REPORT TITLE:
Captive Insurers


DESCRIPTION:
Allows conversion or merger of captive insurers; provides
procedures and requirements for conversion or merger.  (SD1)

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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THE SENATE                              S.B. NO.           S.D. 1
TWENTIETH LEGISLATURE, 2000                                
STATE OF HAWAII                                            
                                                             
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                   A  BILL  FOR  AN  ACT

RELATING TO CAPTIVE INSURANCE. 


BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:

 1      SECTION 1.  The legislature finds that a merger of two
 
 2 captive insurers to form a surviving captive insurer or a
 
 3 conversion of a captive insurer into another corporate form
 
 4 would promote the public interest by enhancing the flexibility of
 
 5 a captive insurance company to change its corporate form.  Under
 
 6 current law, a captive insurer that is organized as a stock,
 
 7 mutual, or reciprocal company must dissolve and re-incorporate to
 
 8 convert to another corporate form.  The legislature further finds
 
 9 that this should not be necessary since a captive insurer serves
 
10 a parent company or association rather than the general public.
 
11      The purpose of this Act is to create an insurance regulatory
 
12 mechanism for two captive insurance companies to merge or for a
 
13 captive insurer to convert into another corporate form while
 
14 preserving the regulatory mechanisms and protecting the public
 
15 interest.
 
16      SECTION 2.  Chapter 431, article 19, Hawaii Revised
 
17 Statutes, is amended by adding a new section to be appropriately
 
18 designated and to read as follows:
 
19      "§431:19-    Conversion or merger of captive insurers.  (a)
 

 
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 1 Subject to this section, a captive insurance company domiciled in
 
 2 the State may be converted into, or merged with, a different form
 
 3 of captive insurer under this article.
 
 4      (b)  Approval by the commissioner of a conversion or merger
 
 5 under subsection (a) shall be a prerequisite to the conversion or
 
 6 merger.  A plan of conversion or merger shall be submitted for
 
 7 approval by the commissioner prior to the proposed conversion or
 
 8 merger.  The commissioner shall not approve the plan unless:
 
 9      (1)  The commissioner finds that it is fair, equitable, and
 
10           consistent with law;
 
11      (2)  The plan has been approved:
 
12           (A)  In the case of a stock corporation, by at least
 
13                two-thirds of the shares entitled to vote at a
 
14                duly called regular or special meeting of the
 
15                shareholders at which a quorum is present, or by
 
16                unanimous written consent of the shareholders;
 
17           (B)  In the case of a mutual insurer, by at least two-
 
18                thirds of the voting interest of the members of
 
19                the mutual insurer at a duly called regular or
 
20                special meeting of the membership at which a
 
21                quorum is present, or by unanimous written consent
 
22                of the members of the mutual insurer; or
 
23           (C)  In the case of a reciprocal insurer, by at least
 

 
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 1                two-thirds of the voting interest of the
 
 2                subscribers of the reciprocal insurer at a duly
 
 3                called meeting of the subscribers of the
 
 4                reciprocal insurer, or by unanimous written
 
 5                consent of the subscribers;
 
 6      (3)  The plan provides for:
 
 7           (A)  The conversion of existing stockholder, member, or
 
 8                subscriber interests into equal or proportionate
 
 9                interests in the new converted or merged insurer,
 
10                or such other method and basis for the conversion
 
11                of the stockholder, member, or subscriber
 
12                interests that is fair and equitable;
 
13           (B)  The purchase or other disposition of the shares of
 
14                any nonconsenting shareholder of a stock insurer
 
15                or the policyholder interest of any nonconsenting
 
16                member of a mutual insurer or the subscriber
 
17                surplus account interest, if any, of a subscriber
 
18                of a reciprocal insurer, in accordance with either
 
19                an agreement with any nonconsenting stockholder,
 
20                member, or subscriber or with the existing
 
21                articles or bylaws of the insurer relating to the
 
22                buyback buyout, or the termination of the
 
23                stockholder, member, or subscriber interests, if
 

 
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 1                any, or if no such provisions exist, then in
 
 2                accordance with the laws of this State relating to
 
 3                the rights of dissenting shareholders; and
 
 4           (C)  The novation, assignment, transfer, run-off, or
 
 5                other disposition of in force policies insuring
 
 6                any nonconsenting shareholder, member, or
 
 7                subscriber;
 
 8      (4)  The conversion or merger will leave the resulting
 
 9           converted insurer or surviving insurer of the merger
 
10           with capital or surplus funds reasonably adequate to
 
11           preserve the security of its policyholders and an
 
12           ability to continue to transact business in the classes
 
13           of insurance in which it is then authorized to
 
14           transact; and
 
15      (5)  The commissioner finds that the conversion or merger
 
16           will promote the general good of the State.
 
17      (c)  After approval of the plan of conversion or merger by
 
18 the commissioner, the converting or merging insurer shall file
 
19 with the director of commerce and consumer affairs, appropriate
 
20 articles of amendment or articles of merger, as the case may be;
 
21 provided that in the case of the conversion of a reciprocal
 
22 insurer to a stock or mutual insurer, the existing reciprocal
 
23 insurer shall file articles of incorporation in order to commence
 

 
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 1 the corporate existence of the company in the form of a stock or
 
 2 mutual insurer.  Documents filed with the director of commerce
 
 3 and consumer affairs pursuant to this subsection shall comply
 
 4 with all applicable requirements for such documents that may be
 
 5 contained in this article and chapter 415 or 415B.
 
 6      (d)  Where a stock or mutual insurer converts to a
 
 7 reciprocal insurer or merges with a reciprocal insurer in which
 
 8 the reciprocal insurer will be the surviving company, the stock
 
 9 or mutual insurer shall include in its articles of amendment the
 
10 fact of the conversion to, or merger with, a reciprocal and that
 
11 the resulting or surviving entity shall be a reciprocal insurer
 
12 under the continued jurisdiction of the commissioner, the
 
13 effective date of the conversion or merger, and the name of the
 
14 agent for service of process of the converted or surviving
 
15 reciprocal insurer.
 
16      (e)  In the case of the merger of two reciprocal insurers,
 
17 no articles of amendment, merger, or incorporation shall be
 
18 required to be filed with the director of commerce and consumer
 
19 affairs, and the merger shall be effective upon the effective
 
20 date approved by the commissioner pursuant to the plan of merger
 
21 filed with and approved by the commissioner.
 
22      (f)  Notwithstanding that the corporate existence of a stock
 
23 or mutual insurer which converts to, or merges with, a reciprocal
 

 
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 1 insurer may cease, in all cases of a conversion or merger
 
 2 pursuant to this section, and unless otherwise provided in the
 
 3 approved plan of conversion or merger, the converted insurer or
 
 4 the surviving company of the merger shall assume and succeed to
 
 5 all of the obligations and liabilities of the pre-conversion
 
 6 insurer or the respective merging insurers and shall be held
 
 7 liable to pay and discharge all such debts and liabilities and
 
 8 perform such obligations in the same manner as if they had been
 
 9 incurred or contracted by the converted or surviving merged
 
10 insurer.
 
11      (g)  An alien or foreign insurer may be a party to a merger
 
12 under this section; provided that the surviving company shall
 
13 otherwise qualify and be approved by the commissioner as a
 
14 captive insurance company under this article.  For purposes of
 
15 chapters 415 and 415B, an alien stock or mutual insurer subject
 
16 to this section shall be considered a foreign corporation.
 
17      (h)  This section shall not supercede section 431:19-102.
 
18 and shall not apply to redomestications or conversions of captive
 
19 insurers under section 431: 19-102.4."
 
20      SECTION 3.  New statutory material is underscored.
 
21      SECTION 4.  This Act shall take effect upon its approval.