2023 New York Laws › ISC - Insurance › Article 73 - Conversion to Different Type of Insurer › 7313 - Reorganization of Domestic Mutual Accident and Health Insurance Companies.

§   7313.  Reorganization  of  domestic  mutual  accident  and  health
insurance companies.
(a) In this section:
(1) "Affiliate" of a mutual insurer means any person who controls,  is
controlled  by or is under common control with, the mutual insurer being
converted.  A  corporation  is  an  affiliate  of  another  corporation,
regardless  of  ownership,  if  substantially  the same group of persons
manage the two corporations.
(2) "Control" has the meaning assigned  to  it  in  paragraph  two  of
subsection (a) of section one thousand five hundred one of this chapter.
(3)  A  "domestic mutual insurer" or "mutual insurer" means a domestic
mutual accident and health insurance  company  organized  under  article
twelve  of  this  chapter  and  licensed under article forty-two of this
chapter and not operating under an order of rehabilitation.
(4) "Policyholder" means a person, as determined by the records  of  a
mutual   accident   and   health  insurer,  who  is  deemed  to  be  the
"policyholder" of a policy that is of  a  type  described  in  paragraph
three  of subsection (a) of section one thousand one hundred thirteen of
this chapter.
(5)  "Policyholders'  membership  interest"  means  and  includes  all
policyholders' rights as members arising under the charter of the mutual
accident  and  health  insurer  or  this  chapter  or  otherwise by law,
including the rights to vote and to participate in the  distribution  of
surplus  whether  or  not incident to a liquidation of a mutual accident
and health insurer. The term "policyholders' membership  interest"  does
not   include   rights,   including  without  limitation  the  right  to
participate in the distribution of surplus, expressly conferred upon the
policyholders by their policies or contracts other  than  any  right  to
vote.
(6)  "Reorganization"  means  a  conversion  in  accordance  with this
section.
(b)(1) A domestic mutual insurer may apply to the  superintendent  for
permission  to reorganize and convert into a domestic stock accident and
health insurer complying with the relevant  organization  and  licensing
provisions  of  articles  twelve  and  forty-two  of  this  chapter. The
application to the superintendent shall be  pursuant  to  a  resolution,
adopted  by  no  less  than a majority of the entire board of directors,
specifying the reasons for and the purposes of the  proposed  conversion
and   the  manner  in  which  the  conversion  is  expected  to  benefit
policyholders and the public. A copy of the resolution, together with  a
statement   of  its  adoption,  both  certified  by  the  president  and
secretary, or officers corresponding to either of them, and affirmed  by
them  as  true  under the penalties of perjury and under the seal of the
mutual insurer, and such other information  as  the  superintendent  may
require shall accompany the application.
(2)  The  superintendent  shall  order  an  examination  of the mutual
insurer pursuant to section three hundred ten of this chapter as of  the
last  day of the period covered in the insurer's latest filed statement,
except  that  the  proposed  conversion  shall  terminate   without   an
examination if the superintendent finds that:
(A) the resolution is defective upon its face;
(B)  the  proposed conversion is contrary to law or is not in the best
interests of the policyholders or the public; or
(C) the mutual insurer does not have a  surplus  to  policyholders  at
least equal to the minimum capital and surplus required to be maintained
for a newly organized stock insurer doing the same kinds of insurance.
(c)  The  superintendent  shall  also  appoint  one  or more qualified
disinterested persons to appraise and report to the  superintendent  the

fair  market  value  of the mutual insurer and, to the extent necessary,
its affiliates, on the basis of its latest  filed  annual  or  quarterly
statement,   and   of   any  significant  subsequent  developments.  The
appraisers  shall  consider  the  assets  and  liabilities of the mutual
insurer and any factors bearing on the value of the  mutual  insurer  or
its affiliates. The appraisers shall receive reasonable compensation and
be  reimbursed  for  reasonable  expenses  incurred in discharging their
duties. The appraisers may, as necessary, employ consultants  to  advise
them on any technical matters.
(d)  The  superintendent  shall make copies of such examination report
and appraisal report available to the board of directors within  fifteen
days of the superintendent's receipt of the reports. After receiving the
reports, the superintendent may grant or deny permission to the board of
directors  to  submit  to  the  superintendent  a plan of conversion. If
permission is granted, the plan shall include  the  provisions,  and  be
submitted in the manner and under the conditions, required by subsection
(e)  of  this section. If permission is denied, the superintendent shall
make a written statement of the superintendent's findings and the  board
shall  have  the  right  to  a  hearing before the superintendent within
thirty days of the date of denial.
(e)(1) In order for the conversion to proceed:
(A) the plan must be adopted by a majority of the entire board;
(B) the plan must be signed by the president and attested  to  by  the
secretary,  or  officers  corresponding  to  either  of  them, under the
corporate seal of the insurer; and
(C) a copy of the plan and resolution, both certified by such officers
as true under the penalties  of  perjury  and  under  the  seal  of  the
insurer,  shall  be  submitted  to  the  superintendent  not  later than
forty-five days after permission was granted  under  subsection  (d)  of
this section.
(2) The plan shall include:
(A)  the  proposed  charter  and  by-laws  of  the  insurer as a stock
corporation set out in accordance with paragraph five of subsection  (a)
of section one thousand two hundred one of this chapter;
(B) the manner of treating a holder of an agreement subject to section
one thousand three hundred seven of this chapter, if any; the holder, if
otherwise  qualified, may, at its option, exchange such agreement for an
equitable share of the securities or other consideration,  or  both,  of
the corporation into which the insurer is to be converted.
(C)(i)  the manner and basis of exchanging the equitable share of each
eligible mutual policyholder's membership interests  for  securities  or
other  consideration,  or  both, of the stock corporation into which the
mutual insurer is to be converted and the disposition of  any  unclaimed
shares.
(ii)  The plan shall also provide that each person who had a policy of
insurance in effect at any time during the three-year period immediately
preceding the date of adoption of the resolution described in subsection
(b) of this section shall be entitled to receive  in  exchange  for  the
equitable  share,  without  additional payment, consideration payable in
voting common shares of the insurer or other consideration, or both. The
equitable share of the policyholder  in  the  mutual  insurer  shall  be
determined  by  the  ratio  that  the  net premiums (gross premiums less
return premiums and dividend paid) such policyholder  has  properly  and
timely  paid  to  the insurer on insurance policies in effect during the
three years immediately preceding the adoption of the resolution by  the
board  of  directors  under  subsection (b) of this section bears to the
total net premiums received by the mutual  insurer  from  such  eligible
policyholders.  In computing a policyholder's equitable share, no credit

shall be given for any net premiums which  result  from  an  endorsement
which is effective on or after the date of adoption of the resolution.
(iii)  Notwithstanding item (ii) of this subparagraph, credit shall be
given for any net premiums resulting  from  an  audit  or  retrospective
premium  adjustment  that is billed within one hundred eighty days after
the date of adoption of the resolution described in  subsection  (b)  of
this section, provided the premium is paid timely.
(iv)  If the equitable share of the eligible policyholder entitles the
policyholder to the  purchase  of  a  fractional  share  of  stock,  the
policyholder  shall  have  the  option  to  receive  the  value  of  the
fractional share in cash or purchase a full share by paying the  balance
in cash;
(D)  the  number of voting common shares proposed to be authorized for
the stock corporation, their par value and the price at which they shall
be offered, which price may not exceed one-half of the median  equitable
share  of  all  policyholders  under  item  (ii)  of subparagraph (C) of
paragraph two of this subsection.
(E) any other information or other item that  the  superintendent  may
require.
(f)  The  mutual  insurer  shall give prompt notice to all persons who
become policyholders or holders of agreements  subject  to  section  one
thousand three hundred seven of this chapter on or after the date of the
adoption  of the resolution described in subsection (b) of this section.
The notice shall specify the pendency of a proposed conversion  and  the
effect the conversion shall have on them.
(g) The superintendent shall hold a public hearing, adequate notice of
which  shall be mailed by the mutual insurer to each policyholder on the
day preceding the date  of  adoption  of  the  resolution  described  in
subsection  (b)  of  this  section, accompanied by a copy of the plan of
conversion and any comment the superintendent  considers  necessary  for
the  adequate information of the policyholders. The mutual insurer shall
also immediately cause the notice  to  be  posted  on  its  website.  In
addition,  the  mutual  insurer  shall  give  notice  of  the hearing by
publication in a newspaper of general circulation in the county in which
the mutual insurer has its principal  office  and  in  the  two  largest
cities  in  each  state  in which the insurer has underwritten insurance
within the five  years  preceding  the  date  of  the  adoption  of  the
resolution described in subsection (b) of this section. The notice shall
be  accompanied  by a summary approved by the superintendent of the plan
and any comment the superintendent considers necessary for the  adequate
information of former policyholders and the public.
(h)  (1)  After the hearing, the superintendent shall approve the plan
as submitted, refuse to approve the plan, or request modification of the
plan before granting approval. The superintendent may approve  the  plan
unless  the superintendent finds that the plan violates this chapter, is
inconsistent with law, or is not fair  and  equitable  or  in  the  best
interests  of  the  policyholders  and the public. If the superintendent
finds that the plan does not meet the foregoing standards for  approval,
the  superintendent shall either refuse to approve the plan and the plan
shall become null and void or return the plan to the mutual insurer  for
modification to meet the superintendent's stated objections.
(2)  If  within  ninety  days  after  receipt  of the superintendent's
request for modifications the mutual insurer does not submit an  amended
plan   satisfactory   to   the   superintendent   and   that  meets  the
superintendent's  objections  and  complies  with  the   standards   for
approval, the plan shall become null and void.
(i)  After  approval by the superintendent the plan shall be submitted
to a vote of the persons who were policyholders of the mutual insurer on

the day preceding the date of adoption of the  resolution  described  in
subsection  (b) of this section. The plan shall provide for proxy voting
in a manner to be prescribed by  the  superintendent.  The  board  shall
submit  the  question  of  the  plan  to  the policyholders at a meeting
thereof, by causing a full, true and correct copy or a  summary  thereof
approved  by the superintendent, together with notice, stating the time,
place and purpose  of  the  meeting,  to  be  delivered  personally,  or
deposited  in  the  post  office,  postage prepaid, at least thirty days
(unless a shorter time, not less than  ten  days,  be  approved  by  the
superintendent)  prior  to the time fixed for such meeting, addressed to
each  policyholder  at  the  policyholder's  last  post  office  address
appearing  on  the  records  of  the  insurer  or other form of delivery
intended to encourage participation acceptable to the superintendent.
(j) Each such policyholder eligible to vote pursuant to subsection (i)
of this section shall be entitled to the  number  of  votes  as  may  be
provided  for  in  the  by-laws  of  the  mutual  insurer.  The votes of
two-thirds of all the votes cast by  policyholders  represented  at  the
meeting  in person or by proxy, or by such other means acceptable to the
superintendent intended to encourage participation, shall  be  necessary
for  the  adoption  of  the  plan.  Upon  the conclusion of the vote the
insurer shall submit to the superintendent a certified copy of the  plan
voted  on  together  with a certificate setting forth the results of the
vote, both of which shall be subscribed by the president and attested by
the secretary, or officers corresponding to either of  them,  under  the
corporate seal of the mutual insurer, and affirmed by them as true under
the penalties of perjury.
(k)  If at any stage in the process of a conversion under this section
the superintendent finds that the mutual insurer is impaired or that the
further transaction of business by the mutual insurer will be  hazardous
to  its  policyholders,  its  creditors,  or  the  public,  the proposed
conversion shall terminate.
(l) If the conversion plan is adopted pursuant to  subsection  (j)  of
this  section, the superintendent, upon being satisfied that the insurer
will have at least the  minimum  capital  and  surplus  required  to  be
maintained  for  a newly organized domestic stock insurer doing the same
kinds of insurance, shall issue a new certificate of  authority  to  the
insurer,  thereby converting the mutual insurer into a stock insurer. At
the same time, the superintendent may  issue  such  license  as  may  be
required  pursuant  to  section  one  thousand  two hundred four of this
chapter.
(m) Upon the conversion, the stock insurer shall give  notice  thereof
by  publication  in  a newspaper of general circulation in the county in
which the insurer has its principal office and in the two largest cities
in each state in which the insurer shall be licensed to do business.  In
addition,  the  stock insurer shall also immediately cause the notice to
be posted on its website. The notice shall include a correct copy of the
plan, or a summary thereof approved by the superintendent.
(n) Upon the conversion of the mutual insurer  in  the  manner  herein
provided,  all the rights, franchises and interests of the former mutual
insurer, in and to every species of property, real, personal and  mixed,
and things in action thereunto belonging, shall be deemed as transferred
to  and vested in the stock insurer, without any other deed or transfer;
and simultaneously therewith  such  company  shall  be  deemed  to  have
assumed  all  of  the  obligations  and liabilities of the former mutual
insurer.
(o) No action or proceeding, pending at the time of the conversion  to
which  the mutual insurer may be a party shall be abated or discontinued
by reason of such conversion, but the same may be  prosecuted  to  final

judgment in the same manner as if the conversion had not taken place, or
the  stock corporation may be substituted in place of the mutual insurer
by order of the court in which the action or proceeding may be pending.
(p) The directors and officers of the mutual insurer shall serve until
new directors and officers have been duly elected and qualified pursuant
to the charter and by-laws of the stock insurer.
(q)  The  insurer,  whether  before  or after conversion, shall pay no
compensation of any kind to any person other than  regular  salaries  to
existing  personnel,  in  connection with the proposed conversion, other
than  for  clerical  and  mailing  expenses,  except  that,   with   the
superintendent's  approval,  payment may be made at reasonable rates for
printing costs, and for legal and other professional fees  for  services
actually  rendered.  All  expenses  of  the  conversion,  including  the
expenses incurred by the department, shall be borne by the insurer.
(r) No voting common shares  shall  be  subscribed  by  or  issued  to
persons  other  than  eligible  policyholders  or  holders of agreements
subject to section one thousand three  hundred  seven  of  this  chapter
until  all subscriptions by such policyholders or agreement holders have
been filled or other consideration has been provided in accordance  with
the  plan. Thereafter, any new issue of common shares within three years
after the conversion shall first be offered  to  the  persons  who  have
become  voting  common  shareholders, pursuant to subsection (e) of this
section in proportion to their holdings of such shares.
(s) No insurer becoming a domestic stock insurer under the  provisions
of this section shall:
(1) for a period of ten years after conversion, redomesticate directly
or indirectly or remove its principal offices from within the state; or
(2) for a period of five years after conversion:
(A)  enter  into  any  agreement  by  the  terms  of which any person,
partnership or corporation agrees  to  pay  all  or  a  portion  of  the
expenses  of management of the insurer in consideration of the insurer's
agreement to pay such person  or  other  entity  either  commissions  on
premiums due the insurer or any other compensation for services, or
(B)  enter  into  any  agreement  with  an  officer or director of the
insurer or with any firm or corporation in which any officer or director
of the insurer is pecuniarily interested, directly or indirectly,  under
which  agreement  the  insurer  agrees  to  pay,  for the acquisition of
business, any commissions or other compensation that  by  the  terms  of
such  agreement  varies  with  the  amount  of  the business or with the
earnings of the insurer on the business.
(t) Nothing in this section shall in any  way  impede  or  impair  the
exercise  by  the superintendent of the superintendent's authority under
any other provision of this chapter.