2013 ORS § 732.612¹
Consideration for membership interest in converting or reorganizing mutual insurer
  • kinds of consideration
  • allocation of consideration

(1) In the case of a conversion or in the case of a reorganization that involves the organization of a stock holding company, consideration for the membership interests of the eligible members of a converting mutual insurer consists of one or any combination of the following:

(a) Nontransferable subscription rights to purchase shares of capital stock of the issuer as described in subsection (2) of this section;

(b) Shares of capital stock of the issuer as described in subsection (3) of this section;

(c) Cash;

(d) Premium credits;

(e) In the case of a converting mutual insurer transacting primarily property or casualty insurance, or both, certificates of contribution that bear interest as established in the plan, that are repayable within 10 years or, if approved by the Director of the Department of Consumer and Business Services, within a longer period and that are repayable on terms set forth in the plan;

(f) In the case of individual policies of life insurance, credits to policy account values or other enhancements in policy benefits; and

(g) Any other form of consideration described in the plan and approved by the director.

(2) A plan may provide for allocating to eligible members, without payment, nontransferable subscription rights to purchase shares of capital stock of the issuer. In addition, the plan must:

(a) Allocate the subscription rights in whole shares among the eligible members. In the case of a converting mutual insurer transacting primarily life or health insurance, or both, the subscription rights must be allocated in accordance with subsection (6) of this section. In the case of a converting mutual insurer transacting primarily property or casualty insurance, or both, the subscription rights must be allocated in accordance with subsection (7) of this section.

(b) Specify the expiration date of the subscription rights or authorize the board of directors of the converting mutual insurer to establish the expiration date. An eligible member may exercise the subscription rights, in whole or in part, in the manner described in the plan including, but not limited to, paying the subscription exercise price for the shares purchased. The plan may require an eligible member who exercises subscription rights to purchase a minimum number of shares unless the director determines that a minimum purchase requirement is unreasonable based on the interests of the eligible members, the converted stock insurer and the issuer. The proposed subscription exercise price per share must be set forth in the plan and must be less than the price at which shares of capital stock of the issuer will be first offered in accordance with paragraph (e) of this subsection. The boards of directors of the converting mutual insurer and the issuer shall determine the proposed subscription exercise price per share and the director must approve the proposed price based on the interests of the eligible members, the policyholders, the converted stock insurer and the issuer.

(c) Provide that to the extent an eligible member does not exercise, in whole or in part, subscription rights allocated to the eligible member, the eligible member instead will receive one or more of the forms of consideration described in subsection (1) of this section that are specified in the plan.

(d) Set the pro forma market value of the converted stock insurer, which is the value that is estimated to be necessary to attract full subscription for all shares offered by the issuer. The pro forma market value of the converted stock insurer must be determined by an independent valuation by a qualified person. The price per share at which the shares of capital stock of the issuer are first offered in accordance with paragraph (e) of this subsection must be equal to such pro forma market value of the converted stock insurer divided by the number of shares that would be issued if all subscription rights allocated to the eligible members are exercised.

(e) Further provide that any shares of capital stock of the issuer for which subscription rights are allocated to the eligible members but that the eligible members do not purchase by exercising the members subscription rights must be sold in a public offering through an underwriter, unless the number of shares that the eligible members do not purchase is so small in number that the expense of a public offering is not warranted, in which case the plan may provide for the sale of the shares by private placement or through any other fair and equitable means approved by the director. If the director finds that market conditions or other circumstances may cause the interests of the eligible members to be adversely affected, the director may require the offering of shares to be postponed or the terms of the offering to be modified.

(3) A plan may provide for allocating to the eligible members, without payment, shares of capital stock of the issuer. The plan must allocate the shares of capital stock of the issuer in whole shares among the eligible members. In the case of a converting mutual insurer transacting primarily life or health insurance, or both, the shares must be allocated in accordance with subsection (6) of this section. In the case of a converting mutual insurer transacting primarily property or casualty insurance, or both, the shares must be allocated in accordance with subsection (7) of this section. If shares of capital stock of the issuer constitute the only consideration the eligible members will receive and the plan does not provide for selling additional shares of capital stock or other securities of the issuer, the plan does not need to include the valuation of the converting mutual insurer. If the plan provides for allocating to the eligible members, without payment, shares of capital stock of the issuer, the plan may establish a reasonable period within which the eligible members to whom such shares are issued may not dispose of such shares.

(4) If shares of capital stock of the issuer are issued in accordance with subsection (2) or (3) of this section, the issuer must use the issuers best efforts to encourage and assist in establishing a public market for the shares unless the director finds that a public market is not feasible or is not in the best interests of the eligible members, the converted stock insurer and the issuer. The director may provide that subscription rights or shares of capital stock of the issuer do not need to be allocated under subsection (2) or (3) of this section to eligible members who reside in a foreign country or other jurisdiction if a small number of eligible members reside in the foreign country or other jurisdiction and any registration, qualification, filing or other compliance matters under the laws of the foreign country or other jurisdiction with respect to the shares of capital stock of the issuer would be impracticable or unduly burdensome upon the issuer.

(5) Regardless of the form of consideration for the membership interests of the eligible members of a converting mutual insurer, the plan may provide for selling additional shares of capital stock or other securities of the issuer to persons other than the eligible members. The issuer shall offer such additional shares or other securities at a price and on terms determined by the boards of directors of the converting mutual insurer and the issuer.

(6) For a converting mutual insurer that transacts primarily life or health insurance, or both, the consideration specified in subsection (1) of this section must be allocated among the eligible members in accordance with a fair and equitable formula. The formula for allocating the consideration among the eligible members must either:

(a) Allocate a fixed component of consideration per capita among the eligible members and allocate a variable component of consideration among the eligible members in proportion to the cash value of policies the eligible members hold; or

(b) Allocate the consideration among the eligible members in any other manner approved by the director.

(7) For a converting mutual insurer transacting primarily property or casualty insurance, or both, the consideration specified in subsection (1) of this section must be allocated among the eligible members in accordance with a fair and equitable formula. The formula for allocating the consideration among the eligible members must either:

(a) Allocate the consideration among the eligible members in the proportion that the aggregate premiums the converting mutual insurer earns on the eligible members policies in force during a specified period before the record date described in ORS 732.611 (Eligible member of domestic mutual insurer or mutual holding company) (1) bear to the aggregate premiums that the converting mutual insurer earns during the same period on all eligible members policies in force. The specified period must be 36 months unless the plan specifies another period.

(b) Allocate the consideration among the eligible members in any other manner approved by the director.

(8) The form of consideration to be given to a class or category of eligible members may differ from the form of consideration to be given to another class or category of eligible members. The choice of the form of consideration to be given to a class or category of eligible members may take into account the type of policy, size of policy, tax status of the eligible members and other factors that the director determines are appropriate.

(9) In the case of a conversion or in the case of a reorganization that involves the organization of a stock holding company, a member of the converting mutual insurer who is not an eligible member is not entitled to receive any consideration for the members membership interest.

(10) In the case of a reorganization that involves the organization of a mutual holding company, the membership interests of the members of the converting mutual insurer, whether or not the members are eligible members, must be merged into the mutual holding company, and consequently the membership interests of the members of the converting mutual insurer must become membership interests in the mutual holding company. [1997 c.771 §6; 2013 c.370 §33]