CHAPTER 825. CONVERSION OF STOCK INSURANCE COMPANY TO MUTUAL INSURANCE COMPANY - Texas Statutes

INSURANCE CODE

TITLE 6. ORGANIZATION OF INSURERS AND RELATED ENTITIES

SUBTITLE B. ORGANIZATION OF REGULATED ENTITIES

CHAPTER 825. CONVERSION OF STOCK INSURANCE COMPANY TO MUTUAL

INSURANCE COMPANY

SUBCHAPTER A. GENERAL PROVISIONS

Sec. 825.001. DEFINITIONS. In this chapter:

(1) "Converting company" means a stock insurance company that

converts to a mutual insurance company under this chapter.

(2) "Resulting company" means a mutual insurance company to

which a stock insurance company converts under this chapter.

(3) "Stock acquisition plan" means a converting company's plan

for the acquisition of shares of its capital stock.

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 1, eff. June 1,

2003.

Sec. 825.002. AUTHORITY TO CONVERT TO MUTUAL INSURANCE COMPANY.

(a) A domestic stock insurance company, as defined by law, may

convert to a mutual insurance company.

(b) To convert to a mutual insurance company, a stock insurance

company must implement a plan for the acquisition of shares of

its capital stock.

(c) In implementing a stock acquisition plan under this chapter,

a converting company may acquire shares of its stock by gift,

bequest, or purchase.

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 1, eff. June 1,

2003.

SUBCHAPTER B. STOCK ACQUISITION PLAN

Sec. 825.051. CONTENTS OF STOCK ACQUISITION PLAN. (a) A stock

acquisition plan must:

(1) be adopted by a vote of a majority of the directors of the

corporation at a directors' meeting called for that purpose;

(2) be approved by a vote of shareholders representing a

majority of the capital stock at a meeting of shareholders called

for that purpose;

(3) enable each shareholder to dispose of the same proportion of

the shareholder's holdings at the same price per share and on the

same terms as any other shareholder;

(4) be approved by a vote of the majority of the policyholders

eligible under Section 825.054 to participate at a meeting of the

policyholders called for that purpose; and

(5) be submitted to the commissioner and approved by the

commissioner in writing.

(b) If the purchase price for the company's acquisition of

shares of its capital stock is not set by the stock acquisition

plan, each payment for those shares is subject to the

commissioner's approval.

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 1, eff. June 1,

2003.

Sec. 825.052. SUFFICIENT ASSETS REQUIRED. The commissioner may

not approve a stock acquisition plan or a payment for stock under

Section 825.051(b) unless, at the time of the approval, the

company has assets equal to at least $500,000 more than the

entire liability of the company, including the net values of its

outstanding contracts computed as required by law, and all funds

and contingent reserves, after deducting:

(1) the aggregate amount allocated by the plan for the

acquisition of any part or all of its capital stock, to be paid

in cash or other assets of the company; and

(2) the amount of any payment not set by the plan and subject to

separate approval by the commissioner after the approval of the

plan.

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 1, eff. June 1,

2003.

Sec. 825.053. STOCK ACQUISITION PLAN APPROVAL. A policyholders'

meeting for approval of a stock acquisition plan may not be

called until Sections 825.051(a)(1) and (2) are satisfied.

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 1, eff. June 1,

2003.

Sec. 825.054. POLICYHOLDER ELIGIBILITY. To be eligible to

participate in a policyholders' meeting held to approve a stock

acquisition plan, a policyholder must have insurance coverage

issued by the converting company that:

(1) is in the amount of at least $1,000;

(2) is in force on the date of the policyholders' meeting; and

(3) has been in force for at least one year before the date of

the policyholders' meeting.

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 1, eff. June 1,

2003.

Sec. 825.055. POLICYHOLDERS' MEETING. (a) A converting company

shall give notice of the policyholders' meeting to each eligible

policyholder.

(b) The notice must be mailed from the home office of the

converting company not later than the 31st day before the

scheduled date of the meeting in a sealed envelope, postage

prepaid, to the policyholder at the policyholder's last known

mailing address.

(c) The policyholders' meeting shall be conducted in the manner

provided by the stock acquisition plan.

(d) The commissioner shall supervise and direct the procedure of

the policyholders' meeting. The converting company shall pay all

necessary expenses incurred by the commissioner as certified by

the commissioner.

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 1, eff. June 1,

2003.

Sec. 825.056. POLICYHOLDER VOTING. (a) A policyholder may vote

in person, by proxy, or by mail. All votes must be cast by

ballot.

(b) The commissioner shall appoint an adequate number of

inspectors to conduct the voting at the policyholders' meeting.

(c) The inspectors determine all questions concerning the

verification of the ballots, the validity of the ballots, the

qualification of the voters, and the canvass of the vote and

shall certify the results to the commissioner and the converting

company.

(d) An inspector shall act under rules prescribed by the

commissioner.

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 1, eff. June 1,

2003.

SUBCHAPTER C. ACQUISITION OF SHARES

Sec. 825.101. ISSUANCE OF ANNUITY BONDS IN PAYMENT OF STOCK.

(a) A stock acquisition plan may provide that all or part of the

purchase price of any part or all of the shares of stock of a

converting company that are acquired by the company under the

plan may be paid by the company through the issuance of annuity

bonds payable in annual amounts and for the term provided by the

plan.

(b) Each annuity bond issued under Subsection (a) must expressly

provide, on the face of the bond, that the bond is payable only

out of the surplus of the converting company remaining after all

liabilities, including reserves, are provided for and is not

otherwise a liability or claim against the converting company or

any of its assets, as provided by Section 882.253.

(c) Not more than three-fourths of the net earnings of the

converting company during any calendar year may be used or

applied to the payment of the annuity bonds.

(d) On the approval of the commissioner, the company issuing the

annuity bonds or any life insurance company may invest its funds

in the annuity bonds. The investment in the annuity bonds may not

at any time exceed 10 percent of the company's total admitted

assets.

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 1, eff. June 1,

2003.

Sec. 825.102. ACQUISITION IN TRUST. (a) Until all of the

shares of a converting company are acquired, any shares acquired

under the stock acquisition plan shall be held in trust for the

policyholders of the converting company by three trustees

appointed as provided by the stock acquisition plan.

(b) Each appointee must file with the converting company a

verified acceptance of the appointment and a declaration that the

appointee will faithfully discharge the appointee's duties.

(c) The shares shall be assigned and transferred on the books of

the converting company to the trustees. The trustees shall vote

the shares at each meeting at which shareholders are entitled to

vote, until all the capital stock of the converting company is

canceled under Section 825.104.

(d) After paying the necessary expenses of executing the trust,

the trustees shall immediately pay all dividends and other

amounts received on the shares of stock acquired under Section

825.101 to the converting company for the benefit of those who

are or become policyholders of the resulting company entitled to

participate in the profits of the resulting company.

(e) All amounts received by the converting company under

Subsection (d) shall be added to the surplus earned by the

resulting company and accordingly are apportionable as a part of

the surplus among the resulting company's policyholders.

(f) A vacancy among the trustees shall be filled as provided by

the stock acquisition plan.

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 1, eff. June 1,

2003.

Sec. 825.103. DISTRIBUTION OF DIVIDENDS. After conversion, the

converting company shall annually distribute among its

policyholders, under terms approved by the commissioner,

dividends or earnings accruing to the converting company as the

result of the acquisition of shares of the converting company's

stock under this chapter.

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 1, eff. June 1,

2003.

Sec. 825.104. CONVERSION COMPLETE ON CANCELLATION OF STOCK;

APPLICATION OF CERTAIN LAWS. (a) When the converting company

acquires all of its capital stock and the purchase price for that

stock, including any annuity bond issued for the purchase of the

stock, is paid in full, the stock shall be canceled.

(b) On cancellation of the stock, the converting company becomes

a mutual insurance company without capital stock and is subject

to the laws of this state governing mutual insurance companies.

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 1, eff. June 1,

2003.