Washington Senate Bill Report SB 5220 (Jan. 16, 2023)
- Issuer
- Congressional materials
- Document type
- Report
- Date
- 2023-01-17
- Case
- 2023 01 17 A30403 D247841 Bill Report 5220 Sba Bfgt 23
Summary
A Senate Bill Report on SB 5220, an act relating to reorganization of domestic mutual insurers, as of January 16, 2023, for the Senate Committee on Business, Financial Services, Gaming & Trade. The bill is sponsored by Senators Frame, Stanford, Kuderer and Nobles, with committee activity listed as 1/17/23. The report states the bill would let a domestic mutual insurer reorganize as a stock corporation under a plan approved by the Office of the Insurance Commissioner, and summarizes the plan's required contents, the 60-day review process, and approval by a two-thirds vote of eligible members. The background section notes that Washington law does not provide for mutual insurance holding companies while 34 states give statutory authority to create them. It lists no appropriation, a fiscal note requested on January 13, 2023, and an effective date ninety days after adjournment.
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SENATE BILL REPORT
SB 5220
As of January 16, 2023
Title: An act relating to reorganization of domestic mutual insurers.
Brief Description: Concerning reorganization of domestic mutual insurers.
Sponsors: Senators Frame, Stanford, Kuderer and Nobles.
Brief History:
Committee Activity: Business, Financial Services, Gaming & Trade: 1/17/23.
Brief Summary of Bill
• Provides a process for domestic mutual insurers to reorganize as a stock
corporation pursuant to a plan approved by the Office of the Insurance
Commissioner (OIC).
• Enables domestic mutual insurer to be wholly reinsured in, its assets
transferred to, and its liabilities assumed by, another mutual or stock
insurer under terms and conditions approved by the OIC.
SENATE COMMITTEE ON BUSINESS, FINANCIAL SERVICES, GAMING & TRADE
Staff: Clinton McCarthy (786-7319)
Background: Insurance companies are often either mutual or stock insurance companies,
depending on their structure. A stock insurer is a public or private company owned by
shareholders, who have bought shares in the company that, in the case of a public company,
trade on a stock exchange. A mutual insurance company is a corporation with no
shareholders, owned by its members and operated in their interest.
Mutual insurers provide benefits to their direct policyholders, including voting rights and
access to dividends. These rights derive from the insurance contract; the corporation's
This analysis was prepared by non-partisan legislative staff for the use of legislative
members in their deliberations. This analysis is not part of the legislation nor does it
constitute a statement of legislative intent.
Senate Bill Report -1- SB 5220
bylaws, charter, or articles of incorporation; state laws; and case law. A stock insurance
company is a corporation owned by its stockholders with the objective to make a profit for
the stockholders. Stock insurance companies have the ability to raise capital by selling
additional shares of the company.
Washington law does not provide for the creation of mutual insurance holding companies.
Nationally, 34 states provide statutory authority to create mutual insurance holding
companies. In these states, a mutual insurance company can convert to a mutual insurance
holding company structure by electing to do so under the applicable insurance statutes, and
obtaining the necessary approvals of members, board of directors, and insurance regulators.
Under the mutual insurance holding company structure, a parent mutual holding company is
created, and the mutual insurance company is converted to a stock insurance company,
which is a subsidiary of the mutual holding company. The policyholders of the stock
insurance company continue as members of the mutual holding company.
Summary of Bill: A domestic mutual insurer may reorganize as a stock corporation
pursuant to a plan approved by the Office of the Insurance Commissioner (OIC). A
domestic mutual insurer may be wholly reinsured in, its assets transferred to, and its
liabilities assumed by, another mutual or stock insurer under terms and conditions approved
by the OIC.
A domestic mutual insurer may engage in a conversion as part of a reorganization as a
mutual holding company only if its board passes a resolution that the reorganization is fair
and equitable to the policyholders and adopts a plan that meets requirements. After the
board adopts a plan, and before approval by eligible members, the converting mutual
insurer must file the plan; the meeting notice at which the eligible members vote on the
plan; the form of any proxies to be solicited from the eligible members; information
required by the converting mutual insurer's bylaws; and other information or documentation
required by the OIC.
Reorganization Plan. The plan for reorganization must include the following:
• the reason for the reorganization;
• a description of how the plan will be carried out, any transaction included within the
plan, and a description of any mutual holding company, intermediate stock holding
company, or other corporation to be organized;
• a description of all significant terms of the reorganization;
• new or revised intercompany agreements;
• a description of the overall effect of the plan on policies issued by the converting
mutual insurer, which demonstrates that policyholder interests are preserved and
protected and the plan is fair and equitable for policyholders;
• the record date for determining whether a member of the converting mutual insurer is
an eligible member;
• either the proposed effective date of the reorganization or the manner in which the
proposed date will be established;
Senate Bill Report -2- SB 5220
• the proposed amendments to or restatement of the articles of incorporation and
bylaws of the converting mutual insurer, and the proposed articles of incorporation
and bylaws of any mutual holding company, intermediate stock holding company, or
other corporation established;
• a description of any plans for the initial sale of voting stock to third parties by the
converted stock insurer or any intermediate stock holding company, or a statement
that there are no plans for the sale of voting stock;
• the intention that a commissioner or officer of the converting stock mutual insurer,
mutual holding company, intermediate stock holding company, or other corporation
organized has three years following the effective date of the reorganization to
purchase or acquire shares of capital stock or other securities; and
• a provision that all policies in force as of the effective date of the reorganization will
remain in force, and any member voting rights provided for under the policies or
under the mutual insurers statutes are extinguished.
A plan must also determine the amount of, and make provisions to pay members, reasonable
compensation for their equities as owners.
Office of the Insurance Commissioner Duties and Plan Review. The OIC must approve or
disapprove a plan within 60 days after receipt of the plan or after a hearing on the plan,
whichever is later. A board may amend or withdraw a plan at any time before the OIC
approves it. The OIC must review submitted plans and approve plans if all the following
are found:
• applicable provisions have been fully met;
• policyholder rights are protected;
• the plan is fair and equitable to the members and does not prejudice member interests;
• the converted stock insurer has capital or surplus, or any combination thereof, that is
required and is able to satisfy the requirements for transacting its business;
• policyholders' security and the services rendered are not significantly reduced;
• the financial condition of the mutual holding company or any subsidiary does not
jeopardize the financial stability of the converted stock insurer;
• the financial condition of the converting mutual insurer is not jeopardized by the
reorganization, and the reorganization does not jeopardize the financial stability of the
mutual holding company or any subsidiary; and
• the competence, experience, and integrity of those persons who control the operations
of the converted stock insurer are not contrary to the policyholders' interests and of
the public.
The OIC may retain qualified experts who are not staff to assist in reviewing the plan at the
expense of the converting mutual insurer. The OIC may hold a hearing to receive
comments on whether a plan should be approved and on any matter relating to the
reorganization. The hearing must be held within 60 days after receiving the plan.
The approval procedure for a plan must be the same as that for a merger or consolidation
Senate Bill Report -3- SB 5220
under law. If a plan contains a provision that allows for the acquisition or merger of other
insurance companies, the OIC must apply the standards for scrutinizing mergers and
acquisitions provided under law, and any plan that fails to meet these standards must not be
approved.
An OIC-approved plan must be carried out within one year after the approval date or it
expires, unless the OIC approves an extension.
Plan Approval by the Mutual Insurer's Members. After the OIC approves a plan, the
eligible members of the converting mutual insurer must approve the plan with a two-thirds
vote. Approval by eligible members is subject to the following:
• all eligible members must be given notice of the plan and their opportunity to vote on
the plan, along with a copy or summary of the plan;
• the notice must be mailed to the last known address of each eligible member within
45 days after the OIC approves the plan;
• the meeting in which the vote will occur must be set for at least 30 days after the
meeting notice was mailed; and
• the vote required for approval must be conducted in accordance with the converting
mutual insurer's bylaws, except that:
1. only eligible members may vote on the plan;
2. an eligible member may vote in person or by proxy at the meeting at which the
plan is voted on; and
3. the plan is approved by the eligible members with a two-thirds vote, unless the
bylaws require a greater number.
The converting mutual insurer must file with the OIC a certification that the plan was
adopted by eligible members.
Reorganization. On the effective date of a plan, the plan must be carried out and the
following must occur:
• the converting mutual insurer becomes a converted stock insurer, and the amended or
restated articles of incorporation and bylaws of the converting mutual insurer must be
filed and become effective;
• the OIC must amend the certificate of authority of any converting mutual insurer;
• all membership interests and rights in surplus of the converting mutual insurer are
extinguished, and the members of the converting mutual insurer become members of
the mutual holding company;
• any owner of one or more insurance policies, other than a policy of reinsurance,
issued by the converted stock insurer after the effective date of the conversion and, if
permitted under the articles of incorporation or bylaws of the mutual holding
company, any holder of one or more insurance policies, other than a policy of
reinsurance, issued by any other insurer that is a direct or indirect subsidiary or
affiliate of the mutual holding company after the effective date of the reorganization
becomes a member of the mutual holding company;
Senate Bill Report -4- SB 5220
• the mutual holding company or the intermediate stock holding company acquires and
retains all shares of the voting stock of the converted stock insurer;
• the mutual holding company acquires and retains all shares of the voting stock of any
intermediate stock holding company;
• the converted stock insurer continues the corporate existence of the converting mutual
insurer, and the conversion does not annul, modify, or change any existing license,
other authority, or any of the existing civil actions, rights, contracts, or liabilities of
the converting mutual insurer;
• the converted stock insurer retains all property, debts, choses in action, and every
other interest belonging to the converting mutual insurer before the conversion
without further action needed; and
• the converted stock insurer may exercise all rights and powers conferred and must
perform all duties imposed, retain the rights and contracts of the converting mutual
insurer, and be subject to all obligations and liabilities of the converting mutual
insurer, subject to the plan terms.
All information and documents obtained or disclosed to the OIC or any other person in the
course of preparing, filing, and processing an application to reorganize, other than those
distributed to policyholders or filed and submitted as evidence in a public hearing pursuant
to the Administrative Procedure Act, are confidential, not subject to subpoena, and must not
be made public except to insurance departments of other states, with the prior written
consent of the insurer to which the information and documents pertain.
Any intermediate stock holding company created at the time of reorganization to hold the
stock of the converting mutual insurer must be incorporated and may engage in any
business or activity permitted under law.
Unless otherwise specified in the plan, the directors and officers of the converting mutual
insurer must serve as directors and officers of the mutual holding company, any
intermediate stock holding company, and the converted stock insurer until new directors
and officers are elected.
Debt Securities and Voting Stock. The converted stock insurer and any intermediate stock
holding companies may issue to third parties debt securities, stock other than voting stock,
and voting stock if all of the following apply:
• no shares of stock representing a majority of the voting power are issued to third
parties; and
• a majority of the voting stock of the converted stock insurer is at all times owned by
the mutual holding company or by the intermediate stock holding company, a
majority of whose voting stock is held by the mutual holding company, and such
majority interest in the converted stock insurer and any intermediate stock holding
company is not conveyed, transferred, assigned, pledged, subjected to a security
interest or lien, placed in a voting trust, encumbered, or otherwise hypothecated or
alienated by the mutual holding company or by the intermediate stock holding
Senate Bill Report -5- SB 5220
company.
Any conveyance, transfer, assignment, pledge, security interest, lien, placement in a voting
trust, encumbrance, or hypothecation or alienation of, in or on a majority of the voting
shares of the converted stock insurer or the intermediate stock holding company is a
violation and shares are void in inverse chronological order.
Mutual Holding Companies. A mutual holding company is not an insurer, but certain
provisions apply as if the mutual holding company were a domestic mutual insurer. A
mutual holding company may not dissolve or liquidate without approval by the OIC or
unless required by judicial order. The OIC retains jurisdiction over a mutual holding
company, any intermediate stock holding company, and any subsidiary of an intermediate
stock holding company.
Mutual holding company members have the rights and obligations set forth by law and in
the company's articles of incorporation and bylaws. A member of a mutual holding
company may not transfer membership or any right. A member of a mutual holding
company is not personally liable for the acts, debts, liabilities, or obligations of the mutual
holding company merely by reason of being a member. An assessment of any kind may not
be imposed on a member of a mutual holding company, and an insurance policy premium is
not considered an assessment. Membership interest does not constitute a security. Each
member is entitled to one vote regardless of the number of policies or amount of insurance
held. Member meetings are to be governed in the same manner as domestic mutual
insurers.
The articles of incorporation of a mutual holding company must contain the following
provisions:
• the name of the mutual holding company;
• a provision specifying the the mutual holding company is not authorized to issue
capital stock; and
• a provision setting forth any member rights on dissolution or liquidation.
A mutual holding company is automatically a party to any rehabilitation or liquidation
proceeding involving the converted stock insurer that is a direct or indirect subsidiary of the
mutual holding company. In such a proceeding, the mutual holding company's assets count
as assets of the estate of the converted stock insurer for the purpose of satisfying
policyholder claims of the converted stock insurer.
Concurrent Reorganization. The concurrent reorganization of a domestic mutual insurer
with one or more mutual insurers, domestic or foreign, into a single mutual holding
company, whether domestic or foreign, may be accomplished by a joint application and a
joint plan. The OIC may determine that such other procedures are unnecessary to avoid
duplicative costs and efforts in satisfying the requirements and effectuating the
reorganization.
Senate Bill Report -6- SB 5220
Foreign Mutual Insurer. A foreign mutual insurer may reorganize by merging its
policyholders' membership interests into an existing domestic mutual holding company in
accordance with laws applicable to foreign mutual insurers. The reorganization must
continue the corporate existence of the converting mutual insurer as a foreign stock
insurance company subsidiary of the existing domestic mutual holding company or as a
foreign stock insurance company subsidiary of an intermediate stock holding company.
The reorganizing foreign mutual insurer may remain a foreign insurer after the restructuring
and may be admitted to do business in Washington if it meets the applicable requirements.
A foreign mutual insurer that is a party to the reorganization may at the same time
redomesticate to Washington by complying with the applicable requirements of Washington
and the foreign mutual insurer's state of domicile.
Appropriation: None.
Fiscal Note: Requested on January 13, 2023.
Creates Committee/Commission/Task Force that includes Legislative members: No.
Effective Date: Ninety days after adjournment of session in which bill is passed.
Senate Bill Report -7- SB 5220
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