By: Harris S.B. No. 1447 A BILL TO BE ENTITLED AN ACT 1-1 relating to the conversion of mutual insurance companies to stock 1-2 insurance companies. 1-3 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS: 1-4 SECTION 1. Chapter 15, Insurance Code, is amended by adding 1-5 Article 15.22 to read as follows: 1-6 Art. 15.22. CONVERSION TO STOCK INSURANCE COMPANY 1-7 Sec. 1. DEFINITIONS. In this article: 1-8 (1) "Conversion plan" means a plan adopted under this 1-9 article by the board of directors of a mutual insurance company to 1-10 convert the mutual insurance company into a stock company. 1-11 (2) "Converted stock company" means a domestic stock 1-12 insurance company that has converted under this article from a 1-13 domestic mutual insurance company. 1-14 (3) "Eligible member" means a member of a mutual 1-15 insurance company whose policy is in force on the date that the 1-16 mutual insurance company's board of directors adopts a conversion 1-17 plan. The term does not include a person: 1-18 (A) insured under a group policy; or 1-19 (B) whose policy becomes effective after the 1-20 date that the board of directors adopts the conversion plan but 1-21 before the conversion plan's effective date. 1-22 (4) "Mutual insurance company" means a domestic mutual 1-23 insurance company. 2-1 (5) "Participating policy" means a policy that grants 2-2 a holder the right to receive dividends if, as, and when declared 2-3 by the mutual insurance company. 2-4 (6) "Stock company" means a stock insurance company 2-5 that meets all of the requirements for admission to do business as 2-6 a domestic insurer in this state. 2-7 Sec. 2. ADOPTION OF CONVERSION PLAN. (a) A mutual 2-8 insurance company that seeks to convert to a stock company must 2-9 adopt, by the affirmative vote of not less than two-thirds of the 2-10 members of its board of directors, a conversion plan consistent 2-11 with the requirements of this article. A mutual insurance company 2-12 may not engage in the business of insurance as a stock company 2-13 until it complies with the requirements of this article. 2-14 (b) Before the eligible members of a mutual insurance 2-15 company may vote on approval of a conversion plan, the mutual 2-16 insurance company must comply with Section 3 of this article. 2-17 Sec. 3. PLAN INFORMATION FILED WITH COMMISSIONER; 2-18 COMMISSIONER'S POWERS AND DUTIES. (a) Not later than the 90th day 2-19 after the date on which a mutual insurance company's board of 2-20 directors adopts a conversion plan, the company shall file with the 2-21 commissioner: 2-22 (1) a copy of the documents relating to the conversion 2-23 plan, including the independent evaluation of pro forma market 2-24 value required by Section 10(b) of this article; 2-25 (2) the form of notice required by Section 5 of this 3-1 article; 3-2 (3) the form of proxy to be solicited from eligible 3-3 members under Section 6(b) of this article; 3-4 (4) the form of notice required by Section 16 of this 3-5 article to persons whose policies are issued after adoption of the 3-6 conversion plan but before the effective date of the conversion 3-7 plan; 3-8 (5) the proposed amended or restated articles of 3-9 incorporation of the converted stock company; 3-10 (6) a statement regarding acquisition of control, if 3-11 applicable, as required by Article 21.49-1 of this code; and 3-12 (7) any other information requested by the 3-13 commissioner. 3-14 (b) Except as otherwise provided by this subsection, the 3-15 commissioner shall approve or disapprove a conversion plan not 3-16 later than the 60th day after the first day on which all the 3-17 documents required under Subsection (a) of this section are filed 3-18 with the commissioner. The commissioner may extend the time for 3-19 approval or disapproval by an additional 30 days on written notice 3-20 to the mutual insurance company. The commissioner may not extend 3-21 the time for approval or disapproval beyond this time period unless 3-22 he finds it necessary to retain a qualified expert pursuant to 3-23 Subsection (d) of this section, in which case he may extend the 3-24 time for review for an additional 60 days beyond the initial 60-day 3-25 period. The commissioner shall immediately give written notice to 4-1 the mutual insurance company of the commissioner's decision and, in 4-2 the event of disapproval, a detailed statement of the reasons for 4-3 the adverse decision. 4-4 (c) The commissioner shall approve a conversion plan if the 4-5 commissioner finds that: 4-6 (1) the conversion plan complies with this article; 4-7 (2) the conversion plan's method of allocating 4-8 subscription rights or other value is fair and equitable; and 4-9 (3) the converted stock company would satisfy the 4-10 current requirements applicable to a domestic stock company for a 4-11 certificate of authority. 4-12 (d) The commissioner may retain, at the mutual insurance 4-13 company's expense, a qualified expert not otherwise a part of the 4-14 commissioner's staff to assist the commissioner in reviewing the 4-15 conversion plan and the independent evaluation of the pro forma 4-16 market value required under Section 10(b) of this article. 4-17 (e) The commissioner may hold a hearing on whether the terms 4-18 of the conversion plan comply with this article after giving 4-19 written notice to the mutual insurance company and other interested 4-20 persons, all of whom have the right to appear at the hearing. 4-21 Notice to interested persons who have not filed an appearance in 4-22 the matter may be made through publication in the Texas Register. 4-23 Sec. 4. AMENDMENTS; WITHDRAWAL OF PLAN. At any time before 4-24 the conversion plan becomes effective, the mutual insurance 4-25 company, by the affirmative vote of not less than two-thirds of the 5-1 members of its board of directors, may amend or withdraw the 5-2 conversion plan. 5-3 Sec. 5. NOTICE TO ELIGIBLE MEMBERS; COMMENTS. (a) Within 5-4 10 business days after filing the documents required under Section 5-5 3(a) of this article with the commissioner, the mutual insurance 5-6 company shall send to each eligible member a notice advising the 5-7 eligible member of the adoption and filing of the conversion plan 5-8 and of the member's right to provide to the commissioner and the 5-9 mutual insurance company comments on the plan. The notice must 5-10 include a description of the procedure to be used in making 5-11 comments. 5-12 (b) An eligible member who elects to make comments must make 5-13 the comments in writing not later than the 30th day after the date 5-14 on which the notice is sent. 5-15 (c) Within 60 days after the commissioner's approval of the 5-16 plan, the mutual insurance company also shall send to each eligible 5-17 member notice of the members' meeting to vote on the conversion 5-18 plan. The notice must be sent to the member's last known address, 5-19 as shown on the mutual insurance company's records, before the 30th 5-20 day preceding the date set for the meeting. The notice must: 5-21 (1) briefly but fairly describe the proposed 5-22 conversion plan; and 5-23 (2) inform the member of the member's right to vote on 5-24 the conversion plan. 5-25 (d) If the meeting to vote on the conversion plan is held 6-1 during the mutual insurance company's annual meeting of 6-2 policyholders, only a combined meeting notice is required. 6-3 Sec. 6. ELECTION; ADOPTION OF PLAN. (a) A conversion plan 6-4 is adopted on receiving the affirmative vote of at least two-thirds 6-5 of the votes cast by eligible members at a duly convened meeting to 6-6 consider the plan of conversion. 6-7 (b) Members entitled to vote on the proposed conversion plan 6-8 may vote in person or by proxy. The number of votes each eligible 6-9 member may cast shall be determined by the mutual insurance 6-10 company's bylaws. If the bylaws are silent, each eligible member 6-11 may cast one vote. 6-12 (c) At the meeting held to vote on the conversion plan, the 6-13 members shall also consider the adoption of amended or restated 6-14 articles of incorporation. Adoption of the amended articles 6-15 requires the affirmative vote of at least two-thirds of the votes 6-16 cast by eligible members. 6-17 Sec. 7. FILING BY CONVERTED STOCK COMPANY. Not later than 6-18 the 30th day after the date on which the eligible members adopt the 6-19 conversion plan at a duly convened meeting, the converted stock 6-20 company shall file with the commissioner: 6-21 (1) the minutes of the meeting of the eligible members 6-22 at which the conversion plan was adopted; and 6-23 (2) the amended or restated articles of incorporation 6-24 and bylaws of the converted stock company. 6-25 Sec. 8. REQUIRED PROVISIONS IN GENERAL. (a) Each 7-1 conversion plan must include the provisions required by this 7-2 article. 7-3 (b) Each policy in effect on the effective date of the 7-4 conversion remains in effect under the terms of that policy, except 7-5 that the following rights, to the extent they existed in the mutual 7-6 insurance company, are extinguished on the effective date of the 7-7 conversion: 7-8 (1) any voting rights of policyholders provided under 7-9 the policy; 7-10 (2) except as provided in Subsection (c) of this 7-11 section, a right to share in the surplus or profits of the mutual 7-12 insurance company; and 7-13 (3) any assessment provisions provided under the 7-14 policy. 7-15 (c) The holder of a participating policy in effect on the 7-16 date of the conversion continues to have a right to receive 7-17 dividends as provided by the participating policy. 7-18 (d) Except for the mutual insurance company's guaranteed 7-19 renewable accident and health policies and guaranteed renewable, 7-20 noncancelable accident and health policies, on the renewal date of 7-21 a participating policy, the converted stock company may issue the 7-22 insured a nonparticipating policy as a substitute for the 7-23 participating policy. 7-24 Sec. 9. SUBSCRIPTION RIGHTS. (a) Except for an alternative 7-25 plan under Section 14 of this article, each conversion plan must 8-1 specify the subscription rights of eligible members. 8-2 (b) The plan must include a provision that: 8-3 (1) each eligible member is to receive, without 8-4 payment by the member, nontransferable subscription rights to 8-5 purchase a portion of the capital stock of the converted stock 8-6 company; and 8-7 (2) in the aggregate, all eligible members have the 8-8 right, before the right of any other party, to purchase 100 percent 8-9 of the capital stock of the converted company after provision for: 8-10 (A) capital stock required to be sold or 8-11 distributed to the holders of surplus notes, if any; 8-12 (B) capital stock purchased by the company's 8-13 tax-qualified employee stock benefit plan as permitted by Section 8-14 13(c) of this article; and 8-15 (C) capital stock acquired by the mutual 8-16 insurance company's directors and officers, as permitted by Section 8-17 13(a) of this article. 8-18 (c) As an alternative to subscription rights in the 8-19 converted stock company, the conversion plan may provide that each 8-20 eligible member is to receive, without payment by the member, 8-21 nontransferable subscription rights to purchase a portion of the 8-22 capital stock of one of the following: 8-23 (1) a corporation organized for the purpose of 8-24 purchasing and holding all the stock of the converted stock 8-25 company; 9-1 (2) a stock insurance company owned by the mutual 9-2 insurance company into which the mutual insurance company is to be 9-3 merged; or 9-4 (3) an unaffiliated stock insurance company or other 9-5 corporation that is to purchase all the stock of the converted 9-6 stock company. 9-7 (d) The conversion plan must provide that the subscription 9-8 rights are allocated in whole shares among the eligible members 9-9 using a fair and equitable formula. The formula may consider, but 9-10 is not required to consider, how the different classes of policies 9-11 of the eligible members contributed to the surplus of the mutual 9-12 insurance company or any other factors that may be fair or 9-13 equitable as determined by the board of directors. 9-14 (e) The conversion plan must provide a fair and equitable 9-15 means for allocating shares of capital stock in the event of an 9-16 oversubscription to shares by eligible members exercising 9-17 subscription rights under this section. 9-18 Sec. 10. SALE OF CAPITAL STOCK. (a) The conversion plan 9-19 must provide that any shares of capital stock not sold or 9-20 distributed to holders of surplus notes, subscribed to by a 9-21 tax-qualified employee benefit plan, as permitted under Section 9-22 13(c) of this article, subscribed to by directors and officers, as 9-23 permitted under Section 13(a) of this article, or subscribed to by 9-24 eligible members exercising subscription rights under Section 9 of 9-25 this article shall be sold in a private placement, public offering, 10-1 or other alternative method approved by the commissioner. 10-2 (b) The conversion plan must set the total price of the 10-3 capital stock in an amount equal to the estimated pro forma market 10-4 value of the converted stock company based on an independent 10-5 valuation by a qualified expert, giving consideration to the amount 10-6 of capital deemed necessary by the board of directors to be raised 10-7 by the company. The pro forma market value may be the value 10-8 estimated to be necessary to attract full subscription for the 10-9 shares, as indicated by the independent valuation, and may be 10-10 stated as a range of values. 10-11 (c) The conversion plan shall set the purchase price per 10-12 share of capital stock at any reasonable amount. The purchase 10-13 price per share need not be the same for each class of purchaser; 10-14 provided, however, that eligible members purchasing stock pursuant 10-15 to subscription rights received under Section 9 of this article 10-16 shall have the right to purchase shares at the lowest available 10-17 purchase price under the plan. 10-18 (d) The conversion plan must provide that a person or group 10-19 of persons acting in concert may not acquire, in the public or 10-20 private offering or through the exercise of subscription rights, 10-21 more than 10 percent of the capital stock of the converted stock 10-22 company except with the approval of the commissioner. This 10-23 limitation does not apply to an entity that purchases 100 percent 10-24 of the capital stock of the converted company as part of the 10-25 conversion plan approved by the commissioner. 11-1 (e) Except as otherwise provided in this article, the 11-2 conversion plan must provide that a director or officer of the 11-3 mutual insurance company, or a person acting in concert with a 11-4 director or officer, may not acquire, without the permission of the 11-5 commissioner, any capital stock of the converted stock company or 11-6 the stock of another corporation that is participating in the 11-7 conversion plan before the third anniversary of the effective date 11-8 of the conversion, except through a broker-dealer. This subsection 11-9 does not prohibit a director or officer from: 11-10 (1) making purchases through the exercise of 11-11 subscription rights received under the conversion plan; or 11-12 (2) participating in a stock benefit plan permitted by 11-13 Section 13(c) of this article or approved by the eligible members 11-14 pursuant to Section 6 of this article. 11-15 Sec. 11. LIMITATION ON RESALE. The conversion plan must 11-16 provide that a director or officer may not sell stock purchased 11-17 pursuant to the conversion plan before the first anniversary of the 11-18 effective date of the conversion; provided, however, the conversion 11-19 plan may provide for the purchase or redemption of stock in the 11-20 event that a director or officer is no longer associated with the 11-21 converted stock company during such period. 11-22 Sec. 12. HOLDER OF SURPLUS NOTE. The conversion plan must 11-23 provide that the rights of a holder of a surplus note to 11-24 participate in the conversion, if any, are governed by the terms of 11-25 the surplus note. 12-1 Sec. 13. OPTIONAL PROVISIONS. (a) The conversion plan may 12-2 provide that the directors and officers of the mutual insurance 12-3 company may receive, without payment, nontransferable subscription 12-4 rights to purchase capital stock of the converted stock company or 12-5 the stock of another corporation that is participating in the 12-6 conversion plan. 12-7 (b) The aggregate number of shares that may be purchased by 12-8 directors and officers of the mutual insurance company in their 12-9 capacity under Subsection (a) of this section may not exceed 35 12-10 percent of the total number of shares to be issued for the company 12-11 if total assets of the mutual insurance company are less than $50 12-12 million, or 25 percent of the total number of shares to be issued 12-13 for the company if total assets of the mutual insurance company are 12-14 more than $500 million. For mutual insurance companies with total 12-15 assets of or between $50 million and $500 million, the maximum 12-16 percentage of the total number of shares that may be purchased 12-17 shall be interpolated. 12-18 (c) The conversion plan may allocate to a tax-qualified 12-19 employee benefit plan nontransferable subscription rights to 12-20 purchase not more than 10 percent of the capital stock of the 12-21 converted stock company. 12-22 (d) The conversion plan may provide for the creation of a 12-23 liquidation account for the benefit of members in the event of 12-24 voluntary liquidation after conversion in an amount equal to the 12-25 surplus of the mutual insurance company, exclusive of the principal 13-1 amount of any surplus note, on the last day of the quarter 13-2 immediately preceding the date of adoption of the conversion plan. 13-3 Sec. 14. ALTERNATIVE CONVERSION PLAN. (a) The board of 13-4 directors may adopt a conversion plan that does not rely wholly or 13-5 partially on issuing nontransferable subscription rights to members 13-6 to purchase stock of the converted stock company if the 13-7 commissioner finds that the alternative conversion plan: 13-8 (1) complies with this article; 13-9 (2) is fair and equitable; and 13-10 (3) permits the converted stock company to satisfy the 13-11 current requirements applicable to a domestic stock company for a 13-12 certificate of authority. 13-13 (b) An alternative conversion plan may: 13-14 (1) include the merger of a domestic mutual insurance 13-15 company into a domestic or foreign stock insurance company; 13-16 (2) provide for issuing stock, cash, or other 13-17 consideration to members instead of subscription rights; 13-18 (3) provide for the formation of a mutual holding 13-19 company pursuant to Section 24 of this article; or 13-20 (4) set forth another plan containing any other 13-21 provisions approved by the commissioner. 13-22 (c) The commissioner may retain, at the mutual insurance 13-23 company's expense, a qualified expert not otherwise a part of the 13-24 commissioner's staff to assist in reviewing whether the alternative 13-25 conversion plan may be approved by the commissioner. 14-1 Sec. 15. EFFECTIVE DATE OF CONVERSION. (a) For a 14-2 conversion plan to take effect: 14-3 (1) the commissioner must approve the conversion plan; 14-4 and 14-5 (2) the eligible members must approve the conversion 14-6 plan and adopt the amended or restated articles of incorporation. 14-7 (b) A conversion plan takes effect when the amended or 14-8 restated articles of incorporation are filed with the commissioner. 14-9 Sec. 16. RIGHTS OF MEMBERS WHOSE POLICIES ARE ISSUED AFTER 14-10 ADOPTION OF CONVERSION PLAN AND BEFORE EFFECTIVE DATE. (a) On 14-11 issuance of a policy after a conversion plan has been adopted by 14-12 the board of directors but before the effective date of the 14-13 conversion plan, the mutual insurance company shall send to the 14-14 member to whom the policy is issued a written notice regarding the 14-15 conversion plan. 14-16 (b) Except as provided by Subsection (d) of this section, a 14-17 member of an accident and health insurance company entitled to 14-18 receive the notice described by Subsection (a) of this section is 14-19 entitled to rescind the member's policy and receive a full refund 14-20 of any amount paid for the policy not later than the 10th day after 14-21 the date on which the member receives the notice. 14-22 (c) Except as provided by Subsection (d) of this section, 14-23 each member who is insured under a property or casualty insurance 14-24 policy is entitled to receive the notice described by Subsection 14-25 (a) of this section and shall be advised of the member's right to: 15-1 (1) cancel the policy; and 15-2 (2) receive a pro rata refund of unearned premiums. 15-3 (d) A member who has made or filed a claim under the 15-4 insurance policy is not entitled to a right to receive a refund 15-5 under Subsection (b) or (c) of this section. A person who has 15-6 exercised the rights provided by Subsection (b) or (c) of this 15-7 section is not entitled to make or file a claim under the insurance 15-8 policy. 15-9 Sec. 17. CORPORATE EXISTENCE. (a) On the effective date of 15-10 the conversion: 15-11 (1) the corporate existence of the mutual insurance 15-12 company continues in the converted stock company; and 15-13 (2) all assets, rights, franchises, and interests of 15-14 the mutual insurance company in and to property, real, personal, or 15-15 mixed, and any accompanying things in action, are vested in the 15-16 converted stock company, without a deed or transfer, and the 15-17 converted stock company assumes all the obligations and liabilities 15-18 of the mutual insurance company. 15-19 (b) Unless otherwise specified in the conversion plan, the 15-20 directors and officers of the mutual insurance company serving on 15-21 the effective date of the conversion serve as directors and 15-22 officers of the converted stock company until new directors and 15-23 officers of the converted stock company are elected under the 15-24 articles of incorporation and bylaws of the converted stock 15-25 company. 16-1 Sec. 18. CONFLICT OF INTEREST. (a) A director, officer, 16-2 agent, or employee of the mutual insurance company may not receive 16-3 a fee, commission, or other consideration, other than that person's 16-4 usual salary or compensation, for aiding, promoting, or assisting 16-5 in a conversion under this article, except as provided by the 16-6 conversion plan approved by the commissioner. This subsection does 16-7 not prohibit the payment of reasonable fees and compensation to an 16-8 attorney, accountant, or actuary for professional services 16-9 performed by that person, even if the attorney, accountant, or 16-10 actuary is also a director or officer of the mutual insurance 16-11 company. 16-12 (b) All the costs and expenses connected with a conversion 16-13 plan shall be paid for or reimbursed by the mutual insurance 16-14 company or the converted stock company. 16-15 Sec. 19. EFFECT OF FAILURE TO GIVE NOTICE. If the mutual 16-16 insurance company complies substantially and in good faith with the 16-17 notice requirements of this article, the mutual insurance company's 16-18 failure to send a member the required notice does not impair the 16-19 validity of any action taken under this article. 16-20 Sec. 20. LIMITATION ON ACTIONS. An action challenging the 16-21 validity of or arising out of acts taken or proposed to be taken 16-22 regarding a conversion plan under this article must be commenced 16-23 not later than the 30th day after the effective date of that 16-24 conversion plan. 16-25 Sec. 21. INSOLVENT MUTUAL INSURANCE COMPANY. If a mutual 17-1 insurance company is insolvent or, in the judgment of the 17-2 commissioner, is in hazardous financial condition, its board of 17-3 directors, by a majority vote, may request in its petition that the 17-4 commissioner waive the requirements imposing notice to and 17-5 policyholder approval of the planned conversion. The petition must 17-6 specify: 17-7 (1) the method and basis for the issuance of the 17-8 converted stock company's shares of its capital stock to an 17-9 independent party in connection with an investment by the 17-10 independent party in an amount sufficient to restore the converted 17-11 stock company to a sound financial condition; and 17-12 (2) that the conversion is to be accomplished without 17-13 payment of consideration to past, present, or future policyholders, 17-14 if the commissioner finds that the value of the mutual insurance 17-15 company is insufficient to warrant that consideration. 17-16 Sec. 22. LAWS APPLICABLE TO CONVERTED STOCK COMPANY. (a) A 17-17 mutual insurance company may not be permitted to convert under this 17-18 article if, as a direct result of the conversion, any person or any 17-19 affiliate acquires control of the converted stock company, unless 17-20 that person or the affiliate complies with the requirements of 17-21 Section 5, Article 21.49-1 of this code. 17-22 (b) Except as otherwise specified in this article, a stock 17-23 company converted under this article has all of the rights and 17-24 privileges and is subject to all of the requirements and 17-25 regulations imposed on stock companies formed under this code and 18-1 any other laws of this state relating to the regulation and 18-2 supervision of insurance companies but may not exercise rights or 18-3 privileges that other stock insurance companies may not exercise. 18-4 Sec. 23. AMENDMENT OF POLICIES. A mutual insurance company, 18-5 by endorsement or rider approved by the commissioner and sent to 18-6 the policyholder, may simultaneously with or at any time after the 18-7 adoption of a conversion plan amend any outstanding insurance 18-8 policy to extinguish the right, if any, of the holder of the policy 18-9 to share in the surplus or profits of the mutual insurance company. 18-10 However, such an amendment is void if the conversion plan does not 18-11 take effect. 18-12 Sec. 24. MUTUAL HOLDING COMPANY. (a)(1) Pursuant to this 18-13 section, a mutual insurance company, on approval by the 18-14 commissioner, may reorganize by forming an insurance holding 18-15 company based on a mutual plan and continuing the corporate 18-16 existence of the reorganizing insurance company as a stock 18-17 insurance company. The commissioner, if satisfied that the 18-18 requirements of Section 14 of this article are met, shall approve 18-19 the proposed plan of reorganization and may require as a condition 18-20 of approval such modifications of the proposed plan of 18-21 reorganization as the commissioner finds necessary for the 18-22 protection of the members' interests. The commissioner may retain 18-23 a qualified expert as provided in Section 3(d) of this article. 18-24 The commissioner shall retain jurisdiction over a mutual holding 18-25 company organized pursuant to this section to assure that member 19-1 interests are protected. 19-2 (2) All of the initial shares of the capital stock of 19-3 the reorganized insurance company shall be issued to the mutual 19-4 holding company. The membership interests of the policyholders of 19-5 the reorganized insurance company shall become membership interests 19-6 in the mutual holding company. Eligible members of the reorganized 19-7 insurance company shall be members of the mutual holding company in 19-8 accordance with the articles of incorporation and bylaws of the 19-9 mutual holding company. The mutual holding company shall at all 19-10 times own a majority of the voting shares of the capital stock of 19-11 the reorganized insurance company or of an intermediate holding 19-12 company established to hold the voting shares of the reorganized 19-13 insurance company. 19-14 (b) A foreign mutual insurance company may reorganize on 19-15 approval by the commissioner and in compliance with the 19-16 requirements of any law or regulation which is applicable to the 19-17 foreign mutual insurance company by transferring its members' 19-18 membership interests into a mutual holding company formed under a 19-19 procedure similar to that described in Subsection (a) of this 19-20 section and continuing the corporate existence of the reorganizing 19-21 foreign mutual insurance company as a foreign stock insurance 19-22 company subsidiary of the mutual holding company. The reorganizing 19-23 foreign mutual insurance company may remain a foreign company and 19-24 may be admitted to do business in this state. A foreign mutual 19-25 insurance company may at the same time redomesticate in this state 20-1 by complying with the applicable requirements of Article 1.38 of 20-2 this code. 20-3 (c) A mutual holding company resulting from the 20-4 reorganization of a domestic mutual insurance company organized 20-5 under this chapter shall be incorporated pursuant to Article 15.02 20-6 of this code and the Texas Non-Profit Corporation Act (Article 20-7 1396-1.01 et seq., Vernon's Texas Civil Statutes). The articles of 20-8 incorporation, and any amendments to such articles, of the mutual 20-9 holding company shall be subject to approval of the commissioner in 20-10 the same manner as those of a mutual insurance company. 20-11 (d) A mutual holding company is deemed to be an insurer 20-12 subject to this chapter and shall automatically be a party to any 20-13 administrative proceeding under this code involving an insurance 20-14 company which, as a result of a reorganization pursuant to this 20-15 section, is a subsidiary of the mutual holding company. In any 20-16 proceeding involving the reorganized insurance company, the assets 20-17 of the mutual holding company are deemed to be assets of the estate 20-18 of the reorganized insurance company for purposes of satisfying the 20-19 claims of the reorganized insurance company's policyholders. A 20-20 mutual holding company shall not dissolve or liquidate without the 20-21 approval of the commissioner. 20-22 (e) A membership interest in a mutual holding company shall 20-23 not constitute a security as defined in Section 4, The Securities 20-24 Act (Article 581-4, Vernon's Texas Civil Statutes). 20-25 (f) The majority of the voting shares of the capital stock 21-1 of the reorganized insurance company, which is required by this 21-2 section to be at all times owned by a mutual holding company, shall 21-3 not be conveyed, transferred, assigned, pledged, subjected to a 21-4 security interest or lien, encumbered, or otherwise hypothecated or 21-5 alienated by the mutual holding company or intermediate holding 21-6 company. Any conveyance, transfer, assignment, pledge, security 21-7 interest, lien, encumbrance, or hypothecation or alienation of, in, 21-8 or on the majority of the voting shares of the reorganized 21-9 insurance company which is required by this section to be at all 21-10 times owned by a mutual holding company is in violation of this 21-11 section and shall be void in inverse chronological order from the 21-12 date of such conveyance, transfer, assignment, pledge, security 21-13 interest, lien, encumbrance, or hypothecation or alienation as to 21-14 the shares necessary to constitute a majority of such voting 21-15 shares. 21-16 (g) As used in this section, "majority of the voting shares 21-17 of the capital stock of the reorganized insurance company" means 21-18 shares of the capital stock of the reorganized insurance company 21-19 which carry the right to cast a majority of the votes entitled to 21-20 be cast by all of the outstanding shares of the capital stock of 21-21 the reorganized insurance company for the election of directors and 21-22 on all other matters submitted to a vote of the shareholders of the 21-23 reorganized insurance company. The ownership of a majority of the 21-24 voting shares of the capital stock of the reorganized insurance 21-25 company which are required by this section to be at all times owned 22-1 by a parent mutual holding company includes indirect ownership 22-2 through one or more intermediate holding companies in a corporate 22-3 structure approved by the commissioner. However, indirect 22-4 ownership through one or more intermediate holding companies shall 22-5 not result in the mutual holding company owning less than the 22-6 equivalent of a majority of the voting shares of the capital stock 22-7 of the reorganized insurance company. As used in this section, 22-8 "intermediate holding company" means a holding company which is a 22-9 subsidiary of a mutual holding company and which either directly or 22-10 through a subsidiary intermediate holding company owns a subsidiary 22-11 reorganized insurance company of which a majority of the voting 22-12 shares of the capital stock would otherwise have been required by 22-13 this section to be at all times owned by the mutual holding 22-14 company. 22-15 (h) A mutual holding company may convert to a stock holding 22-16 company pursuant to the provisions of this article as if such 22-17 mutual holding company were a mutual insurance company. 22-18 SECTION 2. This Act takes effect September 1, 1997. 22-19 SECTION 3. The importance of this legislation and the 22-20 crowded condition of the calendars in both houses create an 22-21 emergency and an imperative public necessity that the 22-22 constitutional rule requiring bills to be read on three several 22-23 days in each house be suspended, and this rule is hereby suspended.