Section 7307. Conversion of domestic mutual property/casualty insurance companies or advance premium corporations into domestic stock property/casualty insurance companies; insurers not in rehabilitation

(a) In this article:
    (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  property/casualty  insurance  company  organized  under  article
  twelve  of  this  chapter  and  licensed under article forty-one of this
  chapter,  or  a  domestic  advance  premium  corporation  organized  and
  licensed  under  article  sixty-six  of  this  chapter,  in  either case
  authorized to issue non-assessable policies only and not operating under
  an order of rehabilitation.
    (4) A "holder of a section 1307 agreement"  means  the  holder  of  an
  agreement  executed pursuant to section one thousand three hundred seven
  of this chapter.
    (b) A domestic mutual insurer may  apply  to  the  superintendent  for
  permission  to  convert  into a domestic stock property/casualty insurer
  complying with the relevant organization  and  licensing  provisions  of
  articles  twelve  and  forty-one 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, shall accompany the
  application. The superintendent may thereafter  request  any  additional
  documents  and  information  which he may reasonably require. Unless the
  superintendent finds that:
    (1) the resolution is defective upon its face;
    (2) the proposed conversion is contrary to law or is not in  the  best
  interests of the policyholders or the public; or
    (3)  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,
  in   which   cases   the   proposed   conversion  shall  terminate,  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  its  latest filed statement. The superintendent may
  also examine any affiliate of the mutual insurer.
    (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. Such  persons
  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. They  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 his receipt of the reports. After  receiving  such  reports  the
  superintendent may grant or deny permission to the board of directors to
  submit  to  him 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) hereof. If permission is
  denied, the  superintendent  shall  make  a  written  statement  of  his
  findings  and  the  board  shall  have the right to a hearing before the
  superintendent within thirty days of the date of denial.
    (e) Such plan shall be adopted by a majority of the entire  board.  It
  shall  be  signed  by  the  president  and attested by the secretary, or
  officers corresponding to either of them, under the  corporate  seal  of
  the  insurer.  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)
  hereof. The plan shall include:
    (1)  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.
    (2)  The  manner  of treating a holder of a section 1307 agreement, if
  any; such 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.
    (3)  The  manner  and  basis of exchanging the equitable share of each
  eligible mutual policyholder 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.  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) hereof  shall  be
  entitled  to  receive  in  exchange  for  such  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
  which 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) hereof 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; except that credit shall be
  given for any net premiums resulting  from  an  audit  or  retrospective
  premium  adjustment which is billed within one hundred eighty days after
  such date, provided such premium is paid timely. If the equitable  share
  of  the eligible policyholder entitles such 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.
    (4) 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 paragraph three hereof.
    (5) Any other features requested by the superintendent.

    (f) Prompt notice shall be given by the mutual insurer to all  persons
  who  become  policyholders  or  holders of section 1307 agreements on or
  after the date of the adoption of the resolution described in subsection
  (b) hereof, of the pendency of a proposed conversion and of  the  effect
  thereof on them.
    (g) The superintendent shall hold a public hearing, adequate notice of
  which  shall  be  mailed  by the mutual insurer to each person who was a
  policyholder on the day preceding the date of adoption of the resolution
  described in subsection (b) hereof, accompanied by a copy of the plan of
  conversion and any comment the superintendent  considers  necessary  for
  the  adequate information of the policyholders. In addition, the insurer
  shall give notice of the  hearing  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
  has underwritten insurance within the five years preceding the  date  of
  the  adoption of the resolution described in subsection (b) hereof; such
  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. If the superintendent finds that the plan
  does not violate this chapter, is not inconsistent with law, is fair and
  equitable  and  is  in  the  best interests of the policyholders and the
  public, he shall approve such plan. If the superintendent finds that the
  plan does not meet the foregoing standards for approval he 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  his
  stated objections.
    (2)  If  within  ninety  days  after  receipt  of the superintendent's
  request for modifications the insurer  submits  an  amended  plan  which
  meets  the  superintendent's  objections and complies with the standards
  for approval he shall approve such amended plan.
    (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) hereof. 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 such 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 such 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 such policyholder
  at his last post office address appearing on the records of the insurer.
    (j) Each such policyholder eligible to vote pursuant to subsection (i)
  hereof shall be entitled to such 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, 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 insurer, and affirmed by
  them as true under the penalties of perjury.

    (k)  No  domestic mutual insurer which is affiliated with other mutual
  companies may be converted to a stock company unless all such affiliated
  companies are converted to stock companies at the same time,  except  to
  the  extent  the  superintendent may determine that the interests of the
  policyholders  of  any  of the other mutual companies can be permanently
  protected  by  limitations  on  the  corporate  powers  of   the   stock
  corporation or on its authority to do business.
    (l)  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 will be hazardous to its  policyholders,
  its creditors, or the public, the proposed conversion shall terminate.
    (m)  If  the  conversion  plan  is  adopted pursuant to subsection (j)
  hereof, 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.
    (n) Upon such 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. The
  notice shall include a correct copy of the plan, or  a  summary  thereof
  approved by the superintendent.
    (o)  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.
    (p)  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 such mutual insurer
  by order of the court in which the action or proceeding may be pending.
    (q) 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.
    (r) 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  insurance department, shall be borne by the
  insurer.
    (s) No voting common shares  shall  be  subscribed  by  or  issued  to
  persons  other  than  eligible  policyholders or holders of section 1307
  agreements 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) hereof in proportion to their holdings of such shares.
    (t)  No insurer becoming a domestic stock insurer under the provisions
  of this section shall: for a  period  of  ten  years  after  conversion,
  redomesticate  directly  or  indirectly  or remove its principal offices
  from within the state; or for a period of five years after conversion:
    (1) 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  him  or  it  either  commissions on premiums due the
  insurer or any other compensation for his or its services, or
    (2) 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 which by the terms of
  such agreement varies with the amount  of  such  business  or  with  the
  earnings of the insurer on such business.
    (u)  Any action taken pursuant to the provisions of this section shall
  in no way impede or impair the exercise by  the  superintendent  of  his
  authority under any other provision of this chapter.