§ 31–906. Required provisions in a plan of conversion.

(a) The plan shall set forth the reasons for the proposed conversion.

(b) The plan shall provide that all policies in force on the effective date of conversion shall continue to remain in force under the terms of those policies, except that any voting rights of the policyholders provided for under the policies or under District law and any contingent liability policy provisions of the type described in District law shall be extinguished on the effective date of the conversion.

(c) The plan shall further provide that the holders of participating policies in effect on the date of conversion shall continue to have the right to receive dividends as provided in the participating policies, if any.

(d) Except mutual company’s life policies, guaranteed reviewable accident and health policies, and noncancelable accident and health policies, the converted stock company may issue the insured a nonparticipating policy as a substitute for the participating policy upon the renewal date of a participating policy.

(e)(1) The plan shall provide that each eligible member is to receive, without payment, nontransferable subscription rights to purchase a portion of the capital stock of the converted stock company. As an alternative to subscription rights in the converted stock company, the plan may provide that each eligible member is to receive, without payment, nontransferable subscription rights to purchase a portion of the capital stock of a corporation organized and owned by the mutual company for the purpose of purchasing and holding all the stock of the converted stock company, or a stock insurance company owned by the mutual company into which the mutual company will be merged.

(2) In the case of the conversion of an existing mutual insurance holding company to a stock company, if shares of common stock in an intermediate stock holding company have previously been issued to persons other than the mutual holding company, the plan of conversion shall provide that such common stockholders shall receive an ownership interest in the converted mutual insurance holding company equal to the percentage ownership in the intermediate stock holding company immediately before the conversion, with the subscription rights to the balance of the shares to be distributed as provided under paragraph (1) of this subsection.

(f) The subscription rights shall be allocated in whole shares among the eligible members using a fair and equitable formula. This formula may, but need not, take into account how the different classes of policies of the eligible members contributed to the surplus of the mutual company.

(g) The plan shall provide a fair and equitable means for the allocation of shares of capital stock in the event of an oversubscription to shares by eligible members exercising subscription rights received pursuant to subsection (e) of this section.

(h) The plan shall provide that any shares of capital stock not subscribed to by eligible members exercising subscription rights received under subsections (e) and (f) of this section shall be sold in a public offering through an underwriter. If the shares of capital stock not subscribed to by eligible members is so small in number as to not warrant the expense of a public offering, the plan of conversion may provide for the purchase of the unsubscribed shares by a private placement or other alternative method approved by the Commissioner that is fair and equitable to the eligible members.

(i) The plan shall set the total price of the capital stock equal to the estimated pro forma market value of the converted stock company based upon an independent evaluation by a qualified person. The pro forma market value may be the value or range of values that is estimated to be necessary to attract full subscription for shares as indicated by the independent evaluation.

(j) The plan shall set the purchase price of each share of capital stock equal to any reasonable amount that will not inhibit the purchase of shares by members. The purchase price of each share shall be uniform for all purchasers.

(k) The plan shall provide for a closed block of business for participating life policies of a Class 1 mutual company.

(1) The plan shall provide that a Class 1 mutual company’s participating life policies in force on the effective date of the conversion shall be operated by the converted stock company for dividend purposes as a closed block of participating business, except that any or all classes of group participating policies may be excluded from the closed block.

(2) The plan shall establish one or more segregated accounts for the benefit of the closed block of business and shall allocate to those segregated accounts enough assets of the mutual company so that the assets together with the revenue from the closed block of business are sufficient to support the closed block, including, but not limited to, the payment of claims, expenses, taxes, and any dividends that are provided for under the terms of the participating policies, with appropriate adjustments in the dividends for experience changes. The plan shall be accompanied by an opinion of a qualified actuary or an appointed actuary who meets the standards set forth in the insurance laws or regulations for the submission or actuarial opinions as to the adequacy of reserves or assets. The opinion shall relate to the adequacy of the assets allocated to the segregated accounts in support of the closed block of business. The actuarial opinion shall be based on a method of analysis deemed appropriate for those purposes by the Actuarial Standards Board.

(3) The amount of assets allocated to the segregated accounts of the closed block shall be based upon the mutual company’s last annual statement that is updated to the effective date of the conversion.

(4) The converted stock company shall keep a separate accounting for the closed block and shall make and include in the annual statement to be filed with the Commissioner each year a separate statement showing the gains, losses, and expenses properly attributable to the closed block.

(5) Periodically, upon the Commissioner’s approval, those assets allocated to the closed block, as provided in paragraph (2) of this subsection, that are in excess of the amount of assets necessary to support the remaining policies in the closed block shall revert to the benefit of the converted stock company.

(6) The Commissioner may waive the requirement for the establishment of a closed block of business if the Commissioner deems it to be in the best interest of the participating policyholders of the mutual insurer to do so.

(l) The plan shall provide that any one person or group of persons acting in concert may not acquire, through public offering or subscription rights, more than 5% of the capital stock of the converted stock company for a period of 5 years from the effective date of the plan except with the approval of the Commissioner. This limitation does not apply to any entity that is to purchase 100% of the capital stock of the converted company as part of the plan of conversion approved by the Commissioner or to a purchase of stock by a tax-qualified employee benefit plan pursuant to subscription rights granted to that plan as authorized under § 31-907(b) and to a purchase of unsubscribed stock pursuant to subsection (h) of this section.