CHAPTER 825. CONVERSION OF STOCK INSURANCE COMPANY TO MUTUAL INSURANCE COMPANY
INSURANCE CODE
TITLE 6. ORGANIZATION OF INSURERS AND RELATED ENTITIES
SUBTITLE B. ORGANIZATION OF REGULATED ENTITIES
CHAPTER 825. CONVERSION OF STOCK INSURANCE COMPANY TO MUTUAL
INSURANCE COMPANY
SUBCHAPTER A. GENERAL PROVISIONS
Sec. 825.001. DEFINITIONS. In this chapter:
(1) "Converting company" means a stock insurance company that
converts to a mutual insurance company under this chapter.
(2) "Resulting company" means a mutual insurance company to
which a stock insurance company converts under this chapter.
(3) "Stock acquisition plan" means a converting company's plan
for the acquisition of shares of its capital stock.
Added by Acts 2001, 77th Leg., ch. 1419, Sec. 1, eff. June 1,
2003.
Sec. 825.002. AUTHORITY TO CONVERT TO MUTUAL INSURANCE COMPANY.
(a) A domestic stock insurance company, as defined by law, may
convert to a mutual insurance company.
(b) To convert to a mutual insurance company, a stock insurance
company must implement a plan for the acquisition of shares of
its capital stock.
(c) In implementing a stock acquisition plan under this chapter,
a converting company may acquire shares of its stock by gift,
bequest, or purchase.
Added by Acts 2001, 77th Leg., ch. 1419, Sec. 1, eff. June 1,
2003.
SUBCHAPTER B. STOCK ACQUISITION PLAN
Sec. 825.051. CONTENTS OF STOCK ACQUISITION PLAN. (a) A stock
acquisition plan must:
(1) be adopted by a vote of a majority of the directors of the
corporation at a directors' meeting called for that purpose;
(2) be approved by a vote of shareholders representing a
majority of the capital stock at a meeting of shareholders called
for that purpose;
(3) enable each shareholder to dispose of the same proportion of
the shareholder's holdings at the same price per share and on the
same terms as any other shareholder;
(4) be approved by a vote of the majority of the policyholders
eligible under Section 825.054 to participate at a meeting of the
policyholders called for that purpose; and
(5) be submitted to the commissioner and approved by the
commissioner in writing.
(b) If the purchase price for the company's acquisition of
shares of its capital stock is not set by the stock acquisition
plan, each payment for those shares is subject to the
commissioner's approval.
Added by Acts 2001, 77th Leg., ch. 1419, Sec. 1, eff. June 1,
2003.
Sec. 825.052. SUFFICIENT ASSETS REQUIRED. The commissioner may
not approve a stock acquisition plan or a payment for stock under
Section 825.051(b) unless, at the time of the approval, the
company has assets equal to at least $500,000 more than the
entire liability of the company, including the net values of its
outstanding contracts computed as required by law, and all funds
and contingent reserves, after deducting:
(1) the aggregate amount allocated by the plan for the
acquisition of any part or all of its capital stock, to be paid
in cash or other assets of the company; and
(2) the amount of any payment not set by the plan and subject to
separate approval by the commissioner after the approval of the
plan.
Added by Acts 2001, 77th Leg., ch. 1419, Sec. 1, eff. June 1,
2003.
Sec. 825.053. STOCK ACQUISITION PLAN APPROVAL. A policyholders'
meeting for approval of a stock acquisition plan may not be
called until Sections 825.051(a)(1) and (2) are satisfied.
Added by Acts 2001, 77th Leg., ch. 1419, Sec. 1, eff. June 1,
2003.
Sec. 825.054. POLICYHOLDER ELIGIBILITY. To be eligible to
participate in a policyholders' meeting held to approve a stock
acquisition plan, a policyholder must have insurance coverage
issued by the converting company that:
(1) is in the amount of at least $1,000;
(2) is in force on the date of the policyholders' meeting; and
(3) has been in force for at least one year before the date of
the policyholders' meeting.
Added by Acts 2001, 77th Leg., ch. 1419, Sec. 1, eff. June 1,
2003.
Sec. 825.055. POLICYHOLDERS' MEETING. (a) A converting company
shall give notice of the policyholders' meeting to each eligible
policyholder.
(b) The notice must be mailed from the home office of the
converting company not later than the 31st day before the
scheduled date of the meeting in a sealed envelope, postage
prepaid, to the policyholder at the policyholder's last known
mailing address.
(c) The policyholders' meeting shall be conducted in the manner
provided by the stock acquisition plan.
(d) The commissioner shall supervise and direct the procedure of
the policyholders' meeting. The converting company shall pay all
necessary expenses incurred by the commissioner as certified by
the commissioner.
Added by Acts 2001, 77th Leg., ch. 1419, Sec. 1, eff. June 1,
2003.
Sec. 825.056. POLICYHOLDER VOTING. (a) A policyholder may vote
in person, by proxy, or by mail. All votes must be cast by
ballot.
(b) The commissioner shall appoint an adequate number of
inspectors to conduct the voting at the policyholders' meeting.
(c) The inspectors determine all questions concerning the
verification of the ballots, the validity of the ballots, the
qualification of the voters, and the canvass of the vote and
shall certify the results to the commissioner and the converting
company.
(d) An inspector shall act under rules prescribed by the
commissioner.
Added by Acts 2001, 77th Leg., ch. 1419, Sec. 1, eff. June 1,
2003.
SUBCHAPTER C. ACQUISITION OF SHARES
Sec. 825.101. ISSUANCE OF ANNUITY BONDS IN PAYMENT OF STOCK.
(a) A stock acquisition plan may provide that all or part of the
purchase price of any part or all of the shares of stock of a
converting company that are acquired by the company under the
plan may be paid by the company through the issuance of annuity
bonds payable in annual amounts and for the term provided by the
plan.
(b) Each annuity bond issued under Subsection (a) must expressly
provide, on the face of the bond, that the bond is payable only
out of the surplus of the converting company remaining after all
liabilities, including reserves, are provided for and is not
otherwise a liability or claim against the converting company or
any of its assets, as provided by Section 882.253.
(c) Not more than three-fourths of the net earnings of the
converting company during any calendar year may be used or
applied to the payment of the annuity bonds.
(d) On the approval of the commissioner, the company issuing the
annuity bonds or any life insurance company may invest its funds
in the annuity bonds. The investment in the annuity bonds may not
at any time exceed 10 percent of the company's total admitted
assets.
Added by Acts 2001, 77th Leg., ch. 1419, Sec. 1, eff. June 1,
2003.
Sec. 825.102. ACQUISITION IN TRUST. (a) Until all of the
shares of a converting company are acquired, any shares acquired
under the stock acquisition plan shall be held in trust for the
policyholders of the converting company by three trustees
appointed as provided by the stock acquisition plan.
(b) Each appointee must file with the converting company a
verified acceptance of the appointment and a declaration that the
appointee will faithfully discharge the appointee's duties.
(c) The shares shall be assigned and transferred on the books of
the converting company to the trustees. The trustees shall vote
the shares at each meeting at which shareholders are entitled to
vote, until all the capital stock of the converting company is
canceled under Section 825.104.
(d) After paying the necessary expenses of executing the trust,
the trustees shall immediately pay all dividends and other
amounts received on the shares of stock acquired under Section
825.101 to the converting company for the benefit of those who
are or become policyholders of the resulting company entitled to
participate in the profits of the resulting company.
(e) All amounts received by the converting company under
Subsection (d) shall be added to the surplus earned by the
resulting company and accordingly are apportionable as a part of
the surplus among the resulting company's policyholders.
(f) A vacancy among the trustees shall be filled as provided by
the stock acquisition plan.
Added by Acts 2001, 77th Leg., ch. 1419, Sec. 1, eff. June 1,
2003.
Sec. 825.103. DISTRIBUTION OF DIVIDENDS. After conversion, the
converting company shall annually distribute among its
policyholders, under terms approved by the commissioner,
dividends or earnings accruing to the converting company as the
result of the acquisition of shares of the converting company's
stock under this chapter.
Added by Acts 2001, 77th Leg., ch. 1419, Sec. 1, eff. June 1,
2003.
Sec. 825.104. CONVERSION COMPLETE ON CANCELLATION OF STOCK;
APPLICATION OF CERTAIN LAWS. (a) When the converting company
acquires all of its capital stock and the purchase price for that
stock, including any annuity bond issued for the purchase of the
stock, is paid in full, the stock shall be canceled.
(b) On cancellation of the stock, the converting company becomes
a mutual insurance company without capital stock and is subject
to the laws of this state governing mutual insurance companies.
Added by Acts 2001, 77th Leg., ch. 1419, Sec. 1, eff. June 1,
2003.