§ 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 department of financial services, 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.