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Maine.gov > PFR Home > Administrative & Enforcement Actions > INS 01-2536 : Hearing Decision

 

STATE OF MAINE
DEPARTMENT OF PROFESSIONAL AND FINANCIAL REGULATION
BUREAU OF INSURANCE


IN RE APPLICATION OF MAINE MUTUAL FIRE INSURANCE COMPANY FOR APPROVAL OF PLAN TO REORGANIZE AS A STOCK INSURER WITHIN A MUTUAL HOLDING COMPANY STRUCTURE

Docket No. INS 01-2536

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DECISION AND ORDER

This Decision and Order is issued in the above-captioned proceeding by Alessandro A. Iuppa, Superintendent of the Maine Bureau of Insurance (the "Superintendent").

I. THE PROPOSED REORGANIZATION

On March 16, 2001, Maine Mutual Fire Insurance Company ("Maine Mutual"), a mutual property and casualty insurer, submitted to the Superintendent an application seeking approval of a Plan of Reorganization, pursuant to 24-A M.R.S.A. §§ 3488, et seq., (the "Application"). By the Application, Maine Mutual applied for approval of a corporate reorganization into a stock property and casualty insurance company that is an indirect subsidiary, and at all times at least a 51% controlled subsidiary, of a mutual insurance holding company (the "MHC").

The Plan of Reorganization contemplates that on the effective date of the proposed reorganization Maine Mutual would convert into a stock property and casualty insurance company and change its name to what is currently anticipated to be "The Maine Insurance Company." The Maine Insurance Company would be the same company as Maine Mutual, except that it would be reorganized as a stock insurer. On the effective date of the proposed reorganization, the Plan of Reorganization contemplates that members of The Maine Insurance Company (formerly known as Maine Mutual) would become members of the MHC (anticipated to be named "Maine Mutual Group"). The Plan of Reorganization contemplates that the membership interests of those members in The Maine Insurance Company (formerly known as Maine Mutual) would be extinguished and, instead, those members would have membership interests in the MHC. Maine Mutual asserts that each of its policies of insurance that are in force on the effective date of the proposed reorganization would continue as a policy of insurance of The Maine Insurance Company, with all contract rights remaining as they were immediately prior to the proposed reorganization.

The Plan of Reorganization contemplates that The Maine Insurance Company would issue all of its initial shares of capital stock to the MHC. In turn, the MHC would transfer those shares to an intermediate stock holding company (the "SHC", anticipated to be named "MMG Financial Services, Inc.") in exchange for all of the SHC's initially offered shares of Class B Common Stock. Prior to the effective date of the proposed reorganization, therefore, the Plan of Reorganization contemplates that Maine Mutual Group would be incorporated as a mutual holding company and that MMG Financial Services, Inc. would be incorporated as an intermediate stock holding company.

In summary, the Plan of Reorganization proposes the following:

(a) Maine Mutual will convert into, and become, a stock property and casualty insurance company by amending and restating its Articles of Incorporation to, among other things, change its name to "The Maine Insurance Company" and to authorize the issuance of capital stock.

(b) Prior to the Effective Date of the Reorganization, "Maine Mutual Group" will be incorporated as a mutual holding company, and "MMG Financial Services, Inc." will be incorporated as a Maine corporation that is an intermediary stock holding company.

(c) The membership interests of Maine Mutual's policyholders will become membership interests in the MHC, and the policyholders' membership interest in Maine Mutual will be extinguished.

(d) The Maine Insurance Company (formerly Maine Mutual) will issue all of its initial shares of capital stock to the MHC.

(e) The MHC will in turn transfer all of the shares to the SHC in exchange for all of the SHC's Class B Common Stock.

(f) Every policy of insurance of Maine Mutual that is in force on the effective date of the reorganization will continue as a policy of insurance of The Maine Insurance Company following the effective date of the reorganization, and all of the contract rights of such policies will be as they existed immediately prior to the effective date of the reorganization.

As a result of these steps, the Plan of Reorganization contemplates that at the effective date of the proposed reorganization:

(1) The members would have membership interests in, and would control, the MHC.

(2) The MHC would own the stock of, and would control, the SHC.

(3) The SHC would own the stock of, and would control, The Maine Insurance Company (formerly known as Maine Mutual).

(4) The members' policies would continue with The Maine Insurance Company.

The Plan of Reorganization is first subject to approval by the Superintendent, following a public hearing for which Maine Mutual's directors, officers, employees, and policyholders must be provided notice and the right to appear and be heard. If the Superintendent grants approval, Maine Mutual will call a meeting of its policyholders to consider and vote for or against the proposal to approve the Plan of Reorganization and the transactions contemplated thereby.

II. PROCEDURAL HISTORY

Following the submission of the Application with the Superintendent on March 16, 2001, Maine Mutual requested and received two (2) successive 60-day extensions to defer consideration of and action on the Application by the Superintendent until August 20, 2001.

On August 29, 2001, the Superintendent issued a Notice of Pending Proceeding, Prehearing Conference and Hearing (the "Notice"). The Notice was published twice in the Portland Press Herald, Maine Sunday Telegram, Bangor Daily News, Kennebec Journal, Manchester Union Leader and Burlington Free Press. Consistent with the Notice, a prehearing conference was held as scheduled on October 5, 2001, and the public hearing was conducted on November 16, 2001. No applications for intervention to join as parties to the proceeding were made by any persons.

The Superintendent issued a Procedural Order on October 1, 2001 for purposes of establishing certain procedures for the conduct of the proceeding. On October 4, 2001, a Protective Order was issued by the Superintendent providing confidential treatment for certain portions of Maine Mutual's Three Year Business Plan. At the hearing, the Superintendent ordered that the terms of the October 4th Protective Order similarly applied to certain portions of Maine Mutual's Updated Three Year Business Plan that was submitted on October 16, 2001, together with the Index Identifying Outline of Changes to Updated Business Plan that was also submitted on October 16th.

On November 9, 2001, Maine Mutual submitted the prefiled testimony of its witness, Larry Shaw, President and Chief Executive Officer of Maine Mutual, together with exhibits.

Offered and admitted into evidence at the November 16th public hearing were Maine Mutual's confidential exhibits C-3 and C-5, and non-confidential exhibits 1, 2, 4, 6, 7, 8, 9, 10 and 11. In addition to the documentary exhibits, the oral testimony under oath of Larry Shaw was given at the November 16th public hearing.

III. STAUTORY APPROVAL CRITERIA

As identified in the Notice, the Superintendent may not approve Maine Mutual's Plan of Reorganization unless:

(1) The terms and conditions of the plan are fair and equitable (24-A M.R.S.A. §3488(4)(A));

(2) The plan is subject to approval by the vote of not less than 2/3 of Maine Mutual's policyholders voting on the plan in person, by proxy, or by mail at a meeting of policyholders pursuant to a reasonable notice of the meeting and procedures as approved by the Superintendent. The plan must specify that only persons who were Maine Mutual policyholders both at least one year before the submission of the plan to the Superintendent and on a subsequent date before the vote found reasonable by the Superintendent are entitled to vote. Each eligible policyholder is entitled to one vote (24-A M.R.S.A. §3488(4)(B));

(3) The plan, when completed, would provide paid-in capital stock for The Maine Insurance Company in an amount not less than the minimum paid-in capital stock required of a new domestic stock insurer upon initial authorization to transact like kinds of insurance, together with expendable surplus funds in an amount not less than ½ of such required capital stock (24-A M.R.S.A. §3488(4)(C)); and

(4) The Superintendent finds that Maine Mutual's management has not, through reduction in volume of new business written or cancellation or any other means, sought to reduce, limit, or affect the number or identity of Maine Mutual's members to be entitled to participate in the reorganization plan or to secure for the individuals comprising management any unfair advantage through the reorganization plan (24-A M.R.S.A. §3488(4)(D)).

In addition to the foregoing, the Superintendent, in his discretion, may consider such other relevant issues identified by parties or otherwise.

IV. FINDINGS OF FACT AND CONCLUSIONS OF LAW

At the public hearing held on November 16, 2001, documentary and testimonial evidence was admitted into the record of this proceeding. Based on a review of the evidence contained in the record of this proceeding, the Superintendent finds that no issues of material concern exist with respect to Maine Mutual's abilities to satisfy the statutory approval criteria set forth in 24-A M.R.S.A. § 3488 (4)(A) through (D), summarized as follows:

(1) No evidence was presented to the contrary and the Superintendent finds that the terms and conditions of Maine Mutual's Plan of Reorganization are fair and equitable.

(2) No evidence was presented to the contrary and the Superintendent finds that Maine Mutual's Plan of Reorganization:

(a) is subject to approval by the vote of not less than 2/3 of Maine Mutual's policyholders voting on the plan in person, by proxy or by mail at a meeting of policyholders pursuant to a reasonable notice of the meeting; and

(b) specifies that only persons who were Maine Mutual policyholders both at least one year before the submission of the plan to the Superintendent and on a subsequent date before the vote found reasonable by the Superintendent are entitled to vote; and

(c) specifies that each eligible policyholder is entitled to one vote.

(3) No evidence was presented to the contrary and the Superintendent finds that Maine Mutual's Plan of Reorganization, when completed, would provide paid-in capital stock for The Maine Insurance Company in an amount not less than the minimum paid-in capital stock required of a new domestic stock insurer upon initial authorization to transact like kinds of insurance, together with expendable surplus funds in an amount not less than ½ of such required capital stock

(4) No evidence was presented that demonstrates and the Superintendent does not find that Maine Mutual's management has, through reduction in volume of new business written or cancellation or any other means, sought to reduce, limit, or affect the number or identity of Maine Mutual's members to be entitled to participate in the Plan of Reorganization or to secure for the individuals comprising management any unfair advantage through the Plan of Reorganization.

For all of the foregoing reasons, the Superintendent concludes that Maine Mutual has met the statutory approval criteria set forth in 24-A M.R.S.A. § 3488 (4)(A) through (D).

V. ORDER

The application of Maine Mutual Fire Insurance Company for approval of the Plan of Reorganization is APPROVED, subject to the following conditions:

(1) Prior to the Effective Date of the Plan of Reorganization, Maine Mutual shall submit to the Superintendent:

(a) rulings from the Internal Revenue Service or, in the alternative, an opinion of independent counsel, substantially to the effect that the Plan of Reorganization will constitute a tax-free transaction for Maine Mutual Fire Insurance Company, the Mutual Holding Company, the Stock Holding Company and the Policyholders.

(b) a Definitive Amendment substantially to the effect described in the Exhibit 10 "Agreement in Principle" formally amending certain terms of Maine Mutual Fire Insurance Company's $4,000,000 Surplus Note held by Mid-Atlantic States Investment Company.

(c) a copy of the actual Information Statement delivered to Policyholders, a draft of which is contained in Exhibit 8.

(d) written certification by Maine Mutual that it has obtained approval of the Plan of Reorganization by the vote of not less than 2/3 of Maine Mutual's policyholders voting on the plan in person, by proxy or by mail at a meeting of policyholders.

(2) Maine Mutual shall promptly submit to the Superintendent for his approval the "Policyholders' Meeting Record Date," as defined in the Plan of Reorganization, once it is set by the Board of Directors.

(3) Maine Mutual shall promptly submit to the Superintendent any amendment to the Plan of Reorganization or related documents which in any manner modifies any terms, conditions or provisions of the Plan of Reorganization or related documents from those contained in the March 16, 2001 filing, as supplemented, and arising on or after November 16, 2001.

(4) Consistent with Exhibit 11 wherein Maine Mutual, on behalf of the MHC, represented to the Securities and Exchange Commission that the insurer would enter into a binding undertaking with the Maine Bureau of Insurance, and in addition to all other requirements of Maine law, the Mutual Holding Company (referred to by Maine Mutual as "Maine Mutual Group") shall be subject to regulation by the Superintendent in the following additional ways:

(a) The Superintendent shall retain jurisdiction over the Mutual Holding Company to assure that policyholders' interests are protected.

(b) Any amendment to the Mutual Holding Company's Certificate of Organization must receive the Superintendent's prior written approval.

(c) The Mutual Holding Company's ability to engage in non-insurance related activities and invest in or acquire other subsidiaries will be limited to the same extent as a domestic insurance company. The Mutual Holding Company will also limit its investment of assets to comply with the investment restrictions imposed upon domestic insurance companies, excepting its investment in one or more intermediate holding companies, unless the Superintendent in writing expressly permits otherwise.

(d) The Insurer (referred to by Maine Mutual as "The Maine Insurance Company") and the Intermediate Stock Holding Company (referred to by Maine Mutual as "MMG Financial Services, Inc.") will follow the notice and non-objection process as established by the provisions of 24-A M.R.S.A. § 3489(2)(F) for underwriting public offerings.

VI. NOTICE OF APPEAL RIGHTS

This Decision and Order is a final agency action of the Superintendent of Insurance within the meaning of the Maine Administrative Procedure Act. It may be appealed to the Superior Court in the manner provided by 24-A M.R.S.A. § 236, 5 M.R.S.A. § 11001, et seq. and M.R. Civ. P. 80C. Any party to the proceeding may initiate an appeal within thirty days after receiving this notice. Any aggrieved non-party whose interests are substantially and directly affected by this Decision and Order may initiate an appeal within forty days of the issuance of this decision. There is no automatic stay pending appeal; application for stay may be made in the manner provided in 5 M.R.S.A. § 11004.

PER ORDER OF THE SUPERINTENDENT

DATED: December 4, 2001 _________________________________
ALESSANDRO A. IUPPA
Superintendent
Maine Bureau of Insurance



 

 

Last Updated: January 16, 2014