§ 27-1-40 - Conversion to stock form of organization.
SECTION 27-1-40
§ 27-1-40 Conversion to stock form oforganization. – (a) Any mutual insurance company created under the laws of this state whichmeets or exceeds all capital and surplus funds required by law for thetransaction of business in Rhode Island may convert to and become an insurancecompany with a capital stock form of organization upon adoption of a plan ofconversion by two-thirds ( 2/3) vote of the board of directors or othergoverning body and approval of the plan by the director of the department ofbusiness regulation and the affirmative vote of one half ( 1/2) of its membersor policyholders present in person or by proxy at a meeting called by the boardof directors or other governing body. Unless otherwise provided in its charteror bylaws or plan of conversion, each member or policyholder shall have onevote, and in the case of any policy or contract of group life or other groupinsurance, the employer or other person to whom or in whose name the masterpolicy or contract has been issued shall be deemed to be the member orpolicyholder and shall be entitled to one vote for each policy or contract ofgroup insurance irrespective of the number of individuals insured. The plan ofconversion shall provide that the insurance company shall issue and sell thestock issued in connection with the conversion at a price which represents itspro forma market value, as determined by an independent appraisal, and shalloffer its stock, initially, in a subscription offering to the members orpolicyholders, individuals in the insurance company's management, and employeegroups of the insurance company on an eligibility record date established bythe board of directors, giving the members or policyholders, individuals in theinsurance company's management, and employee groups priority rights to purchasethe shares over the general public pro rata. The plan of conversion may providefor the establishment of accounts for the benefit of members or policyholderspursuant to which the converting insurance company shall provide for thecontinued maintenance of its dividend practices required by existing charter,bylaws, or policy provisions relative to its then existing lines of business,but assets in the account will be assets of the converting insurance company,subject to liabilities in the same manner and priority as all other assets ofthe company. The plan of conversion may provide for restrictions on the amountof stock which any person or entity may purchase in the conversion, or own orcontrol after this, which may also be incorporated into the stock charter oragreement of association of the converted entity.
(b) In connection with the conversion, the insurance companymay form a holding company or utilize an existing holding company to hold allthe shares of the converted entity, and offer to its members or policyholdersand the general public, subject to subscription rights in favor of members orpolicyholders as stated in subsection (a), all of the stock of the holdingcompany in lieu of the capital stock of the converting insurance company. Theconverting insurance company may, at the time of the conversion, merge anyinsurance company subsidiary into the capital stock entity resulting from theconversion, or cause the subsidiary to become a separate subsidiary of aholding company.
(c) The corporate existence of an insurance companyconverting to the stock form of organization shall not terminate, but theconverted institution shall be deemed to be a continuation of entity of theconverted insurance company.
(d) The director of the department of business regulation,upon finding that the requirements of this section and applicable regulationshave been met, that the terms and conditions of the plan are fair andequitable, and that the conversion has been completed with the sale of allshares offered in the conversion, shall issue a certificate of approval of theconversion to the converted entity. Upon the payment of fifty dollars ($50.00),the certificate of approval shall be filed in the office of the secretary ofstate, together with the certificate of the general treasurer that theconverted entity has paid into the treasury for the use of the state a sumequal to one-tenth of one percent (.1%) of the capital stock, but in no eventless than ten thousand dollars ($10,000). Upon the filing of the certificatewith the secretary of state and payment of fifty dollars ($50.00), thesecretary of state shall immediately record the certificate of approval andstock charter or agreement of association, then the stock charter or agreementof association will become effective.
(e) The director of the department of business regulation mayemploy staff personnel and professional consultants and other persons to assistin the review of the plan of conversion and may hold public hearings as, in thedirector's discretion, are desirable prior to granting approval of the plan ofconversion. All reasonable costs related to the review of the plan ofconversion, including the costs attributable to staff personnel andprofessional consultants, shall be borne by the insurance company filing a planof conversion for approval.
(f) The department of business regulation shall issue rulesand regulations implementing this section, which shall be administered by thedirector of the department of business regulation.
(g) To the extent not inconsistent with this section, eachinsurance company converted into a capital stock insurance company shall haveall the powers, privileges, including the right to merge, convert, or otherwiserestructure its corporate form upon a two-thirds ( 2/3) vote of itsstockholders and subject to any regulatory approval as required by law, andduties and liabilities imposed upon insurance companies generally under thelaws of this state, as applicable. Unless otherwise governed by the laws ofthis state specifically applicable to insurance companies, a capital stockentity converted pursuant to this section shall be subject to the generalprovisions of the Rhode Island Business Corporation Act, chapter 1.2 of title7, with respect to its corporate governance.