2012 -- S 2598

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LC01518

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STATE OF RHODE ISLAND

IN GENERAL ASSEMBLY

JANUARY SESSION, A.D. 2012

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A N A C T

RELATING TO INSURANCE --DOMESTIC INSURANCE COMPANIES

     Introduced By: Senators Lombardo, and Miller

     Date Introduced: March 01, 2012

     Referred To: Senate Corporations

It is enacted by the General Assembly as follows:

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     SECTION 1. Section 27-1-40.1 of the General Laws in Chapter 27-1 entitled "Domestic

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Insurance Companies" is hereby amended to read as follows:

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     27-1-40.1. Mutual insurance holding companies. -- (a)(1) Any domestic mutual

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insurance company, upon approval of the commissioner, created under the laws of this state

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(whether pursuant to § 7-1-5 or by special act of the general assembly) and any foreign mutual

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insurance company which has been domesticated or redomesticated pursuant to Chapter 2.2 of

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this title which meets or exceeds all capital and surplus funds required by law for the transaction

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of business in Rhode Island may, in any manner permitted by subsection (b) of this section,

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reorganize by forming a mutual insurance holding company based upon a plan of reorganization

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and continuing the corporate existence of the reorganizing insurance company as a stock

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insurance company. The commissioner, after a public hearing as provided in Rhode Island

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general laws subsection 27-35-2(d), if satisfied that the interests of the policyholders are properly

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protected and that the plan of reorganization is fair and equitable to the policyholders, may

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approve the proposed plan of reorganization and may require as a condition of approval such

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modifications of the proposed plan of reorganization as the commissioner finds necessary for the

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protection of the policyholders’ interests. The commissioner may retain consultants as provided

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in Rhode Island general laws subdivision 27-35-2(d)(3). A reorganization pursuant to this section

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is subject to Rhode Island general laws sections 27-35-1, 27-35-1.5, 27-35-2 and 27-35-2.5. The

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commissioner shall retain jurisdiction over a mutual insurance holding company organized

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pursuant to this section to assure that policyholder interests are protected. reorganize into a

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mutual insurance holding company structure upon adoption of a plan of reorganization by two-

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thirds (2/3) vote of the board of directors or other governing body, approval of a plan of

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reorganization by the director of the department of business regulation, and the affirmative vote

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of one half (1/2) of those members or policyholders, constituting a quorum, present in person or

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by proxy at a meeting called by the board of directors or other governing body. Unless otherwise

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provided in its charter, bylaws or in the plan of reorganization, each member or policyholder shall

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have one vote, and in the case of any policy or contract of group life or other group insurance, the

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employer or other person to whom or in whose name the master policy or contract has been

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issued shall be deemed to be the member or policyholder and shall be entitled to one vote for each

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policy or contract of group insurance irrespective of the number of individuals insured.

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     (2) All of the initial shares of the capital stock of the reorganized insurance company

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shall be issued to the mutual insurance holding company. The membership interests of the

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policyholders of the reorganized insurance company shall become membership interests in the

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mutual insurance holding company. Policyholders of the reorganized insurance company shall be

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members of the mutual insurance holding company in accordance with the articles of

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incorporation and bylaws of the mutual insurance holding company. The mutual insurance

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holding company shall at all times own a majority of the voting shares of the capital stock of the

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reorganized insurance company.

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     (b) A plan of reorganization of a mutual insurance company into a mutual insurance

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holding company structure may provide for the reorganization to be effected in one of the

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following manners:

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     (1) A domestic mutual insurance company may form a mutual insurance holding

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company in accordance with the provisions of § 7-1-5 except that the approval of the plan of

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reorganization by the director of the department of business regulation shall be deemed to

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constitute the approval of the director of the department of business regulation required under §

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7-1-5. Upon this formation, the domestic mutual insurance company shall be converted to a stock

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insurance company and shall issue to the mutual insurance holding company all of the authorized

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shares of the voting stock of the stock insurance company. The articles of incorporation and

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bylaws of the mutual insurance holding company formed in this manner shall provide for all then

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current policyholders of the converted mutual insurance company to become members of the

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mutual insurance holding company and to retain this membership interest so long as the

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policyholder has a policy in force with the converted mutual insurance company. The articles of

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incorporation and bylaws of the mutual insurance holding company also shall set forth the terms

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and conditions under which future policyholders of the stock insurance company shall become

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members of the mutual insurance holding company. The mutual insurance holding company at all

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times shall retain a majority of the issued and outstanding shares of each class of voting stock of

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the stock insurance company. A domestic mutual insurance company, upon the approval of the

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commissioner, may reorganize by merging its policyholders’ membership interests into a mutual

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insurance holding company and continuing the corporate existence of the reorganizing insurance

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company as a stock insurance company subsidiary of the mutual insurance holding company. The

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commissioner, after consideration of a filing under Rhode Island general laws section 27-35-2, if

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satisfied that the interests of the policyholders are properly protected and that the merger is fair

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and equitable to the policyholders, may approve the proposed merger and may require as a

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condition of approval such modifications of the proposed merger as the commissioner finds

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necessary for the protection of the policyholders’ interests. The commissioner may retain

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consultants as provided in Rhode Island general laws subdivision 27-35-2(d)(3). A merger

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pursuant to this section is subject to Rhode Island general laws sections 27-35-1, 27-35-1.5, 27-

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35-2 and 27-35-2.5. The commissioner shall retain jurisdiction over the mutual insurance holding

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company organized pursuant to this section to assure that policyholder interests are protected.

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     (2) A domestic mutual insurance company may merge its policyholders' membership

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interests into a mutual insurance holding company previously formed under the provisions of this

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section. Upon the merger, the domestic mutual insurance company shall be converted to a stock

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insurance company and shall issue to the mutual insurance holding company all of the authorized

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shares of voting stock of the stock insurance company. In connection with the merger and in

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accordance with the articles of incorporation and bylaws of the mutual insurance holding

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company, the then current policyholders of the converted mutual insurance company shall

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become members of the mutual insurance holding company and shall retain membership interest

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so long as the policyholder has a policy in force with the converted mutual insurance company.

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The mutual insurance holding company at all times shall retain a majority of the issued and

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outstanding shares of each class of voting stock of the stock insurance company. All of the initial

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shares of the capital stock of the reorganized insurance company shall be issued to the mutual

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insurance holding company. The membership interests of the policyholders of the reorganized

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insurance company shall become membership interests in the mutual insurance holding company.

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Policyholders of the reorganized insurance company shall be members of the mutual insurance

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holding company in accordance with the articles of incorporation and bylaws of the mutual

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insurance holding company. The mutual insurance holding company shall at all times own a

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majority of the voting shares of the capital stock of the reorganized insurance company. A merger

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of policyholders’ membership interests in a mutual insurance company into a mutual insurance

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holding company shall be deemed to be a merger of insurance companies pursuant to Rhode

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Island general laws section 27-35-2 and that chapter is also applicable.

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     (3) A domestic mutual insurance company may establish a subsidiary stock insurance

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company in accordance with the provisions of § 7-1-5 (approval of the plan of reorganization by

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the director of the department of business regulation constituting any approval required under § 7-

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1-5) and then transfer to the subsidiary stock insurance company substantially all of its assets and

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liabilities. Upon this transfer, all persons who prior to the transfer held policy rights with respect

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to or other rights as creditors of the mutual insurance company shall have those rights solely with

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respect to the subsidiary stock insurance company created and the corresponding liability or

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obligation of the mutual insurance company to those persons shall be assumed by the subsidiary

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stock insurance company. All policyholders of the mutual insurance company at the time of the

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transfer of assets and liabilities shall continue to have a membership interest in the mutual

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insurance company and the articles of incorporation and bylaws of the mutual insurance company

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shall be amended to provide this. The articles of incorporation and bylaws of the mutual

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insurance company shall also be amended to set forth the terms and conditions under which

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future policyholders of the subsidiary stock insurance company shall become members of the

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mutual insurance company. The mutual insurance company after this shall be considered a mutual

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insurance holding company for the purposes of this section and at all times shall retain a majority

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of the issued and outstanding shares of each class of voting stock of the subsidiary stock

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insurance company. A foreign mutual insurance company, or a foreign health service corporation,

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which if a domestic corporation would be organized under chapters 19, 20, 20.1, 20.2 or 20.3 of

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title 27, may reorganize upon the approval of the commissioner and in compliance with the

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requirements of any law or regulation which is applicable to the foreign mutual insurance

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company or foreign health service corporation by merging its policyholders’ or subscribers’

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membership interests into a mutual insurance holding company and continuing the corporate

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existence of the reorganizing foreign mutual insurance company or reorganizing foreign health

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service corporation as a foreign stock insurance company subsidiary of the mutual insurance

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holding company. The commissioner, after consideration of a filing under Rhode Island general

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laws section 27-35-2, may approve the proposed merger. The commissioner may retain

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consultants as provided in Rhode Island general laws subdivision 27-35-2(d)(3). A merger

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pursuant to this paragraph is subject to Rhode Island general laws section 27-35-2. The

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reorganizing foreign mutual insurance company or reorganizing foreign health service

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corporation may remain a foreign company or foreign corporation after the merger, and may be

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admitted to do business in this state. A foreign mutual insurance company or foreign mutual

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health service corporation which is a party to the merger may at the same time redomesticate in

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this state by complying with the applicable requirements of this state and its state of domicile.

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The provisions of subdivision (2) above shall apply to a merger authorized under this subdivision,

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except that a reference to policyholders in that subdivision is also deemed to include subscribers

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in the case of a health service corporation.

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     (c) The plan of reorganization shall specify in any detail as may be required by the

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director of the department of business regulation the manner under subsection (b) in which the

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mutual holding company structure shall be created, the capital structure of the stock insurance

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company and the mutual insurance holding company, the management of the stock insurance

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company and the mutual insurance holding company, the purposes for the reorganization, the

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articles of incorporation and bylaws of both the mutual insurance holding company and the stock

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insurance company, and the terms of and use of proceeds from any proposed sale of capital stock

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by the stock insurance company. A mutual insurance holding company resulting from the

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reorganization of a domestic mutual insurance company organized under chapter 1 of title 27

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shall be incorporated pursuant to chapter 1 of title 27. The articles of incorporation and any

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amendments to such articles of the mutual insurance holding company shall be subject to

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approval of the commissioner in the same manner as those of an insurance company.

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     (d) The corporate existence of any mutual insurance company reorganizing into a mutual

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insurance holding company structure under this section shall not terminate, but the reorganized

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institution shall be deemed to be a continuation of entity of this reorganized mutual insurance

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company. A mutual insurance holding company is deemed to be an insurer subject to chapters

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14.1, 14.2, 14.3 and 14.4 of title 27 and shall automatically be a party to any proceeding under

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chapters 14.3 or 14.4 of title 27 involving an insurance company which as a result of a

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reorganization pursuant to subsection (a) or (b) is a subsidiary of the mutual insurance holding

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company. In any proceeding under chapters 14.3 or 14.4 of title 27 involving the reorganized

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insurance company, the assets of the mutual insurance holding company are deemed to be assets

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of the estate of the reorganized insurance company for purposes of satisfying the claims of the

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reorganized insurance company’s policyholders. A mutual insurance holding company shall not

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dissolve or liquidate without the approval of the commissioner or as ordered by the superior court

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pursuant to chapters 14.3 or 14.4 of title 27.

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     (e) The director of the department of business regulation may employ staff personnel as

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well as professional consultants and other persons to assist in the review of the plan of

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reorganization and may hold public hearings as, in the director's discretion, are desirable prior to

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granting approval of the plan of reorganization. All reasonable costs related to the review of the

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plan of reorganization, including the costs attributable to staff personnel and professional

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consultants, shall be borne by the mutual insurance company filing a plan of reorganization for

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approval. Section 27-1-40 of the general laws is not applicable to a reorganization or merger

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pursuant to this section.

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     (f) The department of business regulation shall issue rules and regulations implementing

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this section, which shall be administered by the director of the department of business regulation.

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A membership interest in a domestic mutual insurance holding company shall not constitute a

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security as defined in chapter 7-11.

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     (g) Subject to applicable provisions of this title, a mutual insurance holding company

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formed pursuant to this section may: (1) invest in the stock of one or more domestic or foreign

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insurance companies; (2) acquire a domestic or foreign insurance company through consolidation

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or merger of the institution with its subsidiary insurance company; (3) merge with another mutual

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insurance holding company; (4) invest in a corporation, the purchase of the capital stock of which

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is permitted for a mutual insurance company under the laws of this state; (5) exercise any other

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power or engage in any activity permitted to a mutual insurance company organized under the

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laws of this state; and (6) exercise the powers and engage directly or indirectly in those activities

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as are now or may after this be permitted for business corporations under Chapter 1.1 of this title.

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The majority of the voting shares of the capital stock of the reorganized insurance company,

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which is required by this section to be at all times owned by a mutual insurance holding company,

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shall not be conveyed, transferred, assigned, pledged, subjected to a security interest or lien,

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encumbered, or otherwise hypothecated or alienated by the mutual insurance holding company or

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intermediate holding company. Any conveyance, transfer, assignment, pledge, security interest,

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lien, encumbrance, or hypothecation or alienation of, in or on the majority of the voting shares of

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the reorganized insurance company which is required by this section to be at all times owned by a

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mutual insurance holding company, is in violation of this section and shall be void in inverse

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chronological order of the date of such conveyance, transfer, assignment, pledge, security

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interest, lien, encumbrance, or hypothecation or alienation, as to the shares necessary to constitute

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a majority of such voting shares. The majority of the voting shares of the capital stock of the

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reorganized insurance company which is required by this section to be at all times owned by a

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mutual insurance holding company shall not be subject to execution and levy. The shares of the

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capital stock of the surviving or new company resulting from a merger or consolidation of two (2)

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or more reorganized insurance companies or two (2) or more intermediate holding companies

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which were subsidiaries of the same mutual insurance holding company are subject to the same

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requirements, restrictions, and limitations as provided in this section to which the shares of the

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merging or consolidating reorganized insurance companies or intermediate holding companies

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were subject by this section prior to the merger or consolidation.

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     As used in this section, “majority of the voting shares of the capital stock of the

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reorganized insurance company” means shares of the capital stock of the reorganized insurance

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company which carry the right to cast a majority of the votes entitled to be cast by all of the

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outstanding shares of the capital stock of the reorganized insurance company for the election of

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directors and on all other matters submitted to a vote of the shareholders of the reorganized

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insurance company. The ownership of a majority of the voting shares of the capital stock of the

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reorganized insurance company which are required by this section to be at all times owned by a

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parent mutual insurance holding company includes indirect ownership through one or more

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intermediate holding companies in a corporate structure approved by the commissioner.

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However, indirect ownership through one or more intermediate holding companies shall not

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result in the mutual insurance holding company owning less than the equivalent of a majority of

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the voting shares of the capital stock of the reorganized insurance company. The commissioner

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shall have jurisdiction over an intermediate holding company as if it were a mutual insurance

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holding company. As used in this section, “intermediate holding company” means a holding

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company which is a subsidiary of a mutual insurance holding company, and which either directly

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or through a subsidiary intermediate holding company has one or more subsidiary reorganized

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insurance companies of which a majority of the voting shares of the capital stock would

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otherwise have been required by this section to be at all times owned by the mutual insurance

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holding company.

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     (h) A mutual insurance holding company formed pursuant to this section, subsequent to

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its formation, shall be subject to the provisions of Chapter 35 of this title.

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     SECTION 2. Chapter 27-14.3 of the General Laws entitled "Insurers' Rehabilitation and

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Liquidation Act" is hereby amended by adding thereto the following section:

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     27-14.3-22.1. Grounds for rehabilitation or liquidation of a domestic company that

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is covered financial company under Dodd-Frank Wall Street reform and consumer

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protection act. – (a) The provisions of this section apply in accordance with title II of the federal

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Dodd-Frank Wall Street reform and consumer protection act, P.L. 111--203 with respect to an

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insurance company that is a covered financial company, as that term is defined under 12 U.S.C.

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5381.

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     (b) The commissioner may file a complaint for an order of rehabilitation or liquidation

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pursuant to subdivision (4) of this chapter on any of the following grounds:

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     (1) Upon a determination and notification given by the secretary of the treasury of the

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United States (in consultation with the President of the United States) that the insurance company

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is a financial company satisfying the requirements of 12 U.S.C. 5383(b), and the board of

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directors (or body performing similar functions) of the insurance company acquiesces or consents

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to the appointment of a receiver pursuant to 12 U.S.C. 5382 (a) (1) (A) (i) with such consent to be

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considered as consent to an order of rehabilitation or liquidation;

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     (2) Upon an order of the United States district court for the District of Columbia under 12

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U.S.C. 5382 (a) (1) (A) (iv) (I) granting the petition of the secretary of the treasury of the United

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States concerning the insurance company under 12 U.S.C. 5382(a) (1) (A) (i); or

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     (3) A petition by the secretary of the treasury of the United States concerning the

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insurance company is granted by operation of law under 12 U.S.C. 5382(a) (1) (A) (v)

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     (c) Notwithstanding any other provision of law, after notice to the insurance company,

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the receivership court may grant an order on the complaint for rehabilitation or liquidation within

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twenty (24) hours after the filing of a complaint pursuant to this section.

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     (d) If the receivership court does not make a determination on a complaint for

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rehabilitation or liquidation filed by the commissioner pursuant to this section within twenty-four

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(24) hours after its filing, then it shall be deemed granted by operation of law upon the expiration

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of the twenty-four (24) hour period. At the time that an order is deemed granted under this

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section, the provisions of Article XIII of this code shall be deemed to be in effect, and the director

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shall be deemed to be affirmed as receiver and have all of the applicable powers provided by this

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code, regardless of whether an order has been entered. The receivership court shall expeditiously

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enter an order of rehabilitation or liquidation that:

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     (1) Is effective as of the date that it is deemed granted by operation of law; and

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     (2) Conforms to the provisions for rehabilitation or liquidation contained in this chapter,

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as applicable.

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     (e) Any order of rehabilitation or liquidation made pursuant to this section shall not be

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subject to any stay or injunction pending appeal.

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     (f) Nothing in this section shall be construed to supersede or impair any other power or

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authority of the commissioner or the court under this chapter or title 27.

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     SECTION 3. This act shall take effect upon passage.

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LC01518

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EXPLANATION

BY THE LEGISLATIVE COUNCIL

OF

A N A C T

RELATING TO INSURANCE --DOMESTIC INSURANCE COMPANIES

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     This act would update and clarify the current state mutual holding company laws and the

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provisions concerning the rehabilitation or liquidation of a domestic company that is a covered

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financial company under the federal Dodd-Frank Wall Street reform and consumer protection act.

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     This act would take effect upon passage.

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LC01518

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