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. 1-24 (5) "Participating policy" means a policy that grants 2-1 a holder the right to receive dividends if, as, and when declared 2-2 by the mutual insurance company. 2-3 (6) "Stock company" means a stock insurance company 2-4 that meets all of the requirements for admission to do business as 2-5 a domestic insurer in this state. 2-6 Sec. 2. ADOPTION OF CONVERSION PLAN. (a) A mutual 2-7 insurance company that seeks to convert to a stock company must 2-8 adopt, by the affirmative vote of not less than two-thirds of the 2-9 members of its board of directors, a conversion plan consistent 2-10 with the requirements of this article. A mutual insurance company 2-11 may not engage in the business of insurance as a stock company 2-12 until it complies with the requirements of this article. 2-13 (b) Before the eligible members of a mutual insurance 2-14 company may vote on approval of a conversion plan, the mutual 2-15 insurance company must comply with Section 3 of this article. 2-16 Sec. 3. PLAN INFORMATION FILED WITH COMMISSIONER; 2-17 COMMISSIONER'S POWERS AND DUTIES. (a) Not later than the 90th day 2-18 after the date on which a mutual insurance company's board of 2-19 directors adopts a conversion plan, the company shall file with the 2-20 commissioner: 2-21 (1) a copy of the documents relating to the conversion 2-22 plan, including the independent evaluation of pro forma market 2-23 value required by Section 10(b) of this article; 2-24 (2) the form of notice required by Section 5 of this 2-25 article; 2-26 (3) the form of proxy to be solicited from eligible 2-27 members under Section 6(b) of this article; 3-1 (4) the form of notice required by Section 16 of this 3-2 article to persons whose policies are issued after adoption of the 3-3 conversion plan but before the effective date of the conversion 3-4 plan; 3-5 (5) the proposed amended or restated articles of 3-6 incorporation of the converted stock company; 3-7 (6) a statement regarding acquisition of control, if 3-8 applicable, as required by Article 21.49-1 of this code; and 3-9 (7) any other information requested by the 3-10 commissioner. 3-11 (b) Except as otherwise provided by this subsection, the 3-12 commissioner shall approve or disapprove a conversion plan not 3-13 later than the 60th day after the first day on which all the 3-14 documents required under Subsection (a) of this section are filed 3-15 with the commissioner. The commissioner may extend the time for 3-16 approval or disapproval by an additional 30 days on written notice 3-17 to the mutual insurance company. The commissioner may not extend 3-18 the time for approval or disapproval beyond this time period unless 3-19 he finds it necessary to retain a qualified expert pursuant to 3-20 Subsection (d) of this section, in which case he may extend the 3-21 time for review for an additional 60 days beyond the initial 60-day 3-22 period. The commissioner shall immediately give written notice to 3-23 the mutual insurance company of the commissioner's decision and, in 3-24 the event of disapproval, a detailed statement of the reasons for 3-25 the adverse decision. 3-26 (c) The commissioner shall approve a conversion plan if the 3-27 commissioner finds that: 4-1 (1) the conversion plan complies with this article; 4-2 (2) the conversion plan's method of allocating 4-3 subscription rights or other value is fair and equitable; and 4-4 (3) the converted stock company would satisfy the 4-5 current requirements applicable to a domestic stock company for a 4-6 certificate of authority. 4-7 (d) The commissioner may retain, at the mutual insurance 4-8 company's expense, a qualified expert not otherwise a part of the 4-9 commissioner's staff to assist the commissioner in reviewing the 4-10 conversion plan and the independent evaluation of the pro forma 4-11 market value required under Section 10(b) of this article. 4-12 (e) The commissioner may hold a hearing on whether the terms 4-13 of the conversion plan comply with this article after giving 4-14 written notice to the mutual insurance company and other interested 4-15 persons, all of whom have the right to appear at the hearing. 4-16 Notice to interested persons who have not filed an appearance in 4-17 the matter may be made through publication in the Texas Register. 4-18 Sec. 4. AMENDMENTS; WITHDRAWAL OF PLAN. At any time before 4-19 the conversion plan becomes effective, the mutual insurance 4-20 company, by the affirmative vote of not less than two-thirds of the 4-21 members of its board of directors, may amend or withdraw the 4-22 conversion plan. 4-23 Sec. 5. NOTICE TO ELIGIBLE MEMBERS; COMMENTS. (a) Within 4-24 10 business days after filing the documents required under Section 4-25 3(a) of this article with the commissioner, the mutual insurance 4-26 company shall send to each eligible member a notice advising the 4-27 eligible member of the adoption and filing of the conversion plan 5-1 and of the member's right to provide to the commissioner and the 5-2 mutual insurance company comments on the plan. The notice must 5-3 include a description of the procedure to be used in making 5-4 comments. 5-5 (b) An eligible member who elects to make comments must make 5-6 the comments in writing not later than the 30th day after the date 5-7 on which the notice is sent. 5-8 (c) Within 60 days after the commissioner's approval of the 5-9 plan, the mutual insurance company also shall send to each eligible 5-10 member notice of the members' meeting to vote on the conversion 5-11 plan. The notice must be sent to the member's last known address, 5-12 as shown on the mutual insurance company's records, before the 30th 5-13 day preceding the date set for the meeting. The notice must: 5-14 (1) briefly but fairly describe the proposed 5-15 conversion plan; and 5-16 (2) inform the member of the member's right to vote on 5-17 the conversion plan. 5-18 (d) If the meeting to vote on the conversion plan is held 5-19 during the mutual insurance company's annual meeting of 5-20 policyholders, only a combined meeting notice is required. 5-21 Sec. 6. ELECTION; ADOPTION OF PLAN. (a) A conversion plan 5-22 is adopted on receiving the affirmative vote of at least two-thirds 5-23 of the votes cast by eligible members at a duly convened meeting to 5-24 consider the plan of conversion. 5-25 (b) Members entitled to vote on the proposed conversion plan 5-26 may vote in person or by proxy. The number of votes each eligible 5-27 member may cast shall be determined by the mutual insurance 6-1 company's bylaws. If the bylaws are silent, each eligible member 6-2 may cast one vote. 6-3 (c) At the meeting held to vote on the conversion plan, the 6-4 members shall also consider the adoption of amended or restated 6-5 articles of incorporation. Adoption of the amended articles 6-6 requires the affirmative vote of at least two-thirds of the votes 6-7 cast by eligible members. 6-8 Sec. 7. FILING BY CONVERTED STOCK COMPANY. Not later than 6-9 the 30th day after the date on which the eligible members adopt the 6-10 conversion plan at a duly convened meeting, the converted stock 6-11 company shall file with the commissioner: 6-12 (1) the minutes of the meeting of the eligible members 6-13 at which the conversion plan was adopted; and 6-14 (2) the amended or restated articles of incorporation 6-15 and bylaws of the converted stock company. 6-16 Sec. 8. REQUIRED PROVISIONS IN GENERAL. (a) Each 6-17 conversion plan must include the provisions required by this 6-18 article. 6-19 (b) Each policy in effect on the effective date of the 6-20 conversion remains in effect under the terms of that policy, except 6-21 that the following rights, to the extent they existed in the mutual 6-22 insurance company, are extinguished on the effective date of the 6-23 conversion: 6-24 (1) any voting rights of policyholders provided under 6-25 the policy; 6-26 (2) except as provided in Subsection (c) of this 6-27 section, a right to share in the surplus or profits of the mutual 7-1 insurance company; and 7-2 (3) any assessment provisions provided under the 7-3 policy. 7-4 (c) The holder of a participating policy in effect on the 7-5 date of the conversion continues to have a right to receive 7-6 dividends as provided by the participating policy. 7-7 (d) Except for the mutual insurance company's guaranteed 7-8 renewable accident and health policies and guaranteed renewable, 7-9 noncancelable accident and health policies, on the renewal date of 7-10 a participating policy, the converted stock company may issue the 7-11 insured a nonparticipating policy as a substitute for the 7-12 participating policy. 7-13 Sec. 9. SUBSCRIPTION RIGHTS. (a) Except for an alternative 7-14 plan under Section 14 of this article, each conversion plan must 7-15 specify the subscription rights of eligible members. 7-16 (b) The plan must include a provision that: 7-17 (1) each eligible member is to receive, without 7-18 payment by the member, nontransferable subscription rights to 7-19 purchase a portion of the capital stock of the converted stock 7-20 company; and 7-21 (2) in the aggregate, all eligible members have the 7-22 right, before the right of any other party, to purchase 100 percent 7-23 of the capital stock of the converted company after provision for: 7-24 (A) capital stock required to be sold or 7-25 distributed to the holders of surplus notes, if any; 7-26 (B) capital stock purchased by the company's 7-27 tax-qualified employee stock benefit plan as permitted by Section 8-1 13(c) of this article; and 8-2 (C) capital stock acquired by the mutual 8-3 insurance company's directors and officers, as permitted by Section 8-4 13(a) of this article. 8-5 (c) As an alternative to subscription rights in the 8-6 converted stock company, the conversion plan may provide that each 8-7 eligible member is to receive, without payment by the member, 8-8 nontransferable subscription rights to purchase a portion of the 8-9 capital stock of one of the following: 8-10 (1) a corporation organized for the purpose of 8-11 purchasing and holding all the stock of the converted stock 8-12 company; 8-13 (2) a stock insurance company owned by the mutual 8-14 insurance company into which the mutual insurance company is to be 8-15 merged; or 8-16 (3) an unaffiliated stock insurance company or other 8-17 corporation that is to purchase all the stock of the converted 8-18 stock company. 8-19 (d) The conversion plan must provide that the subscription 8-20 rights are allocated in whole shares among the eligible members 8-21 using a fair and equitable formula. The formula may consider, but 8-22 is not required to consider, how the different classes of policies 8-23 of the eligible members contributed to the surplus of the mutual 8-24 insurance company or any other factors that may be fair or 8-25 equitable as determined by the board of directors. 8-26 (e) The conversion plan must provide a fair and equitable 8-27 means for allocating shares of capital stock in the event of an 9-1 oversubscription to shares by eligible members exercising 9-2 subscription rights under this section. 9-3 Sec. 10. SALE OF CAPITAL STOCK. (a) The conversion plan 9-4 must provide that any shares of capital stock not sold or 9-5 distributed to holders of surplus notes, subscribed to by a 9-6 tax-qualified employee benefit plan, as permitted under Section 9-7 13(c) of this article, subscribed to by directors and officers, as 9-8 permitted under Section 13(a) of this article, or subscribed to by 9-9 eligible members exercising subscription rights under Section 9 of 9-10 this article shall be sold in a private placement, public offering, 9-11 or other alternative method approved by the commissioner. 9-12 (b) The conversion plan must set the total price of the 9-13 capital stock in an amount equal to the estimated pro forma market 9-14 value of the converted stock company based on an independent 9-15 valuation by a qualified expert, giving consideration to the amount 9-16 of capital deemed necessary by the board of directors to be raised 9-17 by the company. The pro forma market value may be the value 9-18 estimated to be necessary to attract full subscription for the 9-19 shares, as indicated by the independent valuation, and may be 9-20 stated as a range of values. 9-21 (c) The conversion plan shall set the purchase price per 9-22 share of capital stock at any reasonable amount. The purchase 9-23 price per share need not be the same for each class of purchaser; 9-24 provided, however, that eligible members purchasing stock pursuant 9-25 to subscription rights received under Section 9 of this article 9-26 shall have the right to purchase shares at the lowest available 9-27 purchase price under the plan. 10-1 (d) The conversion plan must provide that a person or group 10-2 of persons acting in concert may not acquire, in the public or 10-3 private offering or through the exercise of subscription rights, 10-4 more than 10 percent of the capital stock of the converted stock 10-5 company except with the approval of the commissioner. This 10-6 limitation does not apply to an entity that purchases 100 percent 10-7 of the capital stock of the converted company as part of the 10-8 conversion plan approved by the commissioner. 10-9 (e) Except as otherwise provided in this article, the 10-10 conversion plan must provide that a director or officer of the 10-11 mutual insurance company, or a person acting in concert with a 10-12 director or officer, may not acquire, without the permission of the 10-13 commissioner, any capital stock of the converted stock company or 10-14 the stock of another corporation that is participating in the 10-15 conversion plan before the third anniversary of the effective date 10-16 of the conversion, except through a broker-dealer. This subsection 10-17 does not prohibit a director or officer from: 10-18 (1) making purchases through the exercise of 10-19 subscription rights received under the conversion plan; or 10-20 (2) participating in a stock benefit plan permitted by 10-21 Section 13(c) of this article or approved by the eligible members 10-22 pursuant to Section 6 of this article. 10-23 Sec. 11. LIMITATION ON RESALE. The conversion plan must 10-24 provide that a director or officer may not sell stock purchased 10-25 pursuant to the conversion plan before the first anniversary of the 10-26 effective date of the conversion; provided, however, the conversion 10-27 plan may provide for the purchase or redemption of stock in the 11-1 event that a director or officer is no longer associated with the 11-2 converted stock company during such period. 11-3 Sec. 12. HOLDER OF SURPLUS NOTE. The conversion plan must 11-4 provide that the rights of a holder of a surplus note to 11-5 participate in the conversion, if any, are governed by the terms of 11-6 the surplus note. 11-7 Sec. 13. OPTIONAL PROVISIONS. (a) The conversion plan may 11-8 provide that the directors and officers of the mutual insurance 11-9 company may receive, without payment, nontransferable subscription 11-10 rights to purchase capital stock of the converted stock company or 11-11 the stock of another corporation that is participating in the 11-12 conversion plan. 11-13 (b) The aggregate number of shares that may be purchased by 11-14 directors and officers of the mutual insurance company in their 11-15 capacity under Subsection (a) of this section may not exceed 35 11-16 percent of the total number of shares to be issued for the company 11-17 if total assets of the mutual insurance company are less than $50 11-18 million, or 25 percent of the total number of shares to be issued 11-19 for the company if total assets of the mutual insurance company are 11-20 more than $500 million. For mutual insurance companies with total 11-21 assets of or between $50 million and $500 million, the maximum 11-22 percentage of the total number of shares that may be purchased 11-23 shall be interpolated. 11-24 (c) The conversion plan may allocate to a tax-qualified 11-25 employee benefit plan nontransferable subscription rights to 11-26 purchase not more than 10 percent of the capital stock of the 11-27 converted stock company. 12-1 (d) The conversion plan may provide for the creation of a 12-2 liquidation account for the benefit of members in the event of 12-3 voluntary liquidation after conversion in an amount equal to the 12-4 surplus of the mutual insurance company, exclusive of the principal 12-5 amount of any surplus note, on the last day of the quarter 12-6 immediately preceding the date of adoption of the conversion plan. 12-7 Sec. 14. ALTERNATIVE CONVERSION PLAN. (a) The board of 12-8 directors may adopt a conversion plan that does not rely wholly or 12-9 partially on issuing nontransferable subscription rights to members 12-10 to purchase stock of the converted stock company if the 12-11 commissioner finds that the alternative conversion plan: 12-12 (1) complies with this article; 12-13 (2) is fair and equitable; and 12-14 (3) permits the converted stock company to satisfy the 12-15 current requirements applicable to a domestic stock company for a 12-16 certificate of authority. 12-17 (b) An alternative conversion plan may: 12-18 (1) include the merger of a domestic mutual insurance 12-19 company into a domestic or foreign stock insurance company; 12-20 (2) provide for issuing stock, cash, or other 12-21 consideration to members instead of subscription rights; 12-22 (3) provide for the formation of a mutual holding 12-23 company pursuant to Section 24 of this article; or 12-24 (4) set forth another plan containing any other 12-25 provisions approved by the commissioner. 12-26 (c) The commissioner may retain, at the mutual insurance 12-27 company's expense, a qualified expert not otherwise a part of the 13-1 commissioner's staff to assist in reviewing whether the alternative 13-2 conversion plan may be approved by the commissioner. 13-3 Sec. 15. EFFECTIVE DATE OF CONVERSION. (a) For a 13-4 conversion plan to take effect: 13-5 (1) the commissioner must approve the conversion plan; 13-6 and 13-7 (2) the eligible members must approve the conversion 13-8 plan and adopt the amended or restated articles of incorporation. 13-9 (b) A conversion plan takes effect when the amended or 13-10 restated articles of incorporation are filed with the commissioner. 13-11 Sec. 16. RIGHTS OF MEMBERS WHOSE POLICIES ARE ISSUED AFTER 13-12 ADOPTION OF CONVERSION PLAN AND BEFORE EFFECTIVE DATE. (a) On 13-13 issuance of a policy after a conversion plan has been adopted by 13-14 the board of directors but before the effective date of the 13-15 conversion plan, the mutual insurance company shall send to the 13-16 member to whom the policy is issued a written notice regarding the 13-17 conversion plan. 13-18 (b) Except as provided by Subsection (d) of this section, a 13-19 member of an accident and health insurance company entitled to 13-20 receive the notice described by Subsection (a) of this section is 13-21 entitled to rescind the member's policy and receive a full refund 13-22 of any amount paid for the policy not later than the 10th day after 13-23 the date on which the member receives the notice. 13-24 (c) Except as provided by Subsection (d) of this section, 13-25 each member who is insured under a property or casualty insurance 13-26 policy is entitled to receive the notice described by Subsection 13-27 (a) of this section and shall be advised of the member's right to: 14-1 (1) cancel the policy; and 14-2 (2) receive a pro rata refund of unearned premiums. 14-3 (d) A member who has made or filed a claim under the 14-4 insurance policy is not entitled to a right to receive a refund 14-5 under Subsection (b) or (c) of this section. A person who has 14-6 exercised the rights provided by Subsection (b) or (c) of this 14-7 section is not entitled to make or file a claim under the insurance 14-8 policy. 14-9 Sec. 17. CORPORATE EXISTENCE. (a) On the effective date of 14-10 the conversion: 14-11 (1) the corporate existence of the mutual insurance 14-12 company continues in the converted stock company; and 14-13 (2) all assets, rights, franchises, and interests of 14-14 the mutual insurance company in and to property, real, personal, or 14-15 mixed, and any accompanying things in action, are vested in the 14-16 converted stock company, without a deed or transfer, and the 14-17 converted stock company assumes all the obligations and liabilities 14-18 of the mutual insurance company. 14-19 (b) Unless otherwise specified in the conversion plan, the 14-20 directors and officers of the mutual insurance company serving on 14-21 the effective date of the conversion serve as directors and 14-22 officers of the converted stock company until new directors and 14-23 officers of the converted stock company are elected under the 14-24 articles of incorporation and bylaws of the converted stock 14-25 company. 14-26 Sec. 18. CONFLICT OF INTEREST. (a) A director, officer, 14-27 agent, or employee of the mutual insurance company may not receive 15-1 a fee, commission, or other consideration, other than that person's 15-2 usual salary or compensation, for aiding, promoting, or assisting 15-3 in a conversion under this article, except as provided by the 15-4 conversion plan approved by the commissioner. This subsection does 15-5 not prohibit the payment of reasonable fees and compensation to an 15-6 attorney, accountant, or actuary for professional services 15-7 performed by that person, even if the attorney, accountant, or 15-8 actuary is also a director or officer of the mutual insurance 15-9 company. 15-10 (b) All the costs and expenses connected with a conversion 15-11 plan shall be paid for or reimbursed by the mutual insurance 15-12 company or the converted stock company. 15-13 Sec. 19. EFFECT OF FAILURE TO GIVE NOTICE. If the mutual 15-14 insurance company complies substantially and in good faith with the 15-15 notice requirements of this article, the mutual insurance company's 15-16 failure to send a member the required notice does not impair the 15-17 validity of any action taken under this article. 15-18 Sec. 20. LIMITATION ON ACTIONS. An action challenging the 15-19 validity of or arising out of acts taken or proposed to be taken 15-20 regarding a conversion plan under this article must be commenced 15-21 not later than the 30th day after the effective date of that 15-22 conversion plan. 15-23 Sec. 21. INSOLVENT MUTUAL INSURANCE COMPANY. If a mutual 15-24 insurance company is insolvent or, in the judgment of the 15-25 commissioner, is in hazardous financial condition, its board of 15-26 directors, by a majority vote, may request in its petition that the 15-27 commissioner waive the requirements imposing notice to and 16-1 policyholder approval of the planned conversion. The petition must 16-2 specify: 16-3 (1) the method and basis for the issuance of the 16-4 converted stock company's shares of its capital stock to an 16-5 independent party in connection with an investment by the 16-6 independent party in an amount sufficient to restore the converted 16-7 stock company to a sound financial condition; and 16-8 (2) that the conversion is to be accomplished without 16-9 payment of consideration to past, present, or future policyholders, 16-10 if the commissioner finds that the value of the mutual insurance 16-11 company is insufficient to warrant that consideration. 16-12 Sec. 22. LAWS APPLICABLE TO CONVERTED STOCK COMPANY. (a) A 16-13 mutual insurance company may not be permitted to convert under this 16-14 article if, as a direct result of the conversion, any person or any 16-15 affiliate acquires control of the converted stock company, unless 16-16 that person or the affiliate complies with the requirements of 16-17 Section 5, Article 21.49-1 of this code. 16-18 (b) Except as otherwise specified in this article, a stock 16-19 company converted under this article has all of the rights and 16-20 privileges and is subject to all of the requirements and 16-21 regulations imposed on stock companies formed under this code and 16-22 any other laws of this state relating to the regulation and 16-23 supervision of insurance companies but may not exercise rights or 16-24 privileges that other stock insurance companies may not exercise. 16-25 Sec. 23. AMENDMENT OF POLICIES. A mutual insurance company, 16-26 by endorsement or rider approved by the commissioner and sent to 16-27 the policyholder, may simultaneously with or at any time after the 17-1 adoption of a conversion plan amend any outstanding insurance 17-2 policy to extinguish the right, if any, of the holder of the policy 17-3 to share in the surplus or profits of the mutual insurance company. 17-4 However, such an amendment is void if the conversion plan does not 17-5 take effect. 17-6 Sec. 24. MUTUAL HOLDING COMPANY. (a)(1) Pursuant to this 17-7 section, a mutual insurance company, on approval by the 17-8 commissioner, may reorganize by forming an insurance holding 17-9 company based on a mutual plan and continuing the corporate 17-10 existence of the reorganizing insurance company as a stock 17-11 insurance company. The commissioner, if satisfied that the 17-12 requirements of Section 14 of this article are met, shall approve 17-13 the proposed plan of reorganization and may require as a condition 17-14 of approval such modifications of the proposed plan of 17-15 reorganization as the commissioner finds necessary for the 17-16 protection of the members' interests. The commissioner may retain 17-17 a qualified expert as provided in Section 3(d) of this article. 17-18 The commissioner shall retain jurisdiction over a mutual holding 17-19 company organized pursuant to this section to assure that member 17-20 interests are protected. 17-21 (2) All of the initial shares of the capital stock of 17-22 the reorganized insurance company shall be issued to the mutual 17-23 holding company. The membership interests of the policyholders of 17-24 the reorganized insurance company shall become membership interests 17-25 in the mutual holding company. Eligible members of the reorganized 17-26 insurance company shall be members of the mutual holding company in 17-27 accordance with the articles of incorporation and bylaws of the 18-1 mutual holding company. The mutual holding company shall at all 18-2 times own a majority of the voting shares of the capital stock of 18-3 the reorganized insurance company or of an intermediate holding 18-4 company established to hold the voting shares of the reorganized 18-5 insurance company. 18-6 (b) A foreign mutual insurance company may reorganize on 18-7 approval by the commissioner and in compliance with the 18-8 requirements of any law or regulation which is applicable to the 18-9 foreign mutual insurance company by transferring its members' 18-10 membership interests into a mutual holding company formed under a 18-11 procedure similar to that described in Subsection (a) of this 18-12 section and continuing the corporate existence of the reorganizing 18-13 foreign mutual insurance company as a foreign stock insurance 18-14 company subsidiary of the mutual holding company. The reorganizing 18-15 foreign mutual insurance company may remain a foreign company and 18-16 may be admitted to do business in this state. A foreign mutual 18-17 insurance company may at the same time redomesticate in this state 18-18 by complying with the applicable requirements of Article 1.38 of 18-19 this code. 18-20 (c) A mutual holding company resulting from the 18-21 reorganization of a domestic mutual insurance company organized 18-22 under this chapter shall be incorporated pursuant to Article 15.02 18-23 of this code and the Texas Non-Profit Corporation Act (Article 18-24 1396-1.01 et seq., Vernon's Texas Civil Statutes). The articles of 18-25 incorporation, and any amendments to such articles, of the mutual 18-26 holding company shall be subject to approval of the commissioner in 18-27 the same manner as those of a mutual insurance company. 19-1 (d) A mutual holding company is deemed to be an insurer 19-2 subject to this chapter and shall automatically be a party to any 19-3 administrative proceeding under this code involving an insurance 19-4 company which, as a result of a reorganization pursuant to this 19-5 section, is a subsidiary of the mutual holding company. In any 19-6 proceeding involving the reorganized insurance company, the assets 19-7 of the mutual holding company are deemed to be assets of the estate 19-8 of the reorganized insurance company for purposes of satisfying the 19-9 claims of the reorganized insurance company's policyholders. A 19-10 mutual holding company shall not dissolve or liquidate without the 19-11 approval of the commissioner. 19-12 (e) A membership interest in a mutual holding company shall 19-13 not constitute a security as defined in Section 4, The Securities 19-14 Act (Article 581-4, Vernon's Texas Civil Statutes). 19-15 (f) The majority of the voting shares of the capital stock 19-16 of the reorganized insurance company, which is required by this 19-17 section to be at all times owned by a mutual holding company, shall 19-18 not be conveyed, transferred, assigned, pledged, subjected to a 19-19 security interest or lien, encumbered, or otherwise hypothecated or 19-20 alienated by the mutual holding company or intermediate holding 19-21 company. Any conveyance, transfer, assignment, pledge, security 19-22 interest, lien, encumbrance, or hypothecation or alienation of, in, 19-23 or on the majority of the voting shares of the reorganized 19-24 insurance company which is required by this section to be at all 19-25 times owned by a mutual holding company is in violation of this 19-26 section and shall be void in inverse chronological order from the 19-27 date of such conveyance, transfer, assignment, pledge, security 20-1 interest, lien, encumbrance, or hypothecation or alienation as to 20-2 the shares necessary to constitute a majority of such voting 20-3 shares. 20-4 (g) As used in this section, "majority of the voting shares 20-5 of the capital stock of the reorganized insurance company" means 20-6 shares of the capital stock of the reorganized insurance company 20-7 which carry the right to cast a majority of the votes entitled to 20-8 be cast by all of the outstanding shares of the capital stock of 20-9 the reorganized insurance company for the election of directors and 20-10 on all other matters submitted to a vote of the shareholders of the 20-11 reorganized insurance company. The ownership of a majority of the 20-12 voting shares of the capital stock of the reorganized insurance 20-13 company which are required by this section to be at all times owned 20-14 by a parent mutual holding company includes indirect ownership 20-15 through one or more intermediate holding companies in a corporate 20-16 structure approved by the commissioner. However, indirect 20-17 ownership through one or more intermediate holding companies shall 20-18 not result in the mutual holding company owning less than the 20-19 equivalent of a majority of the voting shares of the capital stock 20-20 of the reorganized insurance company. As used in this section, 20-21 "intermediate holding company" means a holding company which is a 20-22 subsidiary of a mutual holding company and which either directly or 20-23 through a subsidiary intermediate holding company owns a subsidiary 20-24 reorganized insurance company of which a majority of the voting 20-25 shares of the capital stock would otherwise have been required by 20-26 this section to be at all times owned by the mutual holding 20-27 company. 21-1 (h) A mutual holding company may convert to a stock holding 21-2 company pursuant to the provisions of this article as if such 21-3 mutual holding company were a mutual insurance company. 21-4 SECTION 2. This Act takes effect September 1, 1997. 21-5 SECTION 3. The importance of this legislation and the 21-6 crowded condition of the calendars in both houses create an 21-7 emergency and an imperative public necessity that the 21-8 constitutional rule requiring bills to be read on three several 21-9 days in each house be suspended, and this rule is hereby suspended.