Captive Insurance

Authorizes captive insurers to merge or convert into different
forms of captive insurers.

HOUSE OF REPRESENTATIVES                H.B. NO.           
TWENTIETH LEGISLATURE, 2000                                
STATE OF HAWAII                                            

                   A  BILL  FOR  AN  ACT



 1      SECTION 1.  The purpose of this Act is to create a mechanism
 2 by which captive insurance companies formed as stock, mutual
 3 corporations or captive reciprocal insurers and domiciled in the
 4 State under article 19 of the insurance code may be converted to
 5 or merged with or into another form of captive insurer.
 6      SECTION 2.  Chapter 431, article 19, Hawaii Revised
 7 Statutes, is amended by adding a new section to be appropriately
 8 designated and to read as follows:
 9      "431:19-     Conversion or merger of captive insurers.  (a)
10 Subject to this section, a captive insurance company domiciled in
11 the State may be converted into, or merged with, a different form
12 of captive insurer under this article.
13      (b)  A plan of conversion or merger shall be submitted to
14 and be approved by the commissioner in advance of the proposed
15 conversion or merger.  The commissioner shall not approve the
16 plan unless:
17      (1)  The commissioner finds that it is fair, equitable, and
18           consistent with law;
19      (2)  The plan has been approved:

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 1           (A)  In the case of a stock corporation, by at least
 2                two-thirds of the shares entitled to vote at a
 3                duly called regular or special meeting of the
 4                shareholders at which a quorum is present, or by
 5                unanimous written consent of the shareholders; or
 6           (B)  In the case of a mutual insurer, by at least two-
 7                thirds of the voting interest of the members of
 8                the mutual insurer at a duly called regular or
 9                special meeting of the membership at which a
10                quorum is present, or by unanimous written consent
11                of the members of the mutual insurer; or
12           (C)  In the case of a reciprocal insurer, by at least
13                two-thirds of the voting interest of the
14                subscribers of the reciprocal insurer at a duly
15                called meeting of the subscribers of the
16                reciprocal insurer, or by unanimous written
17                consent of the subscribers;
18      (3)  The plan provides for:
19           (A)  The conversion of existing stockholder, member, or
20                subscriber interests into equal or proportionate
21                interests in the new converted or merged insurer,
22                or such other method and basis for the conversion
23                of the stockholder, member, or subscriber

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 1                interests that is fair and equitable;
 2           (B)  The purchase or other disposition of the shares of
 3                any nonconsenting shareholder of a stock insurer
 4                or the policyholder interest of any nonconsenting
 5                member of a mutual insurer or the subscriber
 6                surplus account interest, if any, of a subscriber
 7                of a reciprocal insurer, in accordance with either
 8                an agreement with any nonconsenting stockholder,
 9                member, or subscriber or with the existing
10                articles or bylaws of the insurer relating to the
11                buyback buyout, or the termination of the
12                stockholder, member, or subscriber interests, if
13                any, or if no such provisions exist, then in
14                accordance with the laws of this State relating to
15                the rights of dissenting shareholders; and
16           (C)  The novation, assignment, transfer, run-off, or
17                other disposition of in force policies insuring
18                any nonconsenting shareholder, member, or
19                subscriber;
20      (4)  The conversion or merger will leave the resulting
21           converted insurer or surviving insurer of the merger
22           with capital or surplus funds reasonably adequate to
23           preserve the security of its policyholders and an

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 1           ability to continue to transact business in the classes
 2           of insurance in which it is then authorized to
 3           transact; and
 4      (5)  The commissioner finds that the conversion or merger
 5           will promote the general good of the State.
 6      (c)  After approval of the plan of conversion or merger by
 7 the commissioner, the converting or merging insurer shall file
 8 with the director of commerce and consumer affairs, appropriate
 9 articles of amendment or articles of merger, as the case may be;
10 provided that in the case of the conversion of a reciprocal
11 insurer to a stock or mutual insurer, the existing reciprocal
12 insurer shall file articles of incorporation in order to commence
13 the corporate existence of the company in the form of a stock or
14 mutual insurer.  Documents filed with the director of commerce
15 and consumer affairs pursuant to this subsection shall comply
16 with all applicable requirements for such documents as may be
17 contained in this article and chapter 415 or 415B.
18      (d)  Where a stock or mutual insurer converts to a
19 reciprocal insurer or merges with a reciprocal insurer in which
20 the reciprocal insurer will be the surviving company, the stock
21 or mutual insurer shall include in its articles of amendment the
22 fact of the conversion to, or merger with, a reciprocal and that
23 the resulting or surviving entity shall be a reciprocal insurer

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 1 under the continued jurisdiction of the commissioner, the
 2 effective date of the conversion of merger, and the name of the
 3 agent for service of process of the converted or surviving
 4 reciprocal insurer.
 5      (e)  In the case of the merger of two reciprocal insurers,
 6 no articles of amendment, merger, or incorporation shall be
 7 required to be filed with the director of commerce and consumer
 8 affairs, and the merger shall be effective upon the effective
 9 date approved by the commissioner pursuant to the plan of merger
10 filed with and approved by the commissioner.
11      (f)  Notwithstanding that the corporate existence of a stock
12 or mutual insurer which converts to, or merges with, a reciprocal
13 insurer may cease, in all cases of a conversion or merger
14 pursuant to this section, and unless otherwise provided in the
15 approved plan of conversion or merger, the converted insurer or
16 the surviving company of the merger shall assume and succeed to
17 all of the obligations and liabilities of the pre-conversion
18 insurer or the respective merging insurers and shall be held
19 liable to pay and discharge all such debts and liabilities and
20 perform such obligations in the same manner as if they had been
21 incurred or contracted by the converted or surviving merged
22 insurer.
23      (g)  An alien or foreign insurer may be a party to a merger

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                                     H.B. NO.           

 1 under this section provided that the surviving company shall
 2 otherwise qualify and be approved by the commissioner as a
 3 captive insurance company under this article.  For purposes of
 4 chapters 415 and 415B, an alien stock or mutual insurer subject
 5 to this section shall be considered a foreign corporation.
 6      (h)  This section shall not supercede section 431:19-102,
 7 and shall not apply to redomestications or conversions of captive
 8 insurers under section 431:19-102.4."
 9      SECTION 3.  New statutory material is underscored.
10      SECTION 4.  This act shall take effect upon its approval.
12                           INTRODUCED BY:  _______________________