Captive Insurers

Allows conversion or merger of captive insurers; provides
procedures and requirements for conversion or merger.

THE SENATE                              S.B. NO.           2278
TWENTIETH LEGISLATURE, 2000                                
STATE OF HAWAII                                            

                   A  BILL  FOR  AN  ACT



 1      SECTION 1.  The legislature finds that a merger of two
 2 captive insurers to form a surviving captive insurer or a
 3 conversion of a captive insurer into another corporate form
 4 would promote the public interest by enhancing the flexibility of
 5 a captive insurance company to change its corporate form.  Under
 6 current law, a captive insurer that is organized as a stock,
 7 mutual, or reciprocal company must dissolve and re-incorporate to
 8 convert to another corporate form.  The legislature further finds
 9 that this should not be necessary since a captive insurer serves
10 a parent company or association rather than the general public.
11      The purpose of this Act is to create an insurance regulatory
12 mechanism for two captive insurance companies to merge or for a
13 captive insurer to convert into another corporate form while
14 preserving the regulatory mechanisms and protecting the public
15 interest.
16      SECTION 2.  Chapter 431, article 19, Hawaii Revised
17 Statutes, is amended by adding a new section to be appropriately
18 designated and to read as follows:
19      "431:19-    Conversion or merger of captive insurers.  (a)

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                                     S.B. NO.           2278

 1 A captive insurance company under this article that is formed as
 2 a stock or mutual company, or as a reciprocal insurer under part
 3 IV of article 4 of chapter 431 may:
 4      (1)  Convert into another corporate form to become a
 5           converted insurer; or
 6      (2)  Merge with another captive insurance company under this
 7           article to form a surviving insurer.
 8      (b)  For purposes of subsection (a), a captive insurance
 9 company shall submit for approval to the insurance commissioner a
10 plan of conversion or merger, as applicable.  The plan submitted
11 shall meet the requirements of this subsection and subsections
12 (c) and (d).  The plan shall be submitted not less than ninety
13 days before the proposed effective date of the conversion or
14 merger.  The conversion or merger shall not take effect without
15 the approval of the insurance commissioner and shall be subject
16 to any further filings with the department of commerce and
17 consumer affairs under subsection (g).  The commissioner shall
18 not approve the conversion or merger unless the commissioner
19 finds that:
20      (1)  The merger or conversion is fair, equitable, consistent
21           with law, and promotes the general good of the State;
22           and
23      (2)  The converted or surviving insurer, as applicable:

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                                     S.B. NO.           2278

 1           (A)  Meets the requirements of its class under section
 2                431:19-104(c); and
 3           (B)  Is able to continue to transact business in the
 4                class of insurance in which it is licensed under
 5                under section 431:19-101.3.
 6      (c)  The plan of conversion or merger, as applicable, must
 7 have been approved:
 8      (1)  By not less than two-thirds of the shares, voting
 9           interests, or subscribers, as applicable:
10           (A)  At a duly called regular meeting or special
11                meeting at which a quorum is present of
12                shareholders or members, as applicable; or
13           (B)  At a duly called meeting of subscribers of a
14                reciprocal;
15           or
16      (2)  By unanimous written consent of shareholders, members,
17           or subscribers, as applicable.
18      (d)  The plan of conversion or merger, as applicable, shall
19 provide for the:
20      (1)  Conversion of existing stockholder, member, or
21           subscriber interest, as applicable, into equal or
22           proportionate interests in the converted or surviving
23           insurer, or another fair and equitable method and basis
24           for conversion of stockholder, member, or subscriber

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                                     S.B. NO.           2278

 1           interests;
 2      (2)  Purchase or other disposition of the shares,
 3           policyholder interests, or subscriber surplus account
 4           interests, as applicable, of any nonconsenting
 5           shareholder, policyholder, or subscriber of a stock
 6           insurer, mutual insurer, or reciprocal insurer, as
 7           applicable, in accordance with:
 8           (A)  The agreement with any nonconsenting stockholder,
 9                member, or subscriber, as applicable, or with the
10                articles or bylaws of the insurer relating to
11                buyback, buyout, or termination of stockholder,
12                member, or subscriber interests, as applicable; or
13           (B)  State law relating to the rights of dissenting
14                stockholders in the absence of an agreement;
15           and
16      (3)  Novation, assignment, transfer, runoff, or other
17           disposition of in-force policies insuring a
18           nonconsenting shareholder, member, or subscriber, as
19           applicable.
20      (e)  If a stock or mutual insurer converts to a reciprocal
21 insurer or merges with a reciprocal insurer in which the
22 reciprocal insurer is the surviving company, the stock or mutual
23 insurer shall include in its articles of amendment the fact of

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                                     S.B. NO.           2278

 1 the conversion or merger, the name of the surviving company, the
 2 effective date of the conversion or merger, and the name of the
 3 agent for service of process of the surviving company.  The
 4 surviving reciprocal insurer shall be subject to regulation by
 5 the insurance commissioner.
 6      (f)  The converted insurer or surviving insurer, as
 7 applicable, shall be liable to perform and satisfy all
 8 obligations and liabilities of the respective pre-conversion
 9 insurer or pre-merger insurer, as applicable.
10      (g)  Upon approval of the insurance commissioner under
11 subsection (b), the following procedures shall apply to
12 subsequent filing with the department of commerce and consumer
13 affairs:
14      (1)  If two reciprocal insurers merge, no filings shall be
15           necessary with the department of commerce and consumer
16           affairs; provided that a merger shall be effective on
17           the proposed date of merger upon approval of the
18           insurance commissioner under subsection (b);
19      (2)  Except for mergers under paragraph (1), pre-merger or
20           pre-conversion insurers, as applicable, shall file the
21           appropriate articles of amendment or articles of
22           merger, as applicable, with the department of commerce
23           and consumer affairs;

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                                     S.B. NO.           2278

 1      (3)  If a reciprocal insurer converts to a stock or mutual
 2           insurer, the reciprocal insurer shall file articles of
 3           incorporation to commence corporate existence of the
 4           company in the form of a stock or mutual insurer.
 5      Filings under this subsection shall comply with all other
 6 applicable requirements under this article or chapter 415 or
 7 415B.
 8      (h)  This section applies to a merger involving an alien or
 9 foreign insurer; provided that the surviving insurer qualifies
10 under this article and is approved by the insurance commissioner
11 to do business; and provided further that an alien stock or
12 mutual insurer shall be considered as a foreign corporation under
13 chapters 415 and 415B.
14      (i)  All other sections of this article shall apply to a
15 converted or surviving insurer under this section."
16      SECTION 3.  New statutory material is underscored.
17      SECTION 4.  This Act shall take effect upon its approval.
19                              INTRODUCED BY:______________________