval the modifications of the proposed plan of 
 reorganization as the commissioner finds necessary for the 
 protection of the policyholders' interests.  The commissioner 
 shall retain jurisdiction over the mutual insurance holding 
 company according to this section and chapter 60D to assure that 
 policyholder and member interests are protected. 

    (b) All of the initial voting shares of the capital stock 
 of the reorganized insurance company must be issued to the 
 mutual insurance holding company or to an intermediate stock 
 holding company.  The membership interests of the policyholders 
 of the reorganized insurance company become membership interests 
 in the mutual insurance holding company.  "Membership interests" 
 means those interests described in section 60A.075, subdivision 
 1, paragraph (h).  Policyholders of the reorganized insurance 
 company shall be members of the mutual insurance holding company 
 and their voting rights must be determined in accordance with 
 the articles of incorporation and bylaws of the mutual insurance 
 holding company.  The mutual insurance holding company shall, at 
 all times, directly or through one or more intermediate stock 
 holding companies, control a majority of the voting shares of 
 the capital stock of the reorganized insurance company, taking 
 into account any potential dilution resulting from convertible 
 securities. 

    (c) A majority of the board of directors of a mutual 
 insurance holding company must be disinterested directors.  For 
 purposes of this section, a director is disinterested if (i) the 
 director is not or has not within the past two years been an 
 officer or employee of the mutual insurance holding company or 
 any subsidiary or predecessor corporation, and (ii) the director 
 does not hold, directly or indirectly, a material ownership 
 interest in any subsidiary of the mutual insurance holding 
 company.  An ownership interest is material if it represents 
 more than one-half of one percent of the voting securities of 
 the issuer, or a larger percentage as the commissioner may 
 approve. 

    Subd. 2.    Merger.  (a) A domestic or foreign mutual 
 insurance company, upon the approval of the commissioner, may 
 reorganize by merging its policyholders' membership interests 
 into a mutual insurance holding company formed according to 
 subdivision 1 and continuing the corporate existence of the 
 reorganizing insurance company as a stock insurance company 
 subsidiary of the mutual insurance holding company or of an 
 intermediate stock holding company.  "Membership interests" 
 means those interests described in section 60A.075, subdivision 
 1, paragraph (h).  The commissioner, if satisfied that the 
 interests of the policyholders of the reorganizing company and 
 the interests of the existing members of the mutual insurance 
 holding company are properly protected and that the merger is 
 fair and equitable to those parties, may approve the proposed 
 merger and may require as a condition of approval the 
 modifications of the proposed merger as the commissioner finds 
 necessary for the protection of the policyholders' or members' 
 interests.  The commissioner shall retain jurisdiction, under 
 chapter 60D, over the mutual insurance holding company organized 
 according to this section to assure that policyholder and member 
 interests are protected. 

    (b) All of the initial voting shares of the capital stock 
 of the reorganized insurance company must be issued to the 
 mutual insurance holding company, or to an intermediate stock 
 holding company.  The membership interests of the policyholders 
 of the reorganized insurance company become membership interests 
 in the mutual insurance holding company.  Policyholders of the 
 reorganized insurance company shall be members of the mutual 
 insurance holding company and their voting rights must be 
 determined according to the articles of incorporation and bylaws 
 of the mutual insurance holding company.  The mutual insurance 
 holding company shall, at all times, directly or through one or 
 more intermediate stock holding companies, control a majority of 
 the voting shares of the capital stock of the reorganized 
 insurance company, taking into account any potential dilution 
 resulting from convertible securities. 

    (c) A domestic mutual insurance holding company may merge 
 with a domestic or foreign mutual insurance holding company in 
 the manner prescribed for the merger of insurance companies set 
 forth in section 60A.16, with any exceptions or modifications 
 the commissioner may approve. 

    Subd. 3.    Plan of reorganization; approval by 
 commissioner.  (a) A reorganizing or merging insurer or a 
 merging mutual insurance holding company shall, by the 
 affirmative vote of a majority of its board of directors, adopt 
 a plan of reorganization or merger consistent with the 
 requirements of this section and file the plan with the 
 commissioner.  At any time before the approval of a plan by the 
 commissioner, the company, by the affirmative vote of a majority 
 of its directors, may amend or withdraw the plan.  The plan must 
 provide for the following: 

    (1) in the case of a reorganization under subdivision 1, 
 establishing a mutual insurance holding company with at least 
 one stock insurance company subsidiary, or in the case of a 
 reorganization under subdivision 2, a description of the terms 
 and conditions of the proposed merger; 

    (2) analyzing the benefits and risks attendant to the 
 proposed reorganization, including the rationale for the 
 reorganization and analysis of the comparative benefits and 
 risks of a demutualization under section 60A.075; 

    (3) protecting the immediate and long-term interests of 
 existing policyholders; 

    (4) ensuring immediate membership in the mutual insurance 
 holding company of all existing policyholders of the 
 reorganizing domestic insurance company; 

    (5) describing a plan providing for membership interests of 
 future policyholders; 

    (6) describing the number of members of the board of 
 directors of the mutual insurance holding company required to be 
 policyholders; 

    (7) describing the mutual insurance holding company's plan 
 for distributions to members or other uses of accumulated mutual 
 holding company earnings; 

    (8) describing the nature and content of the annual report 
 and financial statement to be sent to each member; 

    (9) a copy of the proposed mutual insurance holding 
 company's articles of incorporation and bylaws specifying all 
 membership rights; 

    (10) the names, addresses, and occupational information of 
 all corporate officers and members of the proposed mutual 
 insurance holding company board of directors; 

    (11) information sufficient to demonstrate that the 
 financial condition of the reorganizing or merging company will 
 not be materially diminished upon reorganization, including 
 information concerning any subsidiaries of the reorganizing or 
 merging insurers that will become subsidiaries of the mutual 
 insurance holding company or an intermediate holding company as 
 part of the reorganization; 

    (12) a copy of the articles of incorporation and bylaws for 
 any proposed insurance company subsidiary or intermediate 
 holding company subsidiary; 

    (13) describing any plans for an initial sale or 
 subscription of stock or other securities of the reorganized 
 insurance company or any intermediate holding company; and 

    (14) any other information requested by the commissioner or 
 required by rule. 

    (b) The commissioner may approve the plan upon finding that 
 the requirements of this section have been fully met and the 
 plan will protect the immediate and long-term interests of 
 policyholders. 

    (c) The commissioner may retain, at the reorganizing or 
 merging mutual company's expense, any qualified experts not 
 otherwise a part of the commissioner's staff to assist in 
 reviewing the plan. 

    (d) The commissioner may, but need not, conduct a public 
 hearing regarding the proposed plan.  The hearing must be held 
 within 30 days after submission of a completed plan of 
 reorganization to the commissioner.  The commissioner shall give 
 the reorganizing mutual company at least 20 days' notice of the 
 hearing.  At the hearing, the reorganizing mutual company, its 
 policyholders, and any other person whose interest may be 
 affected by the proposed reorganization, may present evidence, 
 examine and cross-examine witnesses, and offer oral and written 
 arguments or comments according to the procedure for contested 
 cases under chapter 14.  The persons participating may conduct 
 discovery proceedings in the same manner as prescribed for the 
 district courts of this state.  All discovery proceedings must 
 be concluded no later than three days before the scheduled 
 commencement of the public hearing. 

    Subd. 4.    Approval by commissioner.  The plan by order 
 shall be approved, conditionally approved, or disapproved within 
 the later of 30 days from the date of the commissioner's receipt 
 of all required information or 30 days after the conclusion of 
 the public hearing.  An approval or conditional approval of a 
 plan of reorganization expires if the reorganization is not 
 completed within 180 days after the approval or conditional 
 approval unless the time period is extended by the commissioner 
 upon a showing of good cause. 

    Subd. 5.    Approval by members.  The plan shall be 
 approved as provided in section 60A.075, subdivision 5, by the 
 eligible members described in paragraphs (a) to (c).  

    (a) In the case of a formation under subdivision 1, the 
 plan must be approved by the eligible members of the 
 reorganizing insurance company. 

    (b) In the case of a merger under subdivision 2, paragraph 
 (a), the plan must be approved by the eligible members of the 
 merging insurance company and by the eligible members of the 
 mutual insurance holding company into which the policyholders' 
 membership interests are to be merged.  The vote of the eligible 
 members of the mutual insurance holding company is not required 
 if the commissioner determines that the merger would not be 
 material to the financial condition of the mutual insurance 
 holding company. 

    (c) In the case of a merger of two mutual insurance holding 
 companies under subdivision 2, paragraph (c), the plan must be 
 approved by the eligible members of both companies.  The vote of 
 the eligible members of the surviving mutual holding company is 
 not required if the commissioner determines that the merger 
 would not be material to the financial condition of the 
 surviving company. 

    Subd. 6.    Incorporation.  A mutual insurance holding 
 company shall be incorporated pursuant to chapter 300.  The 
 articles of incorporation and any amendments to the articles of 
 the mutual insurance holding company are subject to approval of 
 the commissioner in the same manner as those of an insurance 
 company.  Members of a mutual insurance holding company shall be 
 entitled to vote on all matters required to be submitted to 
 members under chapter 300 and shall additionally be treated as 
 shareholders for purposes of the voting approval requirements of 
 section 300.09. 

    Subd. 7.    Applicability of certain provisions.  (a) In 
 the event of the insolvency of a mutual insurance holding 
 company, the mutual insurance holding company is considered to 
 be an insurer subject to chapter 60B.  A mutual insurance 
 holding company shall not dissolve or liquidate without the 
 approval of the commissioner or as ordered by a court of 
 competent jurisdiction. 

    (b) A mutual insurance holding company is subject to 
 chapter 60D. 

    (c) As a condition to approval of the plan, the 
 commissioner may require the mutual insurance holding company to 
 comply with any provision of the insurance laws necessary to 
 protect the interests of the policyholders as if the mutual 
 insurance holding company were a domestic mutual insurance 
 company.  

    (d) No person or group of persons other than the chief 
 executive officer of a mutual insurance holding company, or the 
 chief executive officer's designee, shall seek to obtain proxies 
 from the members of the mutual insurance holding company for the 
 purposes of affecting a change of control of the mutual 
 insurance holding company unless that person or persons have 
 filed with the commissioner and have sent to the mutual 
 insurance holding company a statement containing the information 
 required by section 60D.17.  Section 60D.17, subdivisions 2 to 
 7, apply in the event of a proxy solicitation regulated by this 
 paragraph. 

    (e) For purposes of this subdivision, the term "control," 
 including the terms "controlling," "controlled by," and "under 
 common control with," means the possession, direct or indirect, 
 of the power to direct or cause the direction of the management 
 and policies of a person, whether through membership voting 
 interests, by contract other than a commercial contract for 
 goods or nonmanagement services, or otherwise, unless the power 
 is the result of an official position with, corporate office 
 held by, or court appointment of, the person.  Control is 
 presumed to exist if any person, directly or indirectly, owns, 
 controls, holds with the power to vote, or holds proxies 
 representing, ten percent or more of the membership voting 
 interests of the mutual insurance holding company.  This 
 presumption may be rebutted by a showing made in the manner 
 provided by section 60D.19, subdivision 11, that control does 
 not exist in fact.  The commissioner may determine after 
 furnishing all persons in interest notice and opportunity to be 
 heard and making specific findings of fact to support the 
 determination, that control exists in fact, notwithstanding the 
 absence of a presumption to that effect. 

    Subd. 8.    Applicability of demutualization provisions. 
  (a) Except as otherwise provided, section 60A.075 is not 
 applicable to a reorganization or merger according to this 
 section. 

    (b) Section 60A.075 is applicable to demutualization of a 
 mutual insurance holding company as if it were a mutual 
 insurance company. 

    (c) Section 60A.075, subdivisions 14 to 16, are applicable 
 to a reorganization or merger under this section. 

    Subd. 9.    Membership interests.  A membership interest 
 in a domestic mutual insurance holding company does not 
 constitute a security as defined in section 80A.14, subdivision 
 18.  No member of a mutual insurance holding company may 
 transfer or pledge membership in the mutual insurance holding 
 company or any right arising from the membership except as 
 attendant to the valid transfer or assignment of the member's 
 policy in any reorganized company that gave rise to the member's 
 membership interest.  A member of a mutual insurance holding 
 company is not, as a member, personally liable for the acts, 
 debts, liabilities, or obligations of the company.  No 
 assessments of any kind may be imposed upon the members of a 
 mutual insurance holding company by the directors or members, or 
 because of any liability of any company owned or controlled by 
 the mutual insurance holding company or because of any act, 
 debt, or liability of the mutual insurance holding company.  A 
 member's interest in the mutual insurance holding company shall 
 automatically terminate upon cancellation, nonrenewal, 
 expiration, or termination of the member's policy in any 
 insurance company that gave rise to the member's membership 
 interest. 

    Subd. 10.    Financial statement requirements.  (a) In 
 addition to any items required under chapter 60D, each mutual 
 insurance holding company shall file with the commissioner, by 
 April 1 of each year, an annual statement consisting of the 
 following: 

    (1) an income statement, balance sheet, and cash flow 
 statement prepared in accordance with generally accepted 
 accounting principles; 

    (2) complete information on the status of any closed block 
 formed as part of a plan of reorganization; 

    (3) an investment plan covering all assets; and 

    (4) a statement disclosing any intention to pledge, borrow 
 against, alienate, hypothecate, or in any way encumber the 
 assets of the mutual insurance holding company or an 
 intermediate stock holding company.  

    (b) The aggregate pledges and encumbrances of a mutual 
 insurance holding company's assets shall not affect more than 49 
 percent of the stock in ownership of any subsidiary insurance 
 holding company or subsidiary insurance company that resulted 
 from a reorganization or merger. 

    (c) At least 50 percent of the generally accepted 
 accounting principles (GAAP) net worth of a mutual insurance 
 holding company must be invested in insurance company 
 subsidiaries. 

    Subd. 11.    Sale of stock and payment of dividends.  
 (a) A reorganized insurance company and an intermediate stock 
 holding company may issue subscription rights and may issue or 
 grant any other securities, rights, options, and similar items 
 to the same extent as any business corporation organized under 
 chapter 302A.  However, except as provided in paragraphs (b) to 
 (d), no sale of securities of the reorganized insurance company, 
 or of an intermediate stock holding company that directly or 
 indirectly controls a majority of voting shares of the 
 reorganized insurance company, may be made without the 
 commissioner's prior written approval.  

    (b) A registration statement covering securities that has 
 been approved by the commissioner and filed with and declared 
 effective by the Securities and Exchange Commission under the 
 Securities Act of 1933 pursuant to any provision of that statute 
 or rule that allows registration of securities to be sold on a 
 delayed or continuous basis may be sold without further approval.

    (c) Unless the commissioner has granted the mutual 
 insurance holding company a written exemption from the 
 requirements of this paragraph, any securities which are 
 regularly traded on the New York Stock Exchange, the American 
 Stock Exchange, or another exchange approved by the 
 commissioner, or designated on the National Association of 
 Securities Dealers automated quotations (NASDAQ) national market 
 system, shall be sold according to the procedure in this 
 paragraph.  If the mutual insurance holding company, an 
 intermediate holding company, or a reorganized insurance company 
 intends to offer securities that are governed by this paragraph, 
 that entity shall deliver to the commissioner, not less than ten 
 days before the offering, a notice of the planned offering and 
 information regarding:  (1) the approximate number of shares 
 intended to be offered; (2) the target date of sale; (3) 
 evidence the security is regularly traded on one of the public 
 exchanges noted above; and (4) the recent history of the trading 
 price and trading volume of the security.  The commissioner is 
 considered to have approved the sale unless within ten days 
 following receipt of the notice, the commissioner issues an 
 objection to the sale.  If the commissioner issues an objection 
 to the sale, the security may not be sold until the commissioner 
 issues an order approving the sale. 

    (d) A reorganized insurance company or intermediate holding 
 company that has issued securities that are regularly traded on 
 one of the exchanges or markets described in paragraph (c), may 
 establish stock option, incentive, and share ownership plans 
 customary for publicly traded companies in the same or similar 
 industries.  If the reorganized insurance company or 
 intermediate holding company intends to establish a stock 
 option, incentive or share ownership plan, that entity shall 
 deliver to the commissioner, not less than 30 days before the 
 establishment of the plan, a notice of the proposed plan along 
 with any information about the proposed plan the commissioner 
 requires.  The commissioner is considered to have approved the 
 plan unless within 30 days following receipt of the notice, the 
 commissioner issues an objection to the proposed plan.  If the 
 commissioner issues an objection to the proposed plan, the plan 
 may not be established until the commissioner issues an order 
 approving the plan.  If the commissioner approves the 
 establishment of the stock option, incentive, or share ownership 
 plan, the reorganized insurance company or the intermediate 
 holding company that obtained the approval may sell or issue 
 securities according to the approved plan without further 
 approval. 

    (e) The total number of shares of capital stock issued by 
 the reorganized insurance company or an intermediate holding 
 company that may be held by directors and officers of the mutual 
 insurance holding company, any intermediate holding company, and 
 of any reorganized insurance company, and acquired according to 
 subscription rights or stock option, incentive, and share 
 ownership plans, may not exceed the percentage limits set forth 
 in section 60A.075, subdivision 11, paragraph (b).  Subject to 
 the requirements of subdivision 1, paragraph (c), nothing in 
 this section prohibits the acquisition of any securities of a 
 reorganized insurance company or intermediate stock holding 
 company through a licensed securities broker-dealer by any 
 officer or director of the reorganized company, an intermediate 
 stock holding company, or the mutual insurance holding company. 

    (f) Dividends and other distributions to the shareholders 
 of the reorganized stock insurance company or of an intermediate 
 stock holding company must comply with section 60D.20.  Any 
 dividends and other distributions to the members of the mutual 
 insurance holding company must comply with section 60D.20 and 
 any other approval requirements contained in the mutual 
 insurance holding company's articles of incorporation. 

    (g) Unless previously approved as part of the plan of 
 reorganization, the initial offering of any voting shares to the 
 public by a reorganized company, a stock insurance company 
 subsidiary, or an intermediate holding company which holds a 
 majority of the voting shares of a reorganized insurance company 
 or stock insurance company subsidiary, must be approved by a 
 majority of votes cast at a regular or special meeting of the 
 members of the mutual insurance holding company.  Any issuer 
 repurchase program, plan of exchange, recapitalization, or 
 offering of capital securities to the public, shall, in addition 
 to any other approvals required by law or by the issuer's 
 articles of incorporation, be approved by a majority of the 
 board of directors of the mutual insurance holding company and 
 by a majority of the disinterested members of the board of 
 directors of the mutual insurance holding company. 

    Subd. 12.    Provisions in the event of insurer 
 insolvency.  (a) In the event of any insolvency proceeding 
 involving an insolvent stock subsidiary, the assets of the 
 mutual insurance holding company, together with any assets of 
 any intermediate holding company that directly or indirectly 
 controls the insolvent stock subsidiary, must be available to 
 satisfy the policyholder obligations of the insolvent stock 
 subsidiary in an amount determined by the commissioner, but in 
 no event more than the total amount of nonpolicyholder dividends 
 paid by the insolvent stock subsidiary to the mutual insurance 
 holding company, or any intermediate holding company that 
 controls the insolvent stock subsidiary, during the ten-year 
 period immediately preceding the date of insolvency. 

    (b) In determining the required contribution by the mutual 
 insurance holding company or any intermediate stock holding 
 company which controls the insolvent stock subsidiary, the 
 commissioner shall take into account among other factors: 

    (1) the possible direct or indirect negative effects of any 
 required contribution on any insurance company affiliate of the 
 insolvent stock subsidiary; and 

    (2) the possible direct or indirect, long-term, or 
 short-term negative effects on the members of the mutual 
 insurance holding company, other than those members who, are, or 
 were policyholders of the insolvent stock subsidiary. 

    Nothing in this subdivision limits the powers of the 
 commissioner or the liquidator under chapter 60B. 

    (c) For purposes of this subdivision, the following terms 
 have the meanings given: 

    (1) "date of insolvency" means, as to an insolvent stock 
 subsidiary, the date established in accordance with chapter 60B 
 or comparable statute of another state governing the 
 rehabilitation or liquidation of a foreign insolvent stock 
 subsidiary; 

    (2) "insolvency proceeding" means any proceeding under 
 chapter 60B or comparable statute of another state governing the 
 rehabilitation and liquidation of a foreign insolvent stock 
 subsidiary; 

    (3) "insolvent stock subsidiary" means any stock insurance 
 company subsidiary of a mutual insurance holding company that 
 resulted from the reorganization of a domestic or foreign mutual 
 insurance company according to subdivision 1 or 2, or any other 
 stock insurance company subsidiary that is subject to an 
 insolvency proceeding, which on the date of insolvency has in 
 force policies that have given rise to membership interests in 
 the mutual insurance holding company; 

    (4) "control" has the meaning given in section 60D.15, 
 subdivision 4; and 

    (5) "dividends" include distributions of cash or any other 
 assets. 

    HIST: 1996 c 446 art 2 s 4; 1997 c 231 art 15 s 4-14