1-1 By: Harris S.B. No. 1447 1-2 (In the Senate - Filed March 13, 1997; March 19, 1997, read 1-3 first time and referred to Committee on Economic Development; 1-4 April 11, 1997, reported adversely, with favorable Committee 1-5 Substitute by the following vote: Yeas 11, Nays 0; April 11, 1997, 1-6 sent to printer.) 1-7 COMMITTEE SUBSTITUTE FOR S.B. No. 1447 By: Harris 1-8 A BILL TO BE ENTITLED 1-9 AN ACT 1-10 relating to the conversion of mutual insurance companies to stock 1-11 insurance companies. 1-12 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS: 1-13 SECTION 1. Chapter 15, Insurance Code, is amended by adding 1-14 Article 15.22 to read as follows: 1-15 Art. 15.22. CONVERSION TO STOCK INSURANCE COMPANY 1-16 Sec. 1. DEFINITIONS. In this article: 1-17 (1) "Conversion plan" means a plan adopted under this 1-18 article by the board of directors of a mutual insurance company to 1-19 convert the mutual insurance company into a stock company. 1-20 (2) "Converted stock company" means a domestic stock 1-21 insurance company that has converted under this article from a 1-22 domestic mutual insurance company. 1-23 (3) "Eligible member" means a member of a mutual 1-24 insurance company whose policy is in force on the date that the 1-25 mutual insurance company's board of directors adopts a conversion 1-26 plan. The term does not include a person: 1-27 (A) insured under a group policy; or 1-28 (B) whose policy becomes effective after the 1-29 date that the board of directors adopts the conversion plan but 1-30 before the conversion plan's effective date. 1-31 (4) "Mutual insurance company" means a domestic mutual 1-32 insurance company. 1-33 (5) "Participating policy" means a policy that grants 1-34 a holder the right to receive dividends if, as, and when declared 1-35 by the mutual insurance company. 1-36 (6) "Stock company" means a stock insurance company 1-37 that meets all of the requirements for admission to do business as 1-38 a domestic insurer in this state. 1-39 Sec. 2. ADOPTION OF CONVERSION PLAN. (a) A mutual 1-40 insurance company that seeks to convert to a stock company must 1-41 adopt, by the affirmative vote of not less than two-thirds of the 1-42 members of its board of directors, a conversion plan consistent 1-43 with the requirements of this article. A mutual insurance company 1-44 may not engage in the business of insurance as a stock company 1-45 until it complies with the requirements of this article. 1-46 (b) Before the eligible members of a mutual insurance 1-47 company may vote on approval of a conversion plan, the mutual 1-48 insurance company must comply with Section 3 of this article. 1-49 Sec. 3. PLAN INFORMATION FILED WITH COMMISSIONER; 1-50 COMMISSIONER'S POWERS AND DUTIES. (a) Not later than the 90th day 1-51 after the date on which a mutual insurance company's board of 1-52 directors adopts a conversion plan, the company shall file with the 1-53 commissioner: 1-54 (1) a copy of the documents relating to the conversion 1-55 plan, including the independent evaluation of pro forma market 1-56 value required by Section 10(b) of this article; 1-57 (2) the form of notice required by Section 5 of this 1-58 article; 1-59 (3) the form of proxy to be solicited from eligible 1-60 members under Section 6(b) of this article; 1-61 (4) the form of notice required by Section 16 of this 1-62 article to persons whose policies are issued after adoption of the 1-63 conversion plan but before the effective date of the conversion 1-64 plan; 2-1 (5) the proposed amended or restated articles of 2-2 incorporation of the converted stock company; 2-3 (6) a statement regarding acquisition of control, if 2-4 applicable, as required by Article 21.49-1 of this code; and 2-5 (7) any other information requested by the 2-6 commissioner. 2-7 (b) Except as otherwise provided by this subsection, the 2-8 commissioner shall approve or disapprove a conversion plan not 2-9 later than the 60th day after the first day on which all the 2-10 documents required under Subsection (a) of this section are filed 2-11 with the commissioner. The commissioner may extend the time for 2-12 approval or disapproval by an additional 30 days on written notice 2-13 to the mutual insurance company. The commissioner may not extend 2-14 the time for approval or disapproval beyond this time period unless 2-15 he finds it necessary to retain a qualified expert pursuant to 2-16 Subsection (d) of this section, in which case he may extend the 2-17 time for review for an additional 60 days beyond the initial 60-day 2-18 period. The commissioner shall immediately give written notice to 2-19 the mutual insurance company of the commissioner's decision and, in 2-20 the event of disapproval, a detailed statement of the reasons for 2-21 the adverse decision. 2-22 (c) The commissioner shall approve a conversion plan if the 2-23 commissioner finds that: 2-24 (1) the conversion plan complies with this article; 2-25 (2) the conversion plan's method of allocating 2-26 subscription rights or other value is fair and equitable; and 2-27 (3) the converted stock company would satisfy the 2-28 current requirements applicable to a domestic stock company for a 2-29 certificate of authority. 2-30 (d) The commissioner may retain, at the mutual insurance 2-31 company's expense, a qualified expert not otherwise a part of the 2-32 commissioner's staff to assist the commissioner in reviewing the 2-33 conversion plan and the independent evaluation of the pro forma 2-34 market value required under Section 10(b) of this article. 2-35 (e) The commissioner may hold a hearing on whether the terms 2-36 of the conversion plan comply with this article after giving 2-37 written notice to the mutual insurance company and other interested 2-38 persons, all of whom have the right to appear at the hearing. 2-39 Notice to interested persons who have not filed an appearance in 2-40 the matter may be made through publication in the Texas Register. 2-41 Sec. 4. AMENDMENTS; WITHDRAWAL OF PLAN. At any time before 2-42 the conversion plan becomes effective, the mutual insurance 2-43 company, by the affirmative vote of not less than two-thirds of the 2-44 members of its board of directors, may amend or withdraw the 2-45 conversion plan. 2-46 Sec. 5. NOTICE TO ELIGIBLE MEMBERS; COMMENTS. (a) Within 2-47 10 business days after filing the documents required under Section 2-48 3(a) of this article with the commissioner, the mutual insurance 2-49 company shall send to each eligible member a notice advising the 2-50 eligible member of the adoption and filing of the conversion plan 2-51 and of the member's right to provide to the commissioner and the 2-52 mutual insurance company comments on the plan. The notice must 2-53 include a description of the procedure to be used in making 2-54 comments. 2-55 (b) An eligible member who elects to make comments must make 2-56 the comments in writing not later than the 30th day after the date 2-57 on which the notice is sent. 2-58 (c) Within 60 days after the commissioner's approval of the 2-59 plan, the mutual insurance company also shall send to each eligible 2-60 member notice of the members' meeting to vote on the conversion 2-61 plan. The notice must be sent to the member's last known address, 2-62 as shown on the mutual insurance company's records, before the 30th 2-63 day preceding the date set for the meeting. The notice must: 2-64 (1) briefly but fairly describe the proposed 2-65 conversion plan; and 2-66 (2) inform the member of the member's right to vote on 2-67 the conversion plan. 2-68 (d) If the meeting to vote on the conversion plan is held 2-69 during the mutual insurance company's annual meeting of 3-1 policyholders, only a combined meeting notice is required. 3-2 Sec. 6. ELECTION; ADOPTION OF PLAN. (a) A conversion plan 3-3 is adopted on receiving the affirmative vote of at least two-thirds 3-4 of the votes cast by eligible members at a duly convened meeting to 3-5 consider the plan of conversion. 3-6 (b) Members entitled to vote on the proposed conversion plan 3-7 may vote in person or by proxy. The number of votes each eligible 3-8 member may cast shall be determined by the mutual insurance 3-9 company's bylaws. If the bylaws are silent, each eligible member 3-10 may cast one vote. 3-11 (c) At the meeting held to vote on the conversion plan, the 3-12 members shall also consider the adoption of amended or restated 3-13 articles of incorporation. Adoption of the amended articles 3-14 requires the affirmative vote of at least two-thirds of the votes 3-15 cast by eligible members. 3-16 Sec. 7. FILING BY CONVERTED STOCK COMPANY. Not later than 3-17 the 30th day after the date on which the eligible members adopt the 3-18 conversion plan at a duly convened meeting, the converted stock 3-19 company shall file with the commissioner: 3-20 (1) the minutes of the meeting of the eligible members 3-21 at which the conversion plan was adopted; and 3-22 (2) the amended or restated articles of incorporation 3-23 and bylaws of the converted stock company. 3-24 Sec. 8. REQUIRED PROVISIONS IN GENERAL. (a) Each 3-25 conversion plan must include the provisions required by this 3-26 article. 3-27 (b) Each policy in effect on the effective date of the 3-28 conversion remains in effect under the terms of that policy, except 3-29 that the following rights, to the extent they existed in the mutual 3-30 insurance company, are extinguished on the effective date of the 3-31 conversion: 3-32 (1) any voting rights of policyholders provided under 3-33 the policy; 3-34 (2) except as provided in Subsection (c) of this 3-35 section, a right to share in the surplus or profits of the mutual 3-36 insurance company; and 3-37 (3) any assessment provisions provided under the 3-38 policy. 3-39 (c) The holder of a participating policy in effect on the 3-40 date of the conversion continues to have a right to receive 3-41 dividends as provided by the participating policy. 3-42 (d) Except for the mutual insurance company's guaranteed 3-43 renewable accident and health policies and guaranteed renewable, 3-44 noncancelable accident and health policies, on the renewal date of 3-45 a participating policy, the converted stock company may issue the 3-46 insured a nonparticipating policy as a substitute for the 3-47 participating policy. 3-48 Sec. 9. SUBSCRIPTION RIGHTS. (a) Except for an alternative 3-49 plan under Section 14 of this article, each conversion plan must 3-50 specify the subscription rights of eligible members. 3-51 (b) The plan must include a provision that: 3-52 (1) each eligible member is to receive, without 3-53 payment by the member, nontransferable subscription rights to 3-54 purchase a portion of the capital stock of the converted stock 3-55 company; and 3-56 (2) in the aggregate, all eligible members have the 3-57 right, before the right of any other party, to purchase 100 percent 3-58 of the capital stock of the converted company after provision for: 3-59 (A) capital stock required to be sold or 3-60 distributed to the holders of surplus notes, if any; 3-61 (B) capital stock purchased by the company's 3-62 tax-qualified employee stock benefit plan as permitted by Section 3-63 13(c) of this article; and 3-64 (C) capital stock acquired by the mutual 3-65 insurance company's directors and officers, as permitted by Section 3-66 13(a) of this article. 3-67 (c) As an alternative to subscription rights in the 3-68 converted stock company, the conversion plan may provide that each 3-69 eligible member is to receive, without payment by the member, 4-1 nontransferable subscription rights to purchase a portion of the 4-2 capital stock of one of the following: 4-3 (1) a corporation organized for the purpose of 4-4 purchasing and holding all the stock of the converted stock 4-5 company; 4-6 (2) a stock insurance company owned by the mutual 4-7 insurance company into which the mutual insurance company is to be 4-8 merged; or 4-9 (3) an unaffiliated stock insurance company or other 4-10 corporation that is to purchase all the stock of the converted 4-11 stock company. 4-12 (d) The conversion plan must provide that the subscription 4-13 rights are allocated in whole shares among the eligible members 4-14 using a fair and equitable formula. The formula may consider, but 4-15 is not required to consider, how the different classes of policies 4-16 of the eligible members contributed to the surplus of the mutual 4-17 insurance company or any other factors that may be fair or 4-18 equitable as determined by the board of directors. 4-19 (e) The conversion plan must provide a fair and equitable 4-20 means for allocating shares of capital stock in the event of an 4-21 oversubscription to shares by eligible members exercising 4-22 subscription rights under this section. 4-23 Sec. 10. SALE OF CAPITAL STOCK. (a) The conversion plan 4-24 must provide that any shares of capital stock not sold or 4-25 distributed to holders of surplus notes, subscribed to by a 4-26 tax-qualified employee benefit plan, as permitted under Section 4-27 13(c) of this article, subscribed to by directors and officers, as 4-28 permitted under Section 13(a) of this article, or subscribed to by 4-29 eligible members exercising subscription rights under Section 9 of 4-30 this article shall be sold in a private placement, public offering, 4-31 or other alternative method approved by the commissioner. 4-32 (b) The conversion plan must set the total price of the 4-33 capital stock in an amount equal to the estimated pro forma market 4-34 value of the converted stock company based on an independent 4-35 valuation by a qualified expert, giving consideration to the amount 4-36 of capital deemed necessary by the board of directors to be raised 4-37 by the company. The pro forma market value may be the value 4-38 estimated to be necessary to attract full subscription for the 4-39 shares, as indicated by the independent valuation, and may be 4-40 stated as a range of values. 4-41 (c) The conversion plan shall set the purchase price per 4-42 share of capital stock at any reasonable amount. The purchase 4-43 price per share need not be the same for each class of purchaser; 4-44 provided, however, that eligible members purchasing stock pursuant 4-45 to subscription rights received under Section 9 of this article 4-46 shall have the right to purchase shares at the lowest available 4-47 purchase price under the plan. 4-48 (d) The conversion plan must provide that a person or group 4-49 of persons acting in concert may not acquire, in the public or 4-50 private offering or through the exercise of subscription rights, 4-51 more than 10 percent of the capital stock of the converted stock 4-52 company except with the approval of the commissioner. This 4-53 limitation does not apply to an entity that purchases 100 percent 4-54 of the capital stock of the converted company as part of the 4-55 conversion plan approved by the commissioner. 4-56 (e) Except as otherwise provided in this article, the 4-57 conversion plan must provide that a director or officer of the 4-58 mutual insurance company, or a person acting in concert with a 4-59 director or officer, may not acquire, without the permission of the 4-60 commissioner, any capital stock of the converted stock company or 4-61 the stock of another corporation that is participating in the 4-62 conversion plan before the third anniversary of the effective date 4-63 of the conversion, except through a broker-dealer. This subsection 4-64 does not prohibit a director or officer from: 4-65 (1) making purchases through the exercise of 4-66 subscription rights received under the conversion plan; or 4-67 (2) participating in a stock benefit plan permitted by 4-68 Section 13(c) of this article or approved by the eligible members 4-69 pursuant to Section 6 of this article. 5-1 Sec. 11. LIMITATION ON RESALE. The conversion plan must 5-2 provide that a director or officer may not sell stock purchased 5-3 pursuant to the conversion plan before the first anniversary of the 5-4 effective date of the conversion; provided, however, the conversion 5-5 plan may provide for the purchase or redemption of stock in the 5-6 event that a director or officer is no longer associated with the 5-7 converted stock company during such period. 5-8 Sec. 12. HOLDER OF SURPLUS NOTE. The conversion plan must 5-9 provide that the rights of a holder of a surplus note to 5-10 participate in the conversion, if any, are governed by the terms of 5-11 the surplus note. 5-12 Sec. 13. OPTIONAL PROVISIONS. (a) The conversion plan may 5-13 provide that the directors and officers of the mutual insurance 5-14 company may receive, without payment, nontransferable subscription 5-15 rights to purchase capital stock of the converted stock company or 5-16 the stock of another corporation that is participating in the 5-17 conversion plan. 5-18 (b) The aggregate number of shares that may be purchased by 5-19 directors and officers of the mutual insurance company in their 5-20 capacity under Subsection (a) of this section may not exceed 35 5-21 percent of the total number of shares to be issued for the company 5-22 if total assets of the mutual insurance company are less than $50 5-23 million, or 25 percent of the total number of shares to be issued 5-24 for the company if total assets of the mutual insurance company are 5-25 more than $500 million. For mutual insurance companies with total 5-26 assets of or between $50 million and $500 million, the maximum 5-27 percentage of the total number of shares that may be purchased 5-28 shall be interpolated. 5-29 (c) The conversion plan may allocate to a tax-qualified 5-30 employee benefit plan nontransferable subscription rights to 5-31 purchase not more than 10 percent of the capital stock of the 5-32 converted stock company. 5-33 (d) The conversion plan may provide for the creation of a 5-34 liquidation account for the benefit of members in the event of 5-35 voluntary liquidation after conversion in an amount equal to the 5-36 surplus of the mutual insurance company, exclusive of the principal 5-37 amount of any surplus note, on the last day of the quarter 5-38 immediately preceding the date of adoption of the conversion plan. 5-39 Sec. 14. ALTERNATIVE CONVERSION PLAN. (a) The board of 5-40 directors may adopt a conversion plan that does not rely wholly or 5-41 partially on issuing nontransferable subscription rights to members 5-42 to purchase stock of the converted stock company if the 5-43 commissioner finds that the alternative conversion plan: 5-44 (1) complies with this article; 5-45 (2) is fair and equitable; and 5-46 (3) permits the converted stock company to satisfy the 5-47 current requirements applicable to a domestic stock company for a 5-48 certificate of authority. 5-49 (b) An alternative conversion plan may: 5-50 (1) include the merger of a domestic mutual insurance 5-51 company into a domestic or foreign stock insurance company; 5-52 (2) provide for issuing stock, cash, or other 5-53 consideration to members instead of subscription rights; 5-54 (3) provide for the formation of a mutual holding 5-55 company pursuant to Section 24 of this article; or 5-56 (4) set forth another plan containing any other 5-57 provisions approved by the commissioner. 5-58 (c) The commissioner may retain, at the mutual insurance 5-59 company's expense, a qualified expert not otherwise a part of the 5-60 commissioner's staff to assist in reviewing whether the alternative 5-61 conversion plan may be approved by the commissioner. 5-62 Sec. 15. EFFECTIVE DATE OF CONVERSION. (a) For a 5-63 conversion plan to take effect: 5-64 (1) the commissioner must approve the conversion plan; 5-65 and 5-66 (2) the eligible members must approve the conversion 5-67 plan and adopt the amended or restated articles of incorporation. 5-68 (b) A conversion plan takes effect when the amended or 5-69 restated articles of incorporation are filed with the commissioner. 6-1 Sec. 16. RIGHTS OF MEMBERS WHOSE POLICIES ARE ISSUED AFTER 6-2 ADOPTION OF CONVERSION PLAN AND BEFORE EFFECTIVE DATE. (a) On 6-3 issuance of a policy after a conversion plan has been adopted by 6-4 the board of directors but before the effective date of the 6-5 conversion plan, the mutual insurance company shall send to the 6-6 member to whom the policy is issued a written notice regarding the 6-7 conversion plan. 6-8 (b) Except as provided by Subsection (d) of this section, a 6-9 member of an accident and health insurance company entitled to 6-10 receive the notice described by Subsection (a) of this section is 6-11 entitled to rescind the member's policy and receive a full refund 6-12 of any amount paid for the policy not later than the 10th day after 6-13 the date on which the member receives the notice. 6-14 (c) Except as provided by Subsection (d) of this section, 6-15 each member who is insured under a property or casualty insurance 6-16 policy is entitled to receive the notice described by Subsection 6-17 (a) of this section and shall be advised of the member's right to: 6-18 (1) cancel the policy; and 6-19 (2) receive a pro rata refund of unearned premiums. 6-20 (d) A member who has made or filed a claim under the 6-21 insurance policy is not entitled to a right to receive a refund 6-22 under Subsection (b) or (c) of this section. A person who has 6-23 exercised the rights provided by Subsection (b) or (c) of this 6-24 section is not entitled to make or file a claim under the insurance 6-25 policy. 6-26 Sec. 17. CORPORATE EXISTENCE. (a) On the effective date of 6-27 the conversion: 6-28 (1) the corporate existence of the mutual insurance 6-29 company continues in the converted stock company; and 6-30 (2) all assets, rights, franchises, and interests of 6-31 the mutual insurance company in and to property, real, personal, or 6-32 mixed, and any accompanying things in action, are vested in the 6-33 converted stock company, without a deed or transfer, and the 6-34 converted stock company assumes all the obligations and liabilities 6-35 of the mutual insurance company. 6-36 (b) Unless otherwise specified in the conversion plan, the 6-37 directors and officers of the mutual insurance company serving on 6-38 the effective date of the conversion serve as directors and 6-39 officers of the converted stock company until new directors and 6-40 officers of the converted stock company are elected under the 6-41 articles of incorporation and bylaws of the converted stock 6-42 company. 6-43 Sec. 18. CONFLICT OF INTEREST. (a) A director, officer, 6-44 agent, or employee of the mutual insurance company may not receive 6-45 a fee, commission, or other consideration, other than that person's 6-46 usual salary or compensation, for aiding, promoting, or assisting 6-47 in a conversion under this article, except as provided by the 6-48 conversion plan approved by the commissioner. This subsection does 6-49 not prohibit the payment of reasonable fees and compensation to an 6-50 attorney, accountant, or actuary for professional services 6-51 performed by that person, even if the attorney, accountant, or 6-52 actuary is also a director or officer of the mutual insurance 6-53 company. 6-54 (b) All the costs and expenses connected with a conversion 6-55 plan shall be paid for or reimbursed by the mutual insurance 6-56 company or the converted stock company. 6-57 Sec. 19. EFFECT OF FAILURE TO GIVE NOTICE. If the mutual 6-58 insurance company complies substantially and in good faith with the 6-59 notice requirements of this article, the mutual insurance company's 6-60 failure to send a member the required notice does not impair the 6-61 validity of any action taken under this article. 6-62 Sec. 20. LIMITATION ON ACTIONS. An action challenging the 6-63 validity of or arising out of acts taken or proposed to be taken 6-64 regarding a conversion plan under this article must be commenced 6-65 not later than the 30th day after the effective date of that 6-66 conversion plan. 6-67 Sec. 21. INSOLVENT MUTUAL INSURANCE COMPANY. If a mutual 6-68 insurance company is insolvent or, in the judgment of the 6-69 commissioner, is in hazardous financial condition, its board of 7-1 directors, by a majority vote, may request in its petition that the 7-2 commissioner waive the requirements imposing notice to and 7-3 policyholder approval of the planned conversion. The petition must 7-4 specify: 7-5 (1) the method and basis for the issuance of the 7-6 converted stock company's shares of its capital stock to an 7-7 independent party in connection with an investment by the 7-8 independent party in an amount sufficient to restore the converted 7-9 stock company to a sound financial condition; and 7-10 (2) that the conversion is to be accomplished without 7-11 payment of consideration to past, present, or future policyholders, 7-12 if the commissioner finds that the value of the mutual insurance 7-13 company is insufficient to warrant that consideration. 7-14 Sec. 22. LAWS APPLICABLE TO CONVERTED STOCK COMPANY. (a) A 7-15 mutual insurance company may not be permitted to convert under this 7-16 article if, as a direct result of the conversion, any person or any 7-17 affiliate acquires control of the converted stock company, unless 7-18 that person or the affiliate complies with the requirements of 7-19 Section 5, Article 21.49-1 of this code. 7-20 (b) Except as otherwise specified in this article, a stock 7-21 company converted under this article has all of the rights and 7-22 privileges and is subject to all of the requirements and 7-23 regulations imposed on stock companies formed under this code and 7-24 any other laws of this state relating to the regulation and 7-25 supervision of insurance companies but may not exercise rights or 7-26 privileges that other stock insurance companies may not exercise. 7-27 Sec. 23. AMENDMENT OF POLICIES. A mutual insurance company, 7-28 by endorsement or rider approved by the commissioner and sent to 7-29 the policyholder, may simultaneously with or at any time after the 7-30 adoption of a conversion plan amend any outstanding insurance 7-31 policy to extinguish the right, if any, of the holder of the policy 7-32 to share in the surplus or profits of the mutual insurance company. 7-33 However, such an amendment is void if the conversion plan does not 7-34 take effect. 7-35 Sec. 24. MUTUAL HOLDING COMPANY. (a)(1) Pursuant to this 7-36 section, a mutual insurance company, on approval by the 7-37 commissioner, may reorganize by forming an insurance holding 7-38 company based on a mutual plan and continuing the corporate 7-39 existence of the reorganizing insurance company as a stock 7-40 insurance company. The commissioner, if satisfied that the 7-41 requirements of Section 14 of this article are met, shall approve 7-42 the proposed plan of reorganization and may require as a condition 7-43 of approval such modifications of the proposed plan of 7-44 reorganization as the commissioner finds necessary for the 7-45 protection of the members' interests. The commissioner may retain 7-46 a qualified expert as provided in Section 3(d) of this article. 7-47 The commissioner shall retain jurisdiction over a mutual holding 7-48 company organized pursuant to this section to assure that member 7-49 interests are protected. 7-50 (2) All of the initial shares of the capital stock of 7-51 the reorganized insurance company shall be issued to the mutual 7-52 holding company. The membership interests of the policyholders of 7-53 the reorganized insurance company shall become membership interests 7-54 in the mutual holding company. Eligible members of the reorganized 7-55 insurance company shall be members of the mutual holding company in 7-56 accordance with the articles of incorporation and bylaws of the 7-57 mutual holding company. The mutual holding company shall at all 7-58 times own a majority of the voting shares of the capital stock of 7-59 the reorganized insurance company or of an intermediate holding 7-60 company established to hold the voting shares of the reorganized 7-61 insurance company. 7-62 (b) A foreign mutual insurance company may reorganize on 7-63 approval by the commissioner and in compliance with the 7-64 requirements of any law or regulation which is applicable to the 7-65 foreign mutual insurance company by transferring its members' 7-66 membership interests into a mutual holding company formed under a 7-67 procedure similar to that described in Subsection (a) of this 7-68 section and continuing the corporate existence of the reorganizing 7-69 foreign mutual insurance company as a foreign stock insurance 8-1 company subsidiary of the mutual holding company. The reorganizing 8-2 foreign mutual insurance company may remain a foreign company and 8-3 may be admitted to do business in this state. A foreign mutual 8-4 insurance company may at the same time redomesticate in this state 8-5 by complying with the applicable requirements of Article 1.38 of 8-6 this code. 8-7 (c) A mutual holding company resulting from the 8-8 reorganization of a domestic mutual insurance company organized 8-9 under this chapter shall be incorporated pursuant to Article 15.02 8-10 of this code and the Texas Non-Profit Corporation Act (Article 8-11 1396-1.01 et seq., Vernon's Texas Civil Statutes). The articles of 8-12 incorporation, and any amendments to such articles, of the mutual 8-13 holding company shall be subject to approval of the commissioner in 8-14 the same manner as those of a mutual insurance company. 8-15 (d) A mutual holding company is deemed to be an insurer 8-16 subject to this chapter and shall automatically be a party to any 8-17 administrative proceeding under this code involving an insurance 8-18 company which, as a result of a reorganization pursuant to this 8-19 section, is a subsidiary of the mutual holding company. In any 8-20 proceeding involving the reorganized insurance company, the assets 8-21 of the mutual holding company are deemed to be assets of the estate 8-22 of the reorganized insurance company for purposes of satisfying the 8-23 claims of the reorganized insurance company's policyholders. A 8-24 mutual holding company shall not dissolve or liquidate without the 8-25 approval of the commissioner. 8-26 (e) A membership interest in a mutual holding company shall 8-27 not constitute a security as defined in Section 4, The Securities 8-28 Act (Article 581-4, Vernon's Texas Civil Statutes). 8-29 (f) The majority of the voting shares of the capital stock 8-30 of the reorganized insurance company, which is required by this 8-31 section to be at all times owned by a mutual holding company, shall 8-32 not be conveyed, transferred, assigned, pledged, subjected to a 8-33 security interest or lien, encumbered, or otherwise hypothecated or 8-34 alienated by the mutual holding company or intermediate holding 8-35 company. Any conveyance, transfer, assignment, pledge, security 8-36 interest, lien, encumbrance, or hypothecation or alienation of, in, 8-37 or on the majority of the voting shares of the reorganized 8-38 insurance company which is required by this section to be at all 8-39 times owned by a mutual holding company is in violation of this 8-40 section and shall be void in inverse chronological order from the 8-41 date of such conveyance, transfer, assignment, pledge, security 8-42 interest, lien, encumbrance, or hypothecation or alienation as to 8-43 the shares necessary to constitute a majority of such voting 8-44 shares. 8-45 (g) As used in this section, "majority of the voting shares 8-46 of the capital stock of the reorganized insurance company" means 8-47 shares of the capital stock of the reorganized insurance company 8-48 which carry the right to cast a majority of the votes entitled to 8-49 be cast by all of the outstanding shares of the capital stock of 8-50 the reorganized insurance company for the election of directors and 8-51 on all other matters submitted to a vote of the shareholders of the 8-52 reorganized insurance company. The ownership of a majority of the 8-53 voting shares of the capital stock of the reorganized insurance 8-54 company which are required by this section to be at all times owned 8-55 by a parent mutual holding company includes indirect ownership 8-56 through one or more intermediate holding companies in a corporate 8-57 structure approved by the commissioner. However, indirect 8-58 ownership through one or more intermediate holding companies shall 8-59 not result in the mutual holding company owning less than the 8-60 equivalent of a majority of the voting shares of the capital stock 8-61 of the reorganized insurance company. As used in this section, 8-62 "intermediate holding company" means a holding company which is a 8-63 subsidiary of a mutual holding company and which either directly or 8-64 through a subsidiary intermediate holding company owns a subsidiary 8-65 reorganized insurance company of which a majority of the voting 8-66 shares of the capital stock would otherwise have been required by 8-67 this section to be at all times owned by the mutual holding 8-68 company. 8-69 (h) A mutual holding company may convert to a stock holding 9-1 company pursuant to the provisions of this article as if such 9-2 mutual holding company were a mutual insurance company. 9-3 SECTION 2. This Act takes effect September 1, 1997. 9-4 SECTION 3. The importance of this legislation and the 9-5 crowded condition of the calendars in both houses create an 9-6 emergency and an imperative public necessity that the 9-7 constitutional rule requiring bills to be read on three several 9-8 days in each house be suspended, and this rule is hereby suspended. 9-9 * * * * *