Chapter 14. Conversion Of An Incorporated Mutual Life Or Life And Disability Insurer Into An Incorporated Stock Life Insurer Issuing Policies On A Reserve Basis of California Insurance Code >> Division 2. >> Part 2. >> Chapter 14.

(a) A domestic incorporated mutual life insurer, or life and disability insurer, issuing nonassessable policies on a reserve basis may be converted into an incorporated stock life or stock life and disability insurer issuing, on a reserve basis, nonassessable policies of life insurance or of both life and disability insurance. To that end, it may provide and carry out a plan for the conversion by complying with the requirements of this chapter.
  (b) A domestic incorporated mutual insurer not referred to in subdivision (a) and that is not a medical malpractice mutual insurer as defined in subdivision (i) of Section 4097.01, which may be referred to in this chapter as a mutual property-casualty insurer, may be converted into an incorporated stock property-casualty insurer. To that end, it may provide and carry out a plan for the conversion by complying with the requirements of this chapter. A medical malpractice mutual insurer as defined in subdivision (i) of Section 4097.01 may not convert to a stock insurer under this chapter.
  (c) A mutual holding company may be converted into a stock corporation. To that end, it may provide and carry out a plan for the conversion by complying with the requirements of this chapter.
  (d) As part of the conversion authorized in this section, a domestic incorporated mutual insurer may merge with an incorporated stock insurer, if the merging insurers comply with the provisions of this code applicable to their participation in the merger, or may transfer its domicile to any other state, if the insurer complies with Section 709.5.

The definitions in this section apply to the following terms when used in this chapter.
  (a) "Adoption date" means the date the board of directors adopts the plan of conversion.
  (b) "Converted company" means the converted insurer or converted mutual holding company, as the case may be.
  (c) "Converted insurer" means the incorporated stock insurer into which a mutual insurer has been converted or merged or redomiciled in accordance with the provisions of this chapter.
  (d) "Converted mutual holding company" means the stock corporation into which a mutual holding company has been converted in accordance with this chapter.
  (e) "Converting mutual life company" means, for a plan of conversion under this chapter, the mutual life insurer or mutual holding company that is converting under such a plan.
  (f) "Effective date" means, for the conversion of a mutual life insurer, the date upon which the conversion of the mutual life insurer is effective, as specified in the commissioner's amendment to the mutual life insurer's certificate of authority issued in accordance with Section 11542, as a result of conversion proceedings under this chapter. For the conversion of a mutual holding company, "effective date" means the date upon which the conversion of a mutual holding company is effective, as specified in the amended articles of incorporation of the mutual holding company filed with the Secretary of State in accordance with Section 11542, as a result of conversion proceedings under this chapter.
  (g) "Eligible members" means, for the conversion of a mutual life insurer, the members of the mutual life insurer who are of record on the mutual life insurer's adoption date. For the conversion of a mutual holding company, "eligible members" means the members of the mutual holding company who are of record on the mutual holding company's adoption date.
  (h) "Member" means a person who, by the records of the mutual company and by its articles of incorporation or bylaws, is deemed to be a holder of a membership interest in the mutual company. For a mutual life insurer, a plan of conversion may provide that the term "member" also includes a person who is the owner of a policy issued or assumed by an insurer, that, pursuant to court order, is to be merged into the converted company. On and after the effective date of a plan of conversion that creates a mutual holding company, the term "member" means a member of a mutual holding company, as provided in Section 11542.1.
  (i) "Membership interests" means the interests of members arising under this code and the articles of incorporation and bylaws of the mutual company or otherwise by law. Membership interests include the right to vote for directors of the mutual company and the right to vote on any plan of merger, consolidation, reinsurance, or transfer of assets and liabilities of the mutual company. Membership interests do not include members' rights in surplus, if any.
  (j) "Mutual company" means, in the case of a plan of conversion, the mutual life insurer, mutual property-casualty insurer, or mutual holding company that is converting pursuant to such plan.
  (k) "Mutual holding company" means a corporation organized under the laws of this state subject to the General Corporation Law as set forth in the Corporations Code. The articles of incorporation of a mutual holding company shall contain provisions stating the following:
  (1) It is a mutual holding company organized under this chapter.
  (2) One purpose of the mutual holding company is to hold not less than 51 percent of the voting stock of a stock holding company, which in turn holds all of the voting stock of a converted life insurer.
  (3) It is not authorized to issue voting stock.
  (4) Its members have the rights specified in Section 11542.1 and in its articles of incorporation and bylaws.
  (5) Its assets and liabilities are subject to inclusion in the estate of the converted insurer in any proceedings successfully prosecuted against the converted insurer under Article 14 (commencing with Section 1010) or Article 14.3 (commencing with Section 1064.1) of Chapter 1 of Part 2 of Division 1.
  (l) "Mutual insurer" means, in the case of a plan of conversion under this chapter, the mutual life insurer or mutual property-casualty insurer that is converting pursuant to such plan.
  (m) "Mutual life insurer" means a domestic incorporated mutual life insurer, or domestic mutual life and disability insurer, that issues nonassessable policies on a reserve basis.
  (n) "Person" means an individual, partnership, firm, association, corporation, joint-stock company, limited liability company, trust, government or governmental agency, state or political subdivision of a state, public or private corporation, board, association, estate, trustee, or fiduciary, or any similar entity.
  (o) "Plan of conversion" or "plan" means a plan adopted by a mutual company in compliance with this chapter.
  (p) "Policy" means an individual or group policy of insurance issued by a life insurer. If a policy of a mutual life insurer takes a form other than an individual form but holders of certificates or other interests under the policy are treated by the mutual life insurer as if they were holders of individual policies, the mutual life insurer may provide in its plan of conversion under this chapter that such a certificate or other interest is deemed to be a policy and deem the holder of the certificate or other interest to be an owner of a policy. Such a provision shall be for the sole purpose of determining the rights, if any, of policyholders of the mutual life insurer to vote upon and receive consideration under the plan of conversion and may not affect the other voting rights and qualifications of members of the mutual life insurer.
  (q) "Policyholder" means the holder of a policy other than a reinsurance contract.
  (r) "Rights in surplus," for a mutual life insurer, means rights of members of the insurer to a return of that portion of the surplus that has not been apportioned or declared by the board of directors for policyholder dividends. "Rights in surplus" includes rights of members of the insurer to a distribution of surplus in liquidation or conservation of the insurer under this code, or in a dissolution or winding up. "Rights in surplus," for a mutual holding company, means rights of members of the company to a return of any surplus that has not been apportioned or declared by its board of directors for member dividends. "Rights in surplus" includes rights of members of the mutual holding company to a distribution of surplus in liquidation or conservation of the insurer under this code, or in a dissolution or winding up. "Rights in surplus" does not include any right expressly conferred solely by the terms of an insurance policy.
  (s) "Stock holding company" means a corporation authorized to issue one or more classes of capital stock, the corporate purposes of which include holding all of the voting stock in an insurer that has been converted from a mutual life insurer to a stock life insurer in proceedings under Section 11537.2 in which a mutual holding company is formed.
  (t) "Voting stock" means securities of any class or any ownership interest having voting power for the election of directors, trustees, or management of a person, other than securities having voting power only because of the occurrence of a contingency. All references to a specified percentage of voting stock of any person mean securities having the specified percentage of the voting power in that person for the election of directors, trustees, or management of that person, other than securities having voting power only because of the occurrence of a contingency.

The plan of conversion shall include appropriate proceedings for amending the mutual company's articles of incorporation to give effect to the conversion from a nonstock corporation into a stock corporation. The plan shall be:
  (a) Approved by a resolution of the majority of the board of directors. The resolution shall specify the reasons for and the purposes of the proposed conversion of the mutual company and the manner in which the conversion is expected to benefit and serve the best interests of the policyholders, for a mutual insurer, or members, for a mutual holding company.
  (b) Submitted to the commissioner for consent in writing, subject to the provisions of Section 11538, by an application executed by an authorized officer of the mutual company and accompanied by the following documents, or true and correct copies of the documents:
  (1) The proposed plan of conversion.
  (2) The proposed articles of incorporation of each corporation that is a constituent corporation of the conversion.
  (3) The proposed bylaws of each corporation that is a constituent corporation of the conversion.
  (4) A list of the officers and directors, together with their biographies in the form customarily required by the commissioner, of each corporation that is a constituent corporation of the conversion.
  (5) The resolution of the board of directors of the mutual company, certified by the secretary of the board of directors, authorizing the conversion under this chapter.
  (6) Financial statements, which may be prepared on a pro forma basis, in the form required by the commissioner.
  (7) For a conversion of a mutual insurer, a plan of operations for the converted insurer.
  (8) A summary of the plan of conversion and drafts of written materials to be mailed to members seeking their approval of the plan.
  (9) Other relevant information that the commissioner may require.
  (c) Approved by a majority vote of the members of the mutual company voting at a meeting of the members called for that purpose, subject to the provisions of Section 11539.
  (d) Filed in the office of the commissioner after receipt of the commissioner's consent, and after having been approved as provided in Sections 11538 and 11539, respectively.

For the conversion of a mutual property-casualty insurer, the plan for conversion shall include the following:
  (a) A fair and reasonable formula, approved by the commissioner, for determining the equity of each eligible member in the insurer. The equity shall be based upon an appraisal of the fair value of the insurer by one or more qualified disinterested persons appointed by the insurer with the approval of the commissioner. Those persons shall consider the assets and liabilities of the insurer and any factors bearing on the value of the mutual insurer.
  (b) Each eligible member of the mutual insurer shall be given a preemptive right to acquire his or her proportionate part of all of the proposed capital stock of the insurer, within a designated reasonable period, by applying upon the purchase of such part the amount of his or her equity as determined under the formula described in subdivision (a).
  (c) The members entitled to participate in the purchase of stock or distribution of assets shall be limited to all current policyholder members whose policies have been of record for not less than one year prior to the date the board of directors adopted the plan of conversion.
  (d) Each member not applying his or her equity upon the purchase price of stock shall elect to receive either a cash payment or a certificate of contribution. The cash payment shall not be greater than 50 percent of his or her equity as determined by the formula in subdivision (a). The certificate of contribution shall be in an amount equal to 100 percent of his or her equity, as determined by the formula in subdivision (a), shall bear interest at the rate established in Section 10489.4 for minimum standard valuation of all life insurance policies of more than 20 years' duration issued in the year, and shall be repayable within 10 years or, if necessary under the terms of the plan, later, only on written approval of the commissioner and only out of surplus in excess of an amount established in the plan. Any member not electing to receive cash or purchase stock shall be deemed to have elected to receive a certificate of contribution. The stock purchased, cash payment, or certificate of contribution shall constitute full payment and discharge of the member's equity or property interest in the mutual insurer, and, notwithstanding any other provision of law, the member shall have no other rights with respect thereto.
  (e) The number of shares to be authorized for the new stock insurer, their par value, and the method for determining the price at which the shares will be offered to eligible members, to the end that the plan, when completed, would provide for the converted insurer paid-in capital and surplus in an amount not less than the minimum paid-in capital and surplus required of a domestic stock insurer upon initial authorization to transact like kinds of insurance.
  (f) Provision for the offering to others of shares not purchased by eligible members within the designated period referred to in subdivision (b) at a price not less than the offering price to members.

For the conversion of a mutual life insurer, the plan of conversion shall provide for either a mutual holding company in compliance with Section 11537.2 or for consideration in compliance with Section 11537.3. For the conversion of a mutual holding company, the plan of conversion shall provide for consideration in compliance with Section 11537.3.

A plan of conversion adopted by a mutual life insurer for the establishment of a mutual holding company shall provide that the mutual life insurer will become a stock life insurer, that the members of the mutual life insurer will become members of a mutual holding company, that the mutual holding company will acquire at least 51 percent of the voting stock of the stock holding company, and that the stock holding company will acquire all of the voting stock of the converted insurer.

A plan of conversion adopted by a converting mutual life company shall include the following:
  (a) (1) The plan provides that each member's membership interests and rights in surplus are extinguished and each eligible member will receive, without payment, nontransferable subscription rights to purchase a portion of the capital stock of a corporation which will issue the subscription rights, or, in lieu thereof, shares of capital stock or other securities of the issuer, cash, premium credits, or credits to policy account values having an aggregate value equal to the aggregate exercise price of the subscription rights that otherwise would have been allocated to the member. The issuer is either (A) the converted insurer, (B) a corporation, the voting stock of which is owned by the mutual life insurer or the mutual holding company, as the case may be, or by any other persons, that will acquire in the conversion all the voting stock of the converted insurer, or (C) a corporation, all of the voting stock of which is owned by the mutual holding company into which both the mutual holding company and the stock holding company will be merged.
  (2) The subscription rights are allocated in whole shares among the eligible members. The subscription rights, capital stock, cash, premium credits, and credits to policy account values are allocated among the eligible members using a fair and equitable formula. This formula will either (A) allocate a fixed component per capita among eligible members (specifying how joint owners will be treated for this purpose) and allocate a variable component among eligible members in proportion to the cash value of policies held by them, or (B) allocate the subscription rights, capital stock, cash, or credits in any other manner that the commissioner may approve.
  (b) The plan specifies or authorizes the board of directors of the converting mutual life company to set the expiration date of the subscription rights, if any, allocated by the plan. The exercise price per share of the subscription rights is 50 percent of the price per share at which the capital stock of the issuer is first offered to the public in the offering referred to in subdivision (d), as fixed at the time of the offering by the boards of directors of the converting mutual life company and the issuer or committees of the boards.
  (c) The plan provides that any eligible member not exercising the subscription rights, if any, allocated to the member will instead receive alternative forms of consideration having an aggregate value equal to the aggregate exercise price of the subscription rights allocated to the member. The alternative forms of consideration may include shares of capital stock of the issuer, cash, premium credits, or credits to policy account values. The choices available to the eligible member shall be specified in the plan. The choices available may take into account the type of policy, size of policy, tax status of the member, and other factors that the commissioner determines are appropriate.
  (d) The plan provides that the issuer will make a public offering of its capital stock at a price determined by the boards of directors of the converting mutual life company and the issuer. The number of shares to be offered is determined according to the plan and may include any shares issuable upon exercise of subscription rights that are not exercised. The plan may also provide for the issue and sale of securities of the issuer to other persons at the time of the public offering. However, any plan provisions pertaining to the issuance and sale of securities to the insurer's officers, directors, employees, agents, and employee benefit plans for their benefit shall be subject to Section 11540.
  (e) The plan of a mutual life insurer may provide for the establishment, for policyholder dividend purposes only, of a closed block. The closed block will consist of all of the participating individual policies of life insurance of the mutual life insurer in force on the effective date of the plan for which the insurer had an experience-based dividend scale payable in the year in which the plan is adopted. Assets of the insurer shall be allocated to the closed block in an amount that produces cash-flows, together with anticipated revenues from the closed block business, expected to be sufficient (1) to support the closed block business, including payment of claims and those expenses and taxes specified in the plan and (2) to provide for continuation of dividend scales in effect on the adoption date if the experience underlying the scales continues, and for appropriate adjustments in the scales if the experience changes. The plan may provide for conditions under which the converted insurer may cease to maintain the closed block and its allocated assets. Regardless of such a cessation, the obligation under the policies constituting the closed block business remain the obligations of the converted insurer. Dividends on those policies shall be apportioned by the board of directors of the converted insurer in accordance with the terms of the policies.
  (f) In lieu of the provisions contemplated by subdivisions (a) to (d), inclusive, a plan may be adopted by a converting mutual life company that:
  (1) Is fair and equitable to the members of the converting mutual life company and provides for consideration to the members having a value equal to or greater than the value of the consideration that would have been payable to the members pursuant to a plan of conversion contemplated by subdivisions (a) to (d), inclusive.
  (2) Has been approved by a resolution of the majority of the board of directors that specifies the basis on which the board of directors of the converting mutual life company finds that adopting the plan of conversion under this subdivision meets the requirements of paragraph (1).
  (3) Provides that each member's membership interests and rights in surplus are extinguished and each eligible member will receive, without payment by the member, consideration that is allocated among the eligible members using a fair and equitable formula. This formula will either (A) allocate a fixed component per capita among eligible members, specifying how joint owners will be treated for this purpose, and allocate a variable component among eligible members in proportion to the cash value of policies held by them, or (B) allocate the consideration in any other manner that the commissioner may approve.
  (4) Provides that eligible members may receive one or more kinds of consideration, including shares of capital stock of the converting mutual life company or shares of capital stock (or interests in shares of capital stock) of a corporation that, after the conversion, directly or indirectly, controls the converted insurer, cash, premium credits, or credits to pay policy account values, as set forth in the plan.
  (5) Provides for either of the following:
  (A) The conversion of the converting mutual life company into a domestic stock corporation.
  (B) The conversion of the converting mutual life company by means of a merger (i) in the case of a mutual life insurer into a domestic stock corporation, provided the corporation has been issued a certificate of authority, or (ii) in the case of a converting mutual holding company into a domestic or foreign stock corporation, and, in the case of that merger:
  (I) The merger and conversion shall be subject to the provisions of this chapter other than subdivisions (a) to (d), inclusive.
  (II) Chapter 11 (commencing with Section 1100), Chapter 12 (commencing with Section 1200), and Chapter 13 (commencing with Section 1300), of Division 1 of the Corporations Code shall not apply to the converting mutual life company in the merger except that Section 1107 of the Corporations Code shall apply.
  (III) The merger and conversion shall become effective upon the filing of appropriate instruments with the Secretary of State.
  (6) The plan may also provide for the converted company, or a corporation that will directly or indirectly control the converted insurer after the conversion, to issue and sell its securities to other persons at the time of the conversion. Any plan provisions pertaining to the issuance and sale of securities to the insurer's officers, directors, employees, agents, and employee benefit plans for their benefit shall be subject to Section 11540.

(a) The commissioner shall examine the plan submitted pursuant to subdivision (b) of Section 11536. As a part of the examination the commissioner may order a hearing on the plan after written notice of the hearing to the mutual company, and its members, all of whom shall have the right to appear at the hearing. The commissioner may require as a condition of consent that the mutual company make modifications of the proposed plan that the commissioner finds necessary for the protection of policyholders. The commissioner shall consent to the plan if he or she finds all of the following:
  (1) For the conversion of a mutual insurer, the plan is fair and equitable to the insurer and its policyholders.
  (2) For the conversion of a mutual holding company, the plan is fair and equitable to the company, its members, and the policyholders of the converted insurer.
  (3) The plan does not violate the law.
  (4) The converted insurer will, after the conversion, satisfy the requirements for the issuance of a license to write the line or lines of insurance for which it is presently licensed.
  (b) For the conversion of a converting mutual life company, the commissioner may appoint one or more actuarial, financial, or other consultants, including legal counsel, as the commissioner finds necessary to advise the commissioner in making the determination of whether the proposed plan of conversion meets the applicable requirements of this chapter. The converting mutual life company is responsible for the reasonable fees and expenses of any actuarial, financial, or other consultants, including legal counsel, appointed, and for the mailing and publication of notices to the mutual company and its members.

The meeting of members prescribed by subdivision (c) of Section 11536 shall be called by the board of directors, the chairperson of the board, or the president of the mutual company. Notice of the meeting shall be given to eligible members by mail at least 30 days prior to the date set for the meeting to members of the mutual company of record on the date the plan of conversion was adopted by the board of directors. Voting shall be by ballot, in person or by proxy. A quorum shall consist of 5 percent of the members of the mutual company entitled to vote at the meeting.

(a) Nothing in this chapter shall be deemed to prohibit the inclusion in the plan of conversion of provisions under which the insurer's officers, directors, employees, agents, and employee benefit plans for their benefit may be entitled, in accordance with reasonable classifications of those individuals and employee benefit plans as may be included in the plan, to purchase for cash, at the same price as offered to the public in the initial public offering, voting stock not purchased by members upon exercise of subscription rights. Nothing in this chapter shall be deemed to prohibit the establishment of stock option, incentive, and share ownership plans customary for publicly traded companies in the same and similar industries. The plan may not permit those persons to acquire more than 25 percent of the voting stock issued pursuant to the plan for a mutual life insurer having assets in excess of two hundred million dollars ($200,000,000) or 35 percent for a mutual life insurer having assets of two hundred million dollars ($200,000,000) or less.
  (b) For the conversion of a mutual property-casualty insurer, subdivision (f) of Section 11537 does not prohibit the inclusion in the conversion plan of provisions under which the individuals comprising the insurer's management, employees and agents are entitled to purchase for cash, at the same price as offered to the insurer's members, shares of stock not taken by members on the preemptive offering to members, in accordance with such reasonable classifications of such individuals as may be included in the plan. The plan may not provide for such individuals to acquire in excess of 25 percent of the shares of stock issued pursuant to the plan for a mutual insurer having assets in excess of two hundred million dollars ($200,000,000) or 35 percent for a mutual insurer having assets of two hundred million dollars ($200,000,000) or less.

No director, officer, agent, or employee of the mutual company shall receive any fee, commission, or other valuable consideration whatsoever, other than regular salary and compensation, for in any manner aiding, promoting, or assisting in the conversion except as set forth in the plan approved by the commissioner. This provision shall not be deemed to prohibit the payment of reasonable fees and compensation to attorneys at law, accountants, and actuaries for services performed in the independent practice of their professions, even though they may also be directors of the mutual company.

At any time before that plan of conversion becomes effective as provided in Section 11542, the mutual company may, by resolution of a majority of the board of directors, amend the plan of conversion or withdraw the plan of conversion. Any plan amendment shall require the written consent of the commissioner. For a plan amendment, all references in this chapter to the plan of conversion shall be deemed to refer to the plan as amended, but no amendment shall be deemed to change the adoption date of the plan of conversion. No amendment may change the plan of conversion in a manner that the commissioner determines is materially disadvantageous to policyholders of the mutual life insurer or members of the mutual holding company, unless a further public hearing is held on the plan as amended, if the amendment is made after the initial public hearing, or if the plan as amended is submitted for reconsideration by the members if the amendment is made after the plan has been approved by the members.

(a) Upon consent by the commissioner to the plan of conversion of a mutual insurer and filing of the plan of conversion in accordance with the provisions of this chapter, the commissioner shall issue a new certificate of authority to the converted insurer. Upon issuance of the certificate of authority to a mutual insurer and subject to subdivision (a) of Section 110 of the Corporations Code, the Secretary of State shall accept for filing the articles of incorporation, certificate of amendment of articles of incorporation, or agreement of merger and officers' certificates of the converted insurer for the conversion of a mutual insurer. For a plan of conversion in accordance with Section 11537.2, the Secretary of State shall accept for filing the articles of incorporation of the mutual holding company and the stock holding company. Upon consent to the plan of conversion of a mutual holding company and filing of the plan of conversion in accordance with the provisions of this chapter, the Secretary of State shall accept for filing the articles of incorporation or certificate of amendment of articles of incorporation of the converted mutual holding company. The plan is effective upon the filing of the articles of incorporation or certificate of amendment of articles of incorporation.
  (b) Upon the effective date of the plan of conversion of a mutual property-casualty insurer, the mutual insurer shall immediately become a stock corporation. The converted insurer shall be a continuation of the original mutual insurer, and the conversion shall in no way annul, modify, or change any of the original mutual insurer's existing suits, rights, contracts, or liabilities except as provided in the approved conversion plan. The insurer, after conversion, shall exercise all the rights and powers and perform all the duties conferred or imposed by law upon insurers writing the classes of insurance written by it, and shall retain the rights and contracts existing prior to conversion, subject to the effect of the plan.
  (c) Upon the effective date of the plan of conversion of a mutual life insurer in accordance with Section 11537.3, the mutual life insurer immediately becomes a stock corporation, all membership interests and rights in surplus are extinguished, and members eligible to exercise subscription rights or receive other consideration under the plan of conversion are entitled to receive the consideration in exchange for their membership interests and liquidation of their rights in surplus. The converted insurer is a continuation of the original mutual life insurer, and the conversion in no way annuls, modifies, or changes any of the original mutual life insurer's existing suits, rights, contracts, or liabilities, except as provided in the plan of conversion. The insurer, after conversion, shall exercise all the rights and powers and perform all the duties conferred or imposed by law upon insurers writing the classes of insurance written by it, and shall retain the rights and contracts existing prior to conversion, subject to the effect of the plan.
  (d) Upon the effective date of the plan of conversion of a mutual holding company, all membership interests and rights in surplus are extinguished, members eligible to receive consideration under the plan of conversion are entitled to receive the consideration in exchange for their membership interests and liquidation of their rights in surplus, and the plan otherwise becomes effective in accordance with its terms. The conversion in no way annuls, modifies, or changes any of the converting mutual holding company's existing suits, rights, contracts, or liabilities, except as provided in the approved plan of conversion.

(a) Upon the effective date of a plan of conversion in accordance with Section 11537.2, the mutual life insurer immediately becomes a stock corporation, the membership interests and rights in surplus of its members are extinguished, the members of the mutual life insurer immediately become members of the mutual holding company, all of the voting stock initially issued by the converted insurer is owned by the stock holding company, and all of the voting stock initially issued by the stock holding company is owned by the mutual holding company. The stock holding company may thereafter, subject to compliance with Article 8 (commencing with Section 820) of Chapter 1 of Part 2 of Division 1, issue securities to other persons. After the effective date, owners of policies that are issued by a stock insurer that has been converted from a mutual life insurer pursuant to proceedings under this chapter shall become members of the mutual holding company immediately upon issuance of the policies. Any person may be a member of a mutual holding company.
  (b) From the effective date, the mutual holding company shall hold at least 51 percent of the issued and outstanding voting stock of the stock holding company and the stock holding company thereafter shall at all times hold all of the issued and outstanding voting stock of the converted insurer. The stock holding company may issue additional voting stock to the mutual holding company and, in addition, to other persons an amount of voting stock and securities convertible into voting stock, if in the aggregate, the issued and outstanding voting stock of the stock holding company not held by the mutual holding company does not exceed 49 percent of the issued and outstanding voting stock of the stock holding company. For purposes of the 49-percent limitation, any issued and outstanding securities of the stock holding company that are convertible into voting stock are considered issued and outstanding voting stock.
  (c) The commissioner shall retain jurisdiction over the mutual holding company organized pursuant to this chapter. Except as provided in this code, a mutual holding company is subject to the provisions of the General Corporation Law in like manner with other corporations. However, provisions of that law referring to shareholders or members shall be applied as though those provisions referred to the members of a mutual holding company.
  (d) With respect to the management, records, and affairs of a mutual holding company and except as otherwise provided in this chapter, a member of a mutual holding company has the same character of rights and relationship as a stockholder has toward a domestic stock life insurer subject to the provisions of this code.
  (e) Each member of a mutual holding company is entitled to one vote on each matter coming to a vote at any meeting of members, regardless of the number of policies that the member holds.
  (f) Notice of all meetings of members, whether annual or special, shall be given in writing to the members entitled to vote. The notice shall be given by the secretary, assistant secretary, or other persons charged with that duty. If there is no such officer, or if he or she neglects or refuses this duty, notice may be given by any director. At the option of the converted insurer, the notice may be imprinted on premium notices or receipts or on both. A notice may be given to any member either personally, or by mail, or other means of written communication, charges prepaid, addressed to the member at his or her address appearing on the books of the insurer or given by the member to the converted insurer for the purpose of notice. If a member gives no address, and if there is no address on the books of the insurer, notice shall be deemed to have been given the member if sent by mail or other means of written communication addressed to the place where the principal office of the converted insurer is situated, or if published at least once in a newspaper of general circulation in the county in which the office is located and in the newspaper that has the largest daily circulation in this state. Notice of any meeting of members shall be sent to each member entitled to notice not less than 14 days before a meeting. Notice of any meeting of members shall specify the place, the day, and the hour of the meeting and the general nature of the business to be transacted. For any member who gives no address and has no address on the books of the insurer, notice of an annual meeting to be held at the time and place specified is deemed adequate if published at least once in each of four successive weeks in a newspaper of general circulation in the county in which the principal office of the converted insurer is located and in the newspaper that has the largest daily circulation in this state. If the notice is so published, no other notice of the meeting is required.
  (g) The presence in person or by proxy of 5 percent of the members of a mutual holding company entitled to vote at any meeting constitutes a quorum for the transaction of all business of the mutual holding company, including, but not limited to, the amendment of the articles of incorporation or bylaws of the mutual holding company.
  (h) Any required member approval shall be by the affirmative vote of a majority of the members who vote, or a higher percentage of the members as may be required by law or the articles of incorporation, a quorum being present.
  (i) The articles of incorporation or the bylaws of the mutual holding company may provide that the directors may be divided into two or more classes whose terms of office shall expire at different times. No term shall continue longer than six years. In the absence of such provisions, each director shall be elected for a term of one year. All directors shall hold office for the term for which they are elected and until their successors are elected and qualified. A director may, but need not, be a member of the mutual holding company of which he or she is acting as director. Vacancies in the board of directors may be filled by a majority of the remaining directors, though less than a quorum. Each director so elected shall hold office until the next annual meeting.
  (j) If any proceedings under Article 14 (commencing with Section 1010), Article 14.3 (commencing with Section 1064.1), Article 14.5 (commencing with Section 1065.1), or Article 15.5 (commencing with Section 1077), of Chapter 1 of Part 2 of Division 1, are brought naming as a party a stock insurer created as a result of proceedings authorized by this chapter, the mutual holding company formed as part of the conversion automatically becomes a party to the proceedings. All of the assets of the mutual holding company, including, but not limited to, its interest in the stock holding company formed pursuant to this chapter, are deemed assets of the estate of the stock life insurer to the extent necessary to satisfy claims of persons against the stock life insurer who have claims falling within the priorities established in paragraphs (1) to (5), inclusive, of subdivision (a) of Section 1033. Claims of persons in their capacity as members of the mutual holding company shall be claims falling within the priority established in paragraph (6) of subdivision (a) of Section 1033. A mutual holding company may not dissolve, liquidate, or wind up and dissolve without the prior written approval of the commissioner or the court pursuant to proceedings brought pursuant to Article 15 (commencing with Section 1070) of Chapter 1 of Part 2 of Division 1.
  (k) Membership interests in a mutual holding company are exempt from Article 8 (commencing with Section 820) of Chapter 1 of Part 2 of Division 1. A description of the membership interests and related factual disclosure shall not be considered to be an inducement to buy insurance in violation of Section 10430. Any promise of returns, profits, or distributions, or representations with regard to the benefits of membership, made as an inducement in connection with the issuance and delivery of a policy is subject to Section 10430 and the remedy provided in Section 10433.

Prior to, and for a period of five years following, the effective date of the plan of conversion, no person or group of persons acting in concert shall directly or indirectly offer to acquire or acquire in any manner the beneficial ownership of 5 percent or more of any class of voting securities of a converted insurer or of a person that controls, as defined by paragraph (b) of Section 1215, the converted insurer, without the prior consent of the commissioner. Any application for that approval shall contain information as the commissioner may require and shall be accompanied by a filing fee in an amount equal to the filing fee specified in Section 1215.2. In the event of any violation of this section, or of any action that, if consummated, would constitute a violation, all voting securities of the converted insurer or of the person acquired by any person in excess of the maximum amount permitted to be acquired by the person pursuant to this subdivision shall be deemed to be nonvoting securities of the converted insurer or of that person. The violation or action may be enforced or enjoined by appropriate proceeding commenced by the converted insurer, a person, the commissioner, any policyholder or stockholder of the converted insurer, or the person on behalf of the converted insurer or the person in the superior court in the judicial district in which the converted insurer has its home office or in any other court having jurisdiction. The court may issue any order it finds necessary to cure the violation or to prevent the proposed action. In addition to the foregoing, whenever it appears to the commissioner that any person has committed a violation of this section, the commissioner may proceed as provided in Article 14 (commencing with Section 1010) of Chapter 1 of Part 2 of Division 1 to take possession of the property of the converted insurer and to conduct the business thereof. For the purposes of this section, "beneficial ownership," with respect to voting securities, means the sole or shared power to vote, or direct the voting of, voting securities or the sole or shared power to dispose, or direct the disposition, of voting securities. "Voting security" includes voting stock as defined in Section 11535.1, any preorganization certificate or subscription, including subscription rights issued pursuant to a plan of conversion, or any security convertible, with or without consideration, into voting security, or carrying any warrant or right to subscribe for or purchase any voting security, or any such warrant or right. "Offer" includes an offer to buy or acquire, solicitation of an offer to sell, tender offer for, or request or invitation for tenders of a security or interest in a security for value.

Unless otherwise provided in the plan of conversion, the directors and officers of the mutual company shall serve as directors and officers of the converted company until new directors and officers have been duly elected and qualified pursuant to the articles of incorporation and bylaws of the stock company.

(a) Notwithstanding any other provision of law and except as otherwise provided in subdivision (b), actions concerning any plan of conversion, proposed plan of conversion, plan amendment, or proposed plan amendment under this chapter or any acts taken or proposed to be taken under this chapter shall be commenced within one year after the plan of conversion or plan amendment is filed in the office of the commissioner pursuant to subdivision (d) of Section 11536 or subdivision (a) of Section 11542, or six months from the effective date of the plan of conversion, whichever is later. If the plan of conversion is withdrawn, the actions or acts shall be commenced within six months from the date the board of directors approves a resolution to withdraw the plan. If an action concerns or arises out of a plan amendment or proposed plan amendment made under Section 11546, the applicable time period is measured from the filing, effective date, or approval of withdrawal of the plan amendment, whichever is later.
  (b) Judicial review of any act of the commissioner or any other governmental body or officer concerning or arising out of any plan of conversion, proposed plan of conversion, plan amendment, or proposed plan amendment under this chapter may only be had by filing a petition for a writ of mandate within 30 days of the date of the act. However, any petition seeking judicial review shall be filed no later than 30 days from the effective date of the plan of conversion or plan amendment, whichever is the subject of the petition.

The offer or sale of securities issued pursuant to the plan of conversion developed and approved in accordance with the provisions of this chapter, shall be exempt from Article 8 (commencing with Section 820) of Chapter 1 of Part 2 of Division 1.

The commissioner shall have the authority from time to time, to make, amend and rescind such rules and regulations as may be necessary to carry out the provisions of this chapter. The commissioner shall also have the authority to charge and collect from the insurer for the actual amount of expenses reasonably incurred by the state in discharge of the commissioner's duties hereunder.

Upon completion of the act of conversion and issuance of the certificate of authority under Section 11542, the Secretary of State shall accept for filing a verified copy of the amended articles of incorporation.

(a) The amended articles of incorporation of a converted company that have been adopted pursuant to a plan of conversion and filed with the Secretary of State in accordance with Section 11542 may be further amended after the effective date pursuant to applicable law. The plan of conversion may be amended in other respects after the effective date of the plan as specified in this section. Such an amendment shall take effect upon filing with the Secretary of State after compliance with the following:
  (1) Approval by a resolution of the majority of the board of directors of the converted company. The resolution shall specify the reasons for and the purposes of the proposed amendment.
  (2) Submission to the commissioner for consent in writing, subject to the provisions of Section 11538.
  (3) For the conversion of a mutual insurer, approval by a majority of those current policyholders of the corporation who were members of the former mutual insurer and were entitled to vote on the original plan of conversion approved pursuant to subdivision (c) of Section 11536 and who vote at a meeting called for that purpose.
  (4) For the conversion of a mutual holding company, approval by a majority of those current members of the corporation who were members of the former mutual holding company and were entitled to vote on the original plan of conversion approved pursuant to subdivision (c) of Section 11536 and who vote at a meeting called for that purpose.
  (5) Filed in the office of the commissioner after having been consented to and approved as contemplated by paragraphs (2), (3) and (4).
  (b) If an amendment proposed under subdivision (a) would adversely affect the rights of one or more classes of members , but not all such members, then only the members of each class whose rights would be adversely affected by the proposed amendment are entitled to vote on the proposed plan amendment.
  (c) A policyholder or member meeting prescribed by paragraph (3) or (4) of subdivision (a) shall be called by the board of directors, the chairperson of the board, or the president of the converted company. Notice of the meeting shall be given to policyholders or members entitled to vote at the meeting by mail at least 30 days prior to the date set for the meeting. Voting shall be by ballot, in person or by proxy. A quorum consists of 5 percent of the policyholders or members of the converted company entitled to vote at the meeting.
  (d) At any time before the plan amendment becomes effective, the converted company may, by resolution of a majority of the board of directors, amend the plan amendment or withdraw its plan amendment. For an amendment to a plan amendment, all references in this section to the plan amendment shall be deemed to refer to the plan amendment as amended. Any amendment of the plan amendment shall require the written consent of the commissioner. No amendment shall be deemed to change the date of adoption of the plan amendment. No amendment made after approval by the policyholders or members as provided in paragraph (3) or (4) of subdivision (a) may change the plan amendment in a manner that the commissioner determines is materially disadvantageous to any of the affected policyholders or members unless the plan amendment as amended is submitted for reconsideration under the procedures prescribed for the original plan amendment policyholder or member approval.

If the name of a mutual life insurer converting to a stock insurer pursuant to this chapter includes the word mutual, the new stock insurer may continue to use the word mutual in its name if the name includes a word or words that identify the new stock insurer as a stock insurer and the commissioner finds that the continued use of the word mutual in its name is not likely to mislead or deceive the public.

(a) Pursuant to this section, a mutual holding company may merge into a foreign mutual holding company that is domiciled in a state to which the converted insurer has transferred its domicile or will transfer its domicile concurrently with the merger. The merger shall be effected pursuant to an agreement of merger between the mutual holding company and the foreign mutual holding company in accordance with the General Corporation Law, to the extent not inconsistent with this section. The merger shall take effect upon filing the agreement of merger with the California Secretary of State after compliance with the following:
  (1) Approval of the agreement of merger by a resolution of the majority of the board of directors of the mutual holding company and signing of the agreement of merger by the parties thereto.
  (2) Approval of an amendment to the converted insurer's plan of conversion in accordance with Section 11547 by a resolution of the majority of the board of directors of the converted insurer in order to reflect appropriately the merger and transfer of domicile.
  (3) Submission of the agreement of merger and the amendment to the commissioner for consent in writing.
  (4) Approval of the agreement of merger by a majority of the members of the mutual holding company who vote at a meeting called for that purpose.
  (5) Approval of the amendment by a majority of the members of the mutual holding company who were members of the converted insurer and were entitled to vote on the original plan of conversion approved pursuant to subdivision (c) of Section 11536 and who vote at a meeting called for the purpose.
  (6) Filing of the agreement of merger in the office of the commissioner after having been consented to and approved as contemplated by paragraphs (2), (3), (4), and (5).
  (b) The submission to the commissioner prescribed in paragraph (3) of subdivision (a) shall be accompanied by a filing fee of eight thousand one hundred dollars ($8,100), evidence that the foreign mutual holding company that will survive the merger is qualified as a foreign corporation under the General Corporation Law, and any other relevant information that the commissioner may require.
  (c) The meetings of members prescribed in paragraphs (4) and (5) of subdivision (a) and shall be called by the board of directors, the chairperson of the board, or the president of the mutual holding company, and may be combined at a single meeting with separate voting by those eligible to vote on the matters referred to in paragraphs (4) and (5) of subdivision (a). Notice of the meeting shall be given by mail to members entitled to vote at the meeting at least 30 days prior to the date set for the meeting. Voting shall be by ballot, in person, or by proxy. A quorum for each such matter consists of 5 percent of the members of the mutual holding company entitled to vote at the meeting on the matter.
  (d) The commissioner shall consent to any proposed merger and amendment if he or she determines that the merger will be fair and equitable to the mutual holding company and its members.