Relates to the demutualization of domestic mutual health insurance companies

Summary of bill

The bill will add a new Section 7313 to the Insurance Law, which will authorize the reorganization of a domestic mutual accident and health insurer and provide a process by which such a reorganization to a stock accident and health insurer may be carried out. The process allows a domestic mutual accident and health insurer to apply to the superintendent of the Department of Financial Services for permission to reorganize as a domestic stock accident and health insurer.

Upon application, the superintendent will examine the mutual insurer to ensure that its proposed reorganization is in the best interests of the company's policyholders and is in compliance with all applicable laws. In addition, the superintendent will order an appraisal and report of the company's fair market value by qualified disinterested persons. If the results of the examination report and appraisal report are satisfactory, the superintendent may grant permission for submission of a plan for reorganization which must then be adopted by the company and submitted to the superintendent.

The mutual insurer must give notice of the reorganization resolution to all persons becoming policyholders or holders of agreements subject to NY Insurance Law Section one thousand three hundred seven. The superintendent will hold a public hearing, adequate notice of which shall be provided by the mutual insurer to each policyholder along with a copy of the plan of reorganization. After the hearing, the superintendent will approve the plan, refuse to approve it, or request modifications before granting approval. If the plan is approved, it must be submitted to a vote of the policyholders, with a two thirds vote in the affirmative of the votes cast required to adopt the plan.

If the plan is adopted, the superintendent shall issue a new certificate of authority to the insurer, thereby converting it into a stock insurer. The resulting stock insurer will assume all of the obligations and liabilities of the former mutual insurer.

The superintendent may terminate the reorganization if be finds at any time that the mutual insurer is impaired or that further transaction of business by the insurer will be hazardous to its policyholders, creditors, or the public.

Justification

Article 73 of the Insurance Law already provides a process for the reorganization of most types of insurance companies, including

domestic mutual life insurers under section seven thousand three hundred twelve and domestic mutual property/casualty insurers under section seven thousand three hundred seven. This bill mirrors the latter section in the Insurance Law, which provides a similar process for the conversion of domestic mutual property/casualty insurers into domestic stock property/casualty insurers.

The Insurance Law does not include a process for the reorganization of domestic mutual accident and health insurers, most likely because there are very few such companies. In fact, there is currently only one domestic mutual accident and health insurer in New York State - a company that has been headquartered in Utica, New York for nearly one hundred and thirty years. The company has written health insurance coverage and based in Utica since its inception. Recently, the company has experienced increased recession-related losses, combined with expense overruns that are becoming increasingly problematic. It simply has too much fixed expense for its size and does not have the capital to invest to grow its business. The company's AM Best rating has slipped to "B" and is expected to slip further in the coming months. This will impact the company's sustainability.

This mutual accident and health insurer needs to engage in a partnership in order to access capital to stabilize its financial position. The reorganization process detailed in this new section of the Insurance Law will facilitate the company's partnering with another insurer - a partnership that is likely essential to allow the company to stay in, and grow its, business in Utica, New York.

Legislative history

None.

Fiscal implications

None to the State.

Effective date

The bill shall take effect immediately upon becoming a law.