By Brimer                                             H.B. No. 2842

         Substitute the following for H.B. No. 2842:

         By Averitt                                        C.S.H.B. No. 2842

                                A BILL TO BE ENTITLED

 1-1                                   AN ACT

 1-2     relating to the conversion of mutual insurance companies to stock

 1-3     insurance companies.

 1-4           BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:

 1-5           SECTION 1.  Chapter 15, Insurance Code, is amended by adding

 1-6     Article 15.22 to read as follows:

 1-7           Art. 15.22.  CONVERSION TO STOCK INSURANCE COMPANY

 1-8           Sec. 1.  DEFINITIONS.  In this article:

 1-9                 (1)  "Conversion plan" means the plan adopted under

1-10     this article by the board of directors of a mutual insurance

1-11     company to convert the mutual insurance company into a stock

1-12     company.

1-13                 (2)  "Converted stock company"  means a domestic stock

1-14     insurance company that converts under this article from a domestic

1-15     mutual insurance company.

1-16                 (3)  "Eligible member" means a member of a mutual

1-17     insurance company whose policy is in force on the date that the

1-18     mutual insurance company's board of directors adopts a conversion

1-19     plan.  The term does not include a person:

1-20                       (A)  insured under a group policy; or

1-21                       (B)  whose policy becomes effective after the

1-22     date that the board of directors adopts the conversion plan but

1-23     before the conversion plan's effective date.

1-24                 (4)  "Mutual insurance company"  means a domestic

 2-1     mutual insurance company.

 2-2                 (5)  "Participating policy"  means a policy that grants

 2-3     a holder the right to receive dividends if, as, and when declared

 2-4     by the mutual insurance company.

 2-5                 (6)  "Stock company"  means a stock insurance company

 2-6     that meets all of the requirements for admission to do business as

 2-7     a domestic insurer in this state.

 2-8           Sec. 2.  ADOPTION OF CONVERSION PLAN.  (a)  A mutual

 2-9     insurance company that seeks to convert to a stock company must

2-10     adopt, by the affirmative vote of not less than two-thirds of the

2-11     members of its board of directors, a conversion plan consistent

2-12     with the requirements of this article.  A mutual insurance company

2-13     may not engage in the business of insurance as a stock company

2-14     until it complies with the requirements of this article.

2-15           (b)  Before the eligible members of a mutual insurance

2-16     company may vote on approval of a conversion plan, the mutual

2-17     insurance company must comply with Section 3 of this article.

2-18           Sec. 3.  PLAN INFORMATION FILED WITH COMMISSIONER;

2-19     COMMISSIONER POWERS AND DUTIES.  (a)  Not later than the 90th day

2-20     after the date on which a mutual insurance company's board of

2-21     directors adopts a conversion plan, the company shall file with the

2-22     commissioner:

2-23                 (1)  a copy of the documents relating to the conversion

2-24     plan, including the independent evaluation of pro forma market

2-25     value required by Section 10(b) of this article;

2-26                 (2)  the form of notice required by Section 5 of this

2-27     article;

 3-1                 (3)  the form of proxy to be solicited from eligible

 3-2     members under Section 6(b) of this article;

 3-3                 (4)  the form of notice required by Section 16 of this

 3-4     article to persons whose policies are issued after adoption of the

 3-5     conversion plan but before the effective date of the conversion

 3-6     plan;

 3-7                 (5)  the proposed amended or restated articles of

 3-8     incorporation of the converted stock company;

 3-9                 (6)  a statement regarding acquisition of control, if

3-10     applicable, as required by article 21.49-1, Insurance Code; and

3-11                 (7)  any other information requested by the

3-12     commissioner.

3-13           (b)  Except as otherwise provided by this subsection, the

3-14     commissioner shall approve or disapprove a conversion plan not

3-15     later than the 60th day after the first day on which all the

3-16     documents required under Subsection (a) of this section are filed

3-17     with the commissioner.  The commissioner may extend the time for

3-18     approval or disapproval by an additional 30 days on written notice

3-19     to the mutual insurance company.  The commissioner may not extend

3-20     the time for approval or disapproval beyond this time period unless

3-21     he finds it necessary to retain a qualified expert pursuant to

3-22     subsection (d) of this section, in which case he may extend the

3-23     time for review for an additional 60 days beyond the initial 60 day

3-24     period.  The commissioner shall immediately give written notice to

3-25     the mutual insurance company of the commissioner's decision and, in

3-26     the event of disapproval, a detailed statement of the reasons for

3-27     the adverse decision.

 4-1           (c)  The commissioner shall approve a conversion plan if the

 4-2     commissioner finds that:

 4-3                 (1)  the conversion plan complies with this article;

 4-4                 (2)  the conversion plan's method of allocating

 4-5     subscription rights or other value is fair and equitable; and

 4-6                 (3)  the converted stock company would satisfy the

 4-7     current requirements applicable to a domestic stock  company for a

 4-8     certificate of authority.

 4-9           (d)  The commissioner may retain, at the mutual insurance

4-10     company's expense, a qualified expert not otherwise a part of the

4-11     commissioner's staff to assist the commissioner in reviewing the

4-12     conversion plan and the independent evaluation of the pro forma

4-13     market value required under Section 10(b) of this article.

4-14           (e)  The commissioner may hold a hearing on whether the terms

4-15     of the conversion plan comply with this article after giving

4-16     written notice to the mutual insurance company and other interested

4-17     persons, all of whom have the right to appear at the hearing.

4-18     Notice to interested persons who have not filed an appearance in

4-19     the matter  may be made through publication in the "Texas

4-20     Register."

4-21           Sec. 4.  AMENDMENTS; WITHDRAWAL OF PLAN.  At any time before

4-22     the conversion plan becomes effective, the mutual insurance

4-23     company, by the affirmative vote of not less than two-thirds of the

4-24     members of its board of directors, may amend or withdraw the

4-25     conversion plan.

4-26           Sec. 5.  NOTICE TO ELIGIBLE MEMBERS; COMMENTS.  (a)  Within

4-27     10 business days of filing of the documents required under Section

 5-1     3(a) of this article  with the commissioner, the mutual insurance

 5-2     company shall send to each eligible member a notice advising the

 5-3     eligible member of the adoption and filing of the conversion plan

 5-4     and of the member's right to provide to the commissioner and the

 5-5     mutual insurance company comments on the plan.  The notice must

 5-6     include a description of the procedure to be used in making

 5-7     comments.

 5-8           (b)  An eligible member who elects to make comments must make

 5-9     the comments in writing not later than the 30th day after the date

5-10     on which the notice is sent.

5-11           (c)  Within 60 days of the commissioner's approval of the

5-12     plan, the mutual insurance company also shall send to each eligible

5-13     member notice of the members meeting to vote on the conversion

5-14     plan.  The notice must be sent to the member's last known address,

5-15     as shown on the mutual insurance company's records, before the 30th

5-16     day preceding the date set for the meeting.  The notice must:

5-17                 (1)  briefly but fairly describe the proposed

5-18     conversion plan; and

5-19                 (2)  inform the member of the member's right to vote on

5-20     the conversion plan.

5-21           (d)  If the meeting to vote on the conversion plan is held

5-22     during the mutual insurance company's annual meeting of

5-23     policyholders, only a combined meeting notice is required.

5-24           Sec. 6.  ELECTION; ADOPTION OF PLAN.  (a)  A conversion plan

5-25     is adopted upon receiving the affirmative vote of at least

5-26     two-thirds of the votes cast by eligible members at a duly convened

5-27     meeting to consider the plan of conversion.

 6-1           (b)  Members entitled to vote on the proposed conversion plan

 6-2     may vote in person or by proxy.  The number of votes each eligible

 6-3     member may cast shall be determined by the mutual insurance

 6-4     company's bylaws.  If the bylaws are silent, each eligible member

 6-5     may cast one vote.

 6-6           (c)  At the meeting  held to vote on the conversion plan, the

 6-7     members shall also consider the adoption of amended or restated

 6-8     articles of incorporation.  Adoption of the amended articles

 6-9     requires the affirmative vote of at least two-thirds of the votes

6-10     cast by eligible members.

6-11           Sec. 7.  FILING BY CONVERTED STOCK COMPANY.  Not later than

6-12     the 30th day after the date on which the eligible members adopt the

6-13     conversion plan at a duly convened meeting, the converted stock

6-14     company shall file with the commissioner:

6-15                 (1)  the minutes of the meeting of the eligible members

6-16     at which the conversion plan was adopted; and

6-17                 (2)  the amended  or restated articles of incorporation

6-18     and of bylaws of the converted stock company.

6-19           Sec. 8.  REQUIRED PROVISIONS IN GENERAL.  (a)  Each

6-20     conversion plan must include the provisions required by this

6-21     article.

6-22           (b)  Each policy in effect on the effective date of the

6-23     conversion remains in effect under the terms of that policy, except

6-24     that the following rights, to the extent they existed in the mutual

6-25     insurance company, are extinguished on the effective date of the

6-26     conversion:

6-27                 (1)  any voting rights of policyholders provided under

 7-1     the policy;

 7-2                 (2)  except as provided in subsection (c) of this

 7-3     section, a right to share in the surplus or profits of the mutual

 7-4     insurance company; and

 7-5                 (3)  any assessment provisions provided under the

 7-6     policy.

 7-7           (c)  The holder of a participating policy in effect on the

 7-8     date of the conversion continues to have a right to receive

 7-9     dividends as provided by the participating policy.

7-10           (d)  Except for the mutual insurance company's guaranteed

7-11     renewable accident and health policies and guaranteed renewable,

7-12     noncancelable accident and health policies, on the renewal date of

7-13     a participating policy, the converted stock company may issue the

7-14     insured a nonparticipating policy as a substitute for the

7-15     participating policy.

7-16           Sec. 9.  SUBSCRIPTION RIGHTS.  (a)  Except for an alternative

7-17     plan under Section 14, each conversion plan must specify the

7-18     subscription rights of eligible members.

7-19           (b)  The plan must include a provision that:

7-20                 (1)  each eligible member is to receive, without

7-21     payment by the member, nontransferable subscription rights to

7-22     purchase a portion of the capital stock of the converted stock

7-23     company; and

7-24                 (2)  in the aggregate, all eligible members have the

7-25     right, before the right of any other party, to purchase 100 percent

7-26     of the capital stock of the converted company, after provision for:

7-27                       (A)  capital stock required to be sold or

 8-1     distributed to the holders of surplus notes, if any;

 8-2                       (B)  capital stock purchased by the company's

 8-3     tax-qualified employee stock benefit plan as permitted by Section

 8-4     13(c) of this article; and

 8-5                       (C)  capital stock acquired by the mutual

 8-6     insurance company's directors and officers, as permitted by section

 8-7     13(a) of this article.

 8-8           (c)  As an alternative to subscription rights in the

 8-9     converted stock company, the conversion plan may provide that each

8-10     eligible member is to receive, without payment by the member,

8-11     nontransferable subscription rights to purchase a portion of the

8-12     capital stock of one of the following:

8-13                 (1)  a corporation organized for the purpose of

8-14     purchasing and holding all the stock of the converted stock

8-15     company;

8-16                 (2)  a stock insurance company owned by the mutual

8-17     insurance company into which the mutual insurance company is to be

8-18     merged; or

8-19                 (3)  an unaffiliated stock insurance company or other

8-20     corporation that is to purchase all the stock of the converted

8-21     stock company.

8-22           (d)  The conversion plan must provide that the subscription

8-23     rights are allocated in whole shares among the eligible members

8-24     using a fair and equitable formula.  The formula may consider, but

8-25     is not required to consider, how the different classes of policies

8-26     of the eligible members contributed to the surplus of the mutual

8-27     insurance company or any other factors that may be fair or

 9-1     equitable as determined by the board of directors.

 9-2           (e)  The conversion plan must provide a fair and equitable

 9-3     means for allocating shares of capital stock in the event of an

 9-4     oversubscription to shares by eligible members exercising

 9-5     subscription rights under this section.

 9-6           Sec. 10.  SALE OF CAPITAL STOCK.  (a)  The conversion plan

 9-7     must provide that any shares of capital stock not sold or

 9-8     distributed to holders of surplus notes, subscribed to by a tax

 9-9     qualified employee benefit plan, as permitted under section 13(c),

9-10     subscribed to by directors and officers, as permitted under section

9-11     13(a), or subscribed to by eligible members exercising subscription

9-12     rights under Section 9 of this article shall be sold in a private

9-13     placement, public offering, or other alternative method approved by

9-14     the Commissioner.

9-15           (b)  The conversion plan must set the total price of the

9-16     capital stock in an amount equal to the estimated pro forma market

9-17     value of the converted stock company based on an independent

9-18     valuation by a qualified expert giving consideration to the amount

9-19     of capital deemed necessary by the board of directors to be raised

9-20     by the company.  The pro forma market value may be the value

9-21     estimated to be necessary to attract full subscription for the

9-22     shares, as indicated by the independent valuation, and may be

9-23     stated as a range of values.

9-24           (c)  The conversion plan shall set the purchase price per

9-25     share of capital stock at any reasonable amount.  The purchase

9-26     price per share need not be the same for each class of purchaser;

9-27     provided, however, that eligible members purchasing stock pursuant

 10-1    to subscription rights received under Section 9 hereof shall have

 10-2    the right to purchase shares at the lowest available purchase price

 10-3    under the plan.

 10-4          (d)  The conversion plan must provide that a person or group

 10-5    of persons acting in concert may not acquire, in the public or

 10-6    private offering or through the exercise of subscription rights,

 10-7    more than ten percent of the capital stock of the converted stock

 10-8    company except with the approval of the commissioner.  This

 10-9    limitation does not apply to an entity that purchases 100 percent

10-10    of the capital stock of the converted company as part of the

10-11    conversion plan approved by the commissioner.

10-12          (e)  Except as otherwise provided in this article, the

10-13    conversion plan must provide that a director or officer of the

10-14    mutual insurance company, or a person acting in concert with a

10-15    director or officer, may not acquire without the permission of the

10-16    commissioner, any capital stock of the converted stock company or

10-17    the stock of another corporation that is participating in the

10-18    conversion plan before the third anniversary of the effective date

10-19    of the conversion, except through a broker-dealer.  This subsection

10-20    does not prohibit a director or officer from:

10-21                (1)  making purchases through the exercise of

10-22    subscription rights received under the conversion plan; or

10-23                (2)  participating in a stock benefit plan permitted by

10-24    Section 13(c) of this article or approved by the eligible members

10-25    pursuant to Section 6.

10-26          Sec. 11.  LIMITATION ON RESALE.  The conversion plan must

10-27    provide that a director or officer may not sell stock purchased

 11-1    pursuant to the conversion plan before the first anniversary of the

 11-2    effective date of the conversion; provided however, the conversion

 11-3    plan may provide for the purchase or redemption of stock in the

 11-4    event that a director or officer is no longer associated with the

 11-5    converted stock company during such period.

 11-6          Sec. 12.  HOLDER OF SURPLUS NOTE.  The conversion plan must

 11-7    provide that the rights of a holder of a surplus note to

 11-8    participate in the conversion, if any, are governed by the terms of

 11-9    the surplus note.

11-10          Sec. 13.  OPTIONAL PROVISIONS.  (a)  The conversion plan may

11-11    provide that the directors and officers of the mutual insurance

11-12    company may receive, without payment, nontransferable subscription

11-13    rights to purchase capital stock of the converted stock company or

11-14    the stock of another corporation that is participating in the

11-15    conversion plan.

11-16          (b)  The aggregate number of shares that may be purchased by

11-17    directors and officers of the mutual insurance company in their

11-18    capacity under Subsection (a) of this section may not exceed 35

11-19    percent of the total number of shares to be issued for the company

11-20    if total assets of the mutual insurance company are less than $50

11-21    million or 25 percent of the total number of shares to be issued

11-22    for the company if total assets of the mutual insurance company are

11-23    more than $500 million.  For mutual insurance companies with total

11-24    assets of or between $50 million and $500 million, the maximum

11-25    percentage of the total number of shares that may be purchased

11-26    shall be interpolated.

11-27          (c)  The conversion plan may allocate to a tax-qualified

 12-1    employee benefit plan nontransferable subscription rights to

 12-2    purchase not more than 10 percent of the capital stock of the

 12-3    converted stock company.

 12-4          (d)  The conversion plan may provide for the creation of a

 12-5    liquidation account for the benefit of members in the event of

 12-6    voluntary liquidation after conversion in an amount equal to the

 12-7    surplus of the mutual insurance company, exclusive of the principal

 12-8    amount of any surplus note, on the last day of the quarter

 12-9    immediately preceding the date of adoption of the conversion plan.

12-10          Sec. 14.  ALTERNATIVE CONVERSION PLAN.  (a)  The board of

12-11    directors may adopt a conversion plan that does not rely wholly or

12-12    partially on issuing nontransferable subscription rights to members

12-13    to purchase stock of the converted stock company if the

12-14    commissioner finds that the alternative conversion plan:

12-15                (1)  complies with this article;

12-16                (2)  is fair and equitable; and

12-17                (3)  permits the converted stock company to satisfy the

12-18    current requirements applicable to a domestic stock company for a

12-19    certificate of authority.

12-20          (b)  An alternative conversion plan may:

12-21                (1)  include the merger of a domestic mutual insurance

12-22    company into a domestic or foreign stock insurance company;

12-23                (2)  provide for issuing stock, cash, or other

12-24    consideration to members instead of subscription rights;

12-25                (3)  provide for the formation of a mutual holding

12-26    company pursuant to Section 24; or

12-27                (4)  set forth another plan containing any other

 13-1    provisions approved by the commissioner.

 13-2          (c)  The commissioner may retain, at the mutual insurance

 13-3    company's expense, a qualified expert not otherwise a part of the

 13-4    commissioner's staff to assist in reviewing whether the alternative

 13-5    conversion plan may be approved by the commissioner.

 13-6          Sec. 15.  EFFECTIVE DATE OF CONVERSION.  (a)  For a

 13-7    conversion plan to take effect:

 13-8                (1)  the commissioner must approve the conversion plan;

 13-9    and

13-10                (2)  the eligible members must approve the conversion

13-11    plan and adopt the amended or restated articles of incorporation.

13-12          (b)  A conversion plan takes effect when the amended or

13-13    restated articles of incorporation are filed with the Commissioner.

13-14          Sec. 16.  RIGHTS OF MEMBERS WHOSE POLICIES ARE ISSUED AFTER

13-15    ADOPTION OF CONVERSION PLAN AND BEFORE EFFECTIVE DATE.  (a)  On

13-16    issuance of a policy after a conversion plan has been adopted by

13-17    the board of directors but before the effective date of the

13-18    conversion plan, the mutual insurance company shall send to the

13-19    member to whom the policy is issued a written notice regarding the

13-20    conversion plan.

13-21          (b)  Except as provided by Subsection (d) of this section, a

13-22    member of an accident and health insurance company entitled to

13-23    receive the notice described by Subsection (a) of this section is

13-24    entitled to rescind the member's policy and receive a full refund

13-25    of any amount paid for the policy not later than the 10th day after

13-26    the date on which the member receives the notice.

13-27          (c)  Except as provided by Subsection (d) of this section,

 14-1    each member who is insured under a property or casualty insurance

 14-2    policy is entitled to receive the notice described by Subsection

 14-3    (a) of this section shall be advised of the member's right to:

 14-4                (1)  cancel the policy; and

 14-5                (2)  receive a pro rata refund of unearned premiums.

 14-6          (d)  A member who has made or filed a claim under the

 14-7    insurance policy is not entitled to a right to receive a refund

 14-8    under Subsection (b) or (c) of this section.  A person who has

 14-9    exercised the rights provided by Subsection (b) or (c) of this

14-10    section is not entitled to make or file a claim under the insurance

14-11    policy.

14-12          Sec. 17.  CORPORATE EXISTENCE.  (a)  On the effective date of

14-13    the conversion:

14-14                (1)  the corporate existence of the mutual insurance

14-15    company continues in the converted stock company; and

14-16                (2)  all assets, rights, franchises, and interests of

14-17    the mutual insurance company in and to property, real, personal, or

14-18    mixed, and any accompanying things in action, are vested in the

14-19    converted stock company, without a deed or transfer, and the

14-20    converted stock company assumes all the obligations and liabilities

14-21    of the mutual insurance company.

14-22          (b)  Unless otherwise specified in the conversion plan, the

14-23    directors and officers of the mutual insurance company serving on

14-24    the effective date of the conversion serve as directors and

14-25    officers of the converted stock company until new directors and

14-26    officers of the converted stock company are elected under the

14-27    articles of incorporation and bylaws of the converted stock

 15-1    company.

 15-2          Sec. 18.  CONFLICT OF INTEREST.  (a)  A director, officer,

 15-3    agent, or employee of the mutual insurance company may not receive

 15-4    a fee, commission, or other consideration, other than that person's

 15-5    usual salary or compensation, for aiding, promoting, or assisting

 15-6    in a conversion under this article except as provided by the

 15-7    conversion plan approved by the commissioner.  This subsection does

 15-8    not prohibit the payment of reasonable fees and compensation to an

 15-9    attorney, accountant, or actuary for professional services

15-10    performed by that person, even if the attorney, accountant, or

15-11    actuary is also a director or officer of the mutual insurance

15-12    company.

15-13          (b)  All the costs and expenses connected with a conversion

15-14    plan shall be paid for or reimbursed by the mutual insurance

15-15    company or the converted stock company.

15-16          Sec. 19.  EFFECT OF FAILURE TO GIVE NOTICE.  If the mutual

15-17    insurance company complies substantially and in good faith with the

15-18    notice requirements of this article, the mutual insurance company's

15-19    failure to send a member the required notice does not impair the

15-20    validity of any action taken under this article.

15-21          Sec. 20.  LIMITATION ON ACTIONS.  An action challenging the

15-22    validity of or arising out of acts taken or proposed to be taken

15-23    regarding a conversion plan under this article must be commenced

15-24    not later than the 30th day after the effective date of that

15-25    conversion plan.

15-26          Sec. 21.  INSOLVENT MUTUAL INSURANCE COMPANY.  If a mutual

15-27    insurance company is insolvent or, in the judgment of the

 16-1    commissioner, is in hazardous financial condition, its board of

 16-2    directors, by a majority vote, may request in its petition that the

 16-3    commissioner waive the requirements imposing notice to and

 16-4    policyholder approval of the planned conversion.  The petition must

 16-5    specify:

 16-6                (1)  the method and basis for the issuance of the

 16-7    converted stock company's shares of its capital stock to an

 16-8    independent party in connection with an investment by the

 16-9    independent party in an amount sufficient to restore the converted

16-10    stock company to a sound financial condition; and

16-11                (2)  that the conversion is to be accomplished without

16-12    payment of consideration to past, present, or future policyholders,

16-13    if the commissioner finds that the value of the mutual insurance

16-14    company is insufficient to warrant that consideration.

16-15          Sec. 22.  LAWS APPLICABLE TO CONVERTED STOCK COMPANY.  (a)  A

16-16    mutual insurance company may not be permitted to convert under this

16-17    article if, as a direct result of the conversion, any person or any

16-18    affiliate acquires control of the converted stock company, unless

16-19    that person or the affiliate complies with the requirements of

16-20    Section 5, Article 21.49-1 of this code.

16-21          (b)  Except as otherwise specified in this article, a stock

16-22    company converted under this article has all of the rights and

16-23    privileges and is subject to all of the requirements and

16-24    regulations imposed on stock companies formed under this code and

16-25    any other laws of this state relating to the regulation and

16-26    supervision of insurance companies, but may not exercise rights or

16-27    privileges that other stock insurance companies may not exercise.

 17-1          Sec. 23.  AMENDMENT OF POLICIES.  A mutual insurance company,

 17-2    by endorsement or rider approved by the commissioner and sent to

 17-3    the policyholder, may simultaneously with or at any time after the

 17-4    adoption of a conversion plan amend any outstanding insurance

 17-5    policy to extinguish the right, if any, of the holder of the policy

 17-6    to share in the surplus or profits of the mutual insurance company.

 17-7    However, such an amendment is void if the conversion plan does not

 17-8    take effect.

 17-9          Sec. 24.  MUTUAL HOLDING COMPANY.  (a)  (1)  Pursuant to this

17-10    section, a mutual insurance company, upon approval of the

17-11    commissioner, may reorganize by forming an insurance holding

17-12    company based upon a mutual plan and continuing the corporate

17-13    existence of the reorganizing insurance company as a stock

17-14    insurance company.  The commissioner, if satisfied that the

17-15    requirements of Section 14 are met, shall approve the proposed plan

17-16    of reorganization and may require as a condition of approval such

17-17    modifications of the proposed plan of reorganization as the

17-18    commissioner finds necessary for the protection of the members'

17-19    interests.  The commissioner may retain a qualified expert as

17-20    provided in Section 3(d) of this article.  The commissioner shall

17-21    retain jurisdiction over a mutual holding company organized

17-22    pursuant to this section to assure that member interests are

17-23    protected.

17-24                (2)  All of the initial shares of the capital stock of

17-25    the reorganized insurance company shall be issued to the mutual

17-26    holding company.  The membership interests of the policyholders of

17-27    the reorganized insurance company shall become membership interests

 18-1    in the mutual holding company.  Eligible members of the reorganized

 18-2    insurance company shall be members of the mutual holding company in

 18-3    accordance with the articles of incorporation and bylaws of the

 18-4    mutual holding company.  The mutual holding company shall at all

 18-5    times own a majority of the voting shares of the capital stock of

 18-6    the reorganized insurance company or of an intermediate holding

 18-7    company established to hold the voting shares of the reorganized

 18-8    insurance company.

 18-9          (b)  A foreign mutual insurance company may reorganize upon

18-10    the approval of the commissioner and in compliance with the

18-11    requirements of any law or regulation which is applicable to the

18-12    foreign mutual insurance company by transferring its members'

18-13    membership interests into a mutual holding company formed under a

18-14    procedure similar to that described in Subsection (a) and

18-15    continuing the corporate existence of the reorganizing foreign

18-16    mutual insurance company as a foreign stock insurance company

18-17    subsidiary of the mutual holding company.  The reorganizing foreign

18-18    mutual insurance company may remain a foreign company and may be

18-19    admitted to do business in this state.  A foreign mutual insurance

18-20    company may at the same time redomesticate in this state by

18-21    complying with the applicable requirements of Article 1.38,

18-22    Insurance Code.

18-23          (c)  A mutual holding company resulting from the

18-24    reorganization of a domestic mutual insurance company organized

18-25    under Chapter 15, Insurance Code, shall be incorporated pursuant to

18-26    Article 15.02, Insurance Code, and the Texas Non-Profit Corporation

18-27    Act, Article 1396-1.01 et seq., Texas Revised Civil Statutes.  The

 19-1    articles of incorporation and any amendments to such articles of

 19-2    the mutual holding company shall be subject to approval of the

 19-3    commissioner in the same manner as those of a mutual insurance

 19-4    company.

 19-5          (d)  A mutual holding company is deemed to be an insurer

 19-6    subject to Chapter 15, Insurance Code, and shall automatically be a

 19-7    party to any administrative proceeding under the Insurance Code

 19-8    involving an insurance company which, as a result of a

 19-9    reorganization pursuant to this section, is a subsidiary of the

19-10    mutual holding company.  In any proceeding involving the

19-11    reorganized insurance company, the assets of the mutual holding

19-12    company are deemed to be assets of the estate of the reorganized

19-13    insurance company for purposes of satisfying the claims of the

19-14    reorganized insurance company's policyholders.  A mutual holding

19-15    company shall not dissolve or liquidate without the approval of the

19-16    commissioner.

19-17          (e)  A membership interest in a mutual holding company shall

19-18    not constitute a security as defined in Section 4 of the Securities

19-19    Act of Texas, Article 581-1 et seq., Texas Revised Civil Statutes.

19-20          (f)  The majority of the voting shares of the capital stock

19-21    of the reorganized insurance company, which is required by this

19-22    section to be at all times owned by a mutual holding company, shall

19-23    not be conveyed, transferred, assigned, pledged, subjected to a

19-24    security interest or lien, encumbered, or otherwise hypothecated or

19-25    alienated by the mutual holding company or intermediate holding

19-26    company.  Any conveyance, transfer, assignment, pledge, security

19-27    interest, lien, encumbrance, or hypothecation or alienation of, in

 20-1    or on the majority of the voting shares of the reorganized

 20-2    insurance company which is required by this section to be at all

 20-3    times owned by a mutual holding company, is in violation of this

 20-4    section and shall be void in inverse chronological order of the

 20-5    date of such conveyance, transfer, assignment, pledge, security

 20-6    interest, lien, encumbrance, or hypothecation or alienation, as to

 20-7    the shares necessary to constitute a majority of such voting

 20-8    shares.

 20-9          (g)  As used in this section, "majority of the voting shares

20-10    of the capital stock of the reorganized insurance company" means

20-11    shares of the capital stock of the reorganized insurance company

20-12    which carry the right to cast a majority of the votes entitled to

20-13    be cast by all of the outstanding shares of the capital stock of

20-14    the reorganized insurance company for the election of directors and

20-15    on all other matters submitted to a vote of the shareholders of the

20-16    reorganized insurance company.  The ownership of a majority of the

20-17    voting shares of the capital stock of the reorganized insurance

20-18    company which are required by this section to be at all times owned

20-19    by a parent mutual holding company includes indirect ownership

20-20    through one or more intermediate holding companies in a corporate

20-21    structure approved by the commissioner.  However, indirect

20-22    ownership through one or more intermediate holding companies shall

20-23    not result in the mutual holding company owning less than the

20-24    equivalent of a majority of the voting shares of the capital stock

20-25    of the reorganized insurance company.  As used in this section,

20-26    "intermediate holding company" means a holding company which is a

20-27    subsidiary of a mutual holding company, and which either directly

 21-1    or through a subsidiary intermediate holding company owns a

 21-2    subsidiary reorganized insurance company of which a majority of the

 21-3    voting shares of the capital stock would otherwise have been

 21-4    required by this section to be at all times owned by the mutual

 21-5    holding company.

 21-6          (h)  A mutual holding company may convert to a stock holding

 21-7    company pursuant to the provisions of this article, as if such

 21-8    mutual holding company were a mutual insurance company.

 21-9          SECTION 2.  Article 15.22, Insurance Code, as added by this

21-10    Act, takes effect September 1, 1997.

21-11          SECTION 3.  The importance of this legislation and the

21-12    crowded condition of the calendars in both houses create an

21-13    emergency and an imperative public necessity that the

21-14    constitutional rule requiring bills to be read on three several

21-15    days in each house be suspended, and this rule is hereby suspended.