Section 611.76. Conversion of a domestic mutual into a stock corporation.

 

(1)   Conversion permitted.

(a) General. Except under par. (b) , a domestic mutual may be converted into a domestic stock corporation under subs. (2) to (11) .

(b) Conversion of related insurers. No domestic mutual that is affiliated with other mutuals may be converted into a stock corporation, unless all such affiliated mutuals are also converted at the same time, or the commissioner finds that the interests of the policyholders of the remaining mutuals can be permanently protected by limitations on the corporate powers of the new stock corporation or on its authority to do business, or otherwise.

(c) Conversion and merger. A domestic mutual may adopt a plan of acquisition or merger as part of a plan of conversion under this section. The commissioner shall approve the plan of acquisition or merger as part of the plan of conversion unless grounds for disapproval exist under s. 611.72 (3) (am) .

(2)   Resolution by the board. The board shall pass a resolution to the effect that such conversion is in the best interests of the policyholders. The resolution shall specify the reasons for and the purposes of the proposed conversion, and the manner in which the conversion is expected to benefit policyholders.

(3)   Investigation by commissioner.

(a) Application. The board shall file with the commissioner the resolution and any additional documents and information he or she reasonably requires, whereupon the commissioner shall order examination and appraisal of the corporation, unless he or she finds that:

1. The resolution is defective upon its face; or

2. The reason for or the purposes of the proposed conversion are contrary to law or to the interests of the policyholders or the public.

(b) Examination. The commissioner shall cause to be made an examination of the company under s. 601.43 to determine its financial condition and whether it is operated in accordance with the law.

(c) Appraisal. The commissioner shall appoint an appraisal committee, consisting of at least 3 qualified and disinterested persons with differing kinds of training, to determine the value of the corporation as of the date of the resolution in sub. (2) or, if sub. (4m) applies, as of the date of conversion. Members of the committee shall receive reasonable compensation and shall be reimbursed for reasonable expenses in discharging their duties. They may, as reasonably necessary, employ consultants to advise them on technical problems of the appraisal. The appraisal committee shall consider the assets and liabilities of the corporation, adjusting liabilities to take account of the amounts of any reserves in excess of or below realistic estimates, the value of the marketing organization, the value of goodwill, the going-concern value and any other factor having an influence on the value of the corporation, including, in the case of a mutual life insurance company, the estimated amount needed to continue to maintain dividend scales on policies under s. 632.62 (4) (b) at the same level after conversion as before conversion.

(d) Presumption. In a proceeding under this section, any report adopted by an appraisal committee under par. (c) or examination report concerning the domestic mutual or its affiliate is admissible as evidence and the facts asserted in the reports are presumed to be true.

(4)   Plan of conversion. The board may adopt a plan of conversion, which, unless sub. (4m) applies, shall specify:

(a) The number of shares proposed to be authorized for the new stock corporation, their par value and the price at which they will be offered to policyholders, which price may not exceed one-half of the median equitable share of all policyholders under par. (b) ;

(b) That each person who has been a policyholder and has paid premiums within 5 years prior to the resolution under sub. (2) shall be entitled without additional payment to so much common stock of the new stock corporation as his or her equitable share of the value of the converting corporation will purchase; that the equitable share shall be determined by the ratio which the net premium (gross premium less return premium and dividends paid) he or she has paid to the corporation during the 5 years immediately preceding the resolution under sub. (2) bears to the total net premiums received by the corporation during the same period; and that, if the equitable share is sufficient only for the purchase of a fraction of a share of stock, the policyholder shall have the option either to receive the value of the fractional share in cash or to purchase a full share by paying the balance in cash;

(bm) Notwithstanding par. (b) , that each person who was a policyholder of a mutual life insurance company on the date of the resolution under sub. (2) or within 5 years prior to that date shall be entitled to an equitable share based on a formula which fairly reflects the policyholder's interest in the company and the policies and contracts issued by the company to the policyholder, and which takes into account premiums paid, cash surrender values, policy loans, reserves, surplus, benefits payable and other relevant factors; and that the equitable share shall be provided to the policyholders on a uniform basis approved by the commissioner in the form of common stock, cash, increased benefits, lower premiums or a combination of those forms;

(c) The procedure for stock subscriptions which shall include a written offer to each such policyholder indicating his or her individual equitable share and the terms of subscription;

(d) That no common stock under par. (b) or (dm) may be issued to persons other than the policyholders under par. (b) or the corporation under par. (dm) until all subscriptions by the policyholders and corporation, respectively, have been filled and that thereafter any new issue of stock for 5 years after the conversion shall first be offered to the persons who have become shareholders under par. (b) or (dm) in proportion to their interests under par. (b) or (dm) ;

(dm) Notwithstanding par. (b) , whether the shares of common stock representing the equitable shares of the policyholders of a mutual life insurance company may, with the approval of the commissioner, be issued to a corporation organized under ch. 180 with the policyholders to be stockholders of the corporation and, if so issued, that each policyholder is entitled to his or her equitable share calculated under par. (bm) in shares of common stock of the corporation;

(e) That no policyholder, other than a policyholder of a mutual life insurance company, may receive a distribution of shares valued in excess of the amount to which he or she is entitled under s. 645.72 (4) . Any excess over that amount shall be distributed in shares to the state treasury for the benefit of the common school fund. After 5 years the shares may be sold by the secretary of administration at his or her discretion and the proceeds credited to the common school fund; and

(f) Except with the approval of the commissioner, that during the first 5 years after the conversion the directors and officers of a mutual life insurance company and persons acting in concert with them may not, in the aggregate, acquire control over more than 5 percent of the common stock of the converted stock life insurance company, the corporation formed under par. (dm) or any other corporation which acquires control of more than 5 percent of the common stock of either the converted stock life insurance company or the corporation formed under par. (dm) .

(4m)   Insurers in financially hazardous condition; plan of conversion. If grounds exist under s. 645.41 (2) or (4) for rehabilitation or liquidation of a domestic mutual or are reasonably expected to exist within one year, the board may adopt a plan of conversion which shall specify all of the following:

(a) That each person who has been a policyholder and has paid premiums within 5 years prior to the date the resolution is adopted under sub. (2) is entitled to receive his or her equitable share of the value of the domestic mutual, adjusted to reflect the condition of the domestic mutual immediately prior to the date of conversion; that the equitable share shall be determined by the ratio that the net premium paid by the policyholder during the 5 years immediately preceding the date of the adoption of the resolution under sub. (2) bears to the total net premium received by the domestic mutual during that period, unless the commissioner approves another method of determining equitable shares with the net premium to be calculated as gross premium less premium returned and dividends paid to policyholders; that each policyholder's equitable share may be distributed in any form including securities of the insurer or another person, debt instruments, property or cash; and that the value of the domestic mutual will be finally determined immediately prior to the date of conversion and with the approval of the commissioner.

(b) Any person who will, under the plan of conversion, acquire control of the domestic stock corporation and the manner in which this will occur.

(c) That sufficient capital will be contributed or other measures taken to remove any grounds for liquidation under s. 645.41 (2) or (4) and to reasonably assure that those grounds will not exist within the 5 years immediately following the date of conversion.

(5)   Application for approval. The plan of conversion shall be submitted to the commissioner for approval, together with:

(a) The proposed articles and bylaws of the new stock corporation which shall comply with s. 611.12 ;

(b) So much of the information specified in s. 611.13 (2) as the commissioner reasonably requires;

(c) A projection of the planned or anticipated financial situation of the new corporation for 5 years after the conversion.

(6)   Hearing.

(a) The commissioner shall hold a hearing after receipt of a plan of conversion, notice of which shall be mailed to the last-known address of each person who was a policyholder of the corporation on the date of the resolution under sub. (2) , together with a copy of the plan of conversion or a copy of a summary of the plan, if the commissioner approves the summary, and any comment the commissioner considers necessary for the adequate information of policyholders. If the plan of conversion is submitted under sub. (4m) , the hearing shall be held not less than 10 days nor more than 30 days after notice is mailed. Failure to mail notice to a policyholder does not invalidate a proceeding under this section if the commissioner determines the domestic mutual has substantially complied with this subsection and has attempted in good faith to mail notice to all policyholders entitled to notice.

(b) With regard to a mutual life insurance company, the notice, the plan or a summary of the plan, and any comments under par. (a) shall also be mailed to the commissioner of every jurisdiction in which the mutual life insurance company is authorized to do any business.

(c) Any policyholder under par. (a) and any commissioner under par. (b) may present written or oral statements at the hearing and may present written statements within a period after the hearing specified by the commissioner. The commissioner shall take statements presented under this paragraph into consideration in making the determination under sub. (7) .

(7)   Approval by commissioner.

(a) The commissioner shall approve the plan of conversion unless he or she finds that the plan violates the law or is contrary to the interests of policyholders or the public.

(b) In determining the interests of the policyholders and the public, the commissioner shall consider whether the reorganization would be detrimental to the safety and soundness of the insurer or the contractual rights and reasonable expectations of the persons who are policyholders on or before the effective date of the reorganization. The commissioner shall also take into consideration any conclusions and recommendations on the subject of such reorganizations published by recognized organizations of professional life insurance actuaries. The commissioner may by rule establish standards applicable to such reorganizations.

(8)   Approval by policyholders. After approval under sub. (7) , the conversion plan shall be submitted to a vote of the persons who were policyholders of the mutual on the date of the resolution under sub. (2) .

(9)   Conversion. If the policyholders approve the conversion under sub. (8) , the commissioner shall issue a new certificate of authority. The issuance of the certificate is the act of conversion, the mutual at once becomes a stock corporation and is no longer a mutual. The stock corporation shall be deemed to have been organized at the time the converted mutual was organized. The directors, officers, agents and employees of the mutual shall continue in like capacity with the stock corporation.

(10)   Expenses. The corporation may not pay 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 commissioner'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 commissioner and the prorated salaries of any insurance office staff members involved, shall be borne by the corporation being converted.

(11)   Security regulation. The filing with the division of securities of a certified copy of the plan of conversion as approved by the commissioner constitutes registration under s. 551.305 of the securities authorized to be issued thereunder.

1971 c. 260 ; 1979 c. 102 ss. 107 , 236 (5) , (13); 1981 c. 314 ; 1983 a. 192 , 215 ; 1985 a. 29 , 215 ; 1995 a. 27 ; 1997 a. 79 ; 1999 a. 85 ; 2003 a. 33 ; 2007 a. 196 ; 2013 a. 279 .