§ 58-10-10. Mutual to stock insurer conversion. - North Carolina Statutes

§ 58‑10‑10. Mutual to stock insurer conversion.

(a)        A domestic mutualinsurer may convert to a domestic stock insurer under a plan that is approvedin advance by the Commissioner.

(b)        The Commissionershall not approve the plan unless:

(1)        It is fair and equitableto the insurer's policyholders.

(2)        It is adopted by theinsurer's board of directors in accordance with the insurer's bylaws andapproved by a vote of not less than two‑thirds of the insurer's membersvoting on it in person, by proxy, or by mail at a meeting called for thepurpose of voting on the plan, pursuant to reasonable notice and procedure asapproved by the Commissioner. If the company is a life insurer, the right tovote may be limited, as its bylaws provide, to members whose policies are otherthan term or group policies and have been in effect for more than one year.

(3)        Each policyholder'sequity in the insurer is determinable under a fair and reasonable formulaapproved by the Commissioner. The equity shall be based upon the insurer'sentire statutory surplus after deducting certificates of contribution, guarantycapital certificates, and similar evidences of indebtedness included in aninsurer's statutory surplus.

(4)        The policyholdersentitled to vote on the plan and participate in the purchase of stock anddistribution of assets include all policyholders on the date the plan wasadopted by the insurer's board of directors.

(5)        The plan providesthat each policyholder specified in subdivision (4) of this subsection receivesa preemptive right to acquire a proportionate part of all of the proposedcapital stock of the insurer or of all of the stock of a corporation affiliatedwith the insurer within a designated reasonable period as the part isdeterminable under the plan of conversion; and to apply toward the purchase ofthe stock the amount of the policyholder's equity in the insurer undersubdivision (3) of this subsection. The plan must provide for an equitabledistribution of fractional interests.

(6)        The plan providesfor payment to each policyholder of the policyholder's entire equity in theinsurer; with that payment to be applied toward the purchase of stock to whichthe policyholder is entitled preemptively or to be made in cash, or both. Thecash payment may not exceed fifty percent (50%) of each policyholder's equity.The stock purchased, together with the cash payment, if any, shall constitutefull payment and discharge of the policyholder's equity as an owner of themutual insurer.

(7)        Shares are to beoffered to policyholders at a price not greater than that of shares to besubsequently offered to others.

(8)        The Commissionerfinds that the insurer's management has not, through reduction of volume of newbusiness written, through policy cancellations, or through any other means,sought to (i) reduce, limit, or affect the number or identity of the insurer'smembers entitled to participate in the plan or (ii) secure for the individualsconstituting management any unfair advantage through the plan.

(9)        The plan, whencompleted, provides that the insurer's capital and surplus are not less thanthe minimum required of a domestic stock insurer transacting the same kinds ofinsurance, are reasonable in relation to the insurer's outstanding liabilities,and are adequate to meet its financial needs.

(c)        With respect to aninsurer with a guaranty capital, the conversion plan shall be approved by avote of not less than two‑thirds of the insurer's guaranty capitalshareholders and policyholders as provided for in subdivision (b)(2) of thissection. The plan may provide for the issuance of stock in exchange foroutstanding guaranty capital shares at their redemption value subject to theconditions in subsection (b) of this section.

(d)        The Commissionermay schedule a public hearing on the proposed conversion plan.

(e)        The Commissionermay retain, at the mutual insurer's expense, any attorneys, actuaries,economists, accountants, or other experts not otherwise a part of theCommissioner's staff as may be reasonably necessary to assist the Commissionerin reviewing the proposed conversion plan.

(f)         The corporateexistence of the mutual company continues in the stock company created underthis section. All assets, rights, franchises, and interests of the formermutual insurer, in and to real or personal property, are deemed to betransferred to and vested in the stock insurer, without any other deed ortransfer; and the stock insurer simultaneously assumes all of the obligationsand liabilities of the former mutual insurer.

(g)        No director, officer,or employee of the insurer shall receive:

(1)        Any fee, commission,compensation, or other valuable consideration for aiding, promoting, orassisting in the conversion of the mutual insurer to a domestic stock insurer,other than compensation paid to any director, officer, or employee of theinsurer in the ordinary course of business; or

(2)        Any distribution ofthe assets, surplus, or capital of the insurer as part of a conversion.

(h)        The Commissionermay adopt rules to carry out the provisions of this section. (1999‑369, s. 6; 2001‑223,s. 9.5.)