PA 17-2—sHB 7025

Insurance and Real Estate Committee


SUMMARY: This act allows a domestic insurer to divide into two or more insurers and allocate assets and obligations, including insurance policies, to the new companies (i.e., “new” or “resulting” insurers). It does so by creating a process that is legally distinct from a merger, consolidation, dissolution, or formation. Under the new process, resulting insurers are deemed legal successors to the dividing insurer and any assets and obligations are allocated to them as a result of succession and not by direct or indirect transfer.

The act requires dividing insurers to develop a plan of division, which must be approved first by the dividing insurer and then by the insurance commissioner. The act establishes the plan's required components and specifies the effects of the division, including how obligations and interests are allocated. It also:

1. prohibits the commissioner from approving a plan unless each new insurer created by the division is issued a license;

2. specifies how the commissioner must apply the state's Uniform Fraudulent Transfer Act (UFTA) in assessing the division;

3. makes certain documents submitted to her for the division confidential;

4. requires the dividing insurer to pay for any division-related expenses the commissioner incurs; and

5. allows the commissioner to permit the formation of a domestic insurer established solely to, simultaneously with a division, merge or consolidate with an existing domestic insurer.

The act also authorizes the commissioner to adopt implementing regulations and makes conforming changes.

EFFECTIVE DATE: October 1, 2017


Components ( 2)

Under the act, an insurer may divide into two or more resulting insurers (i.e., a new insurer or a dividing insurer that survives a division) according to a plan of division, subject to the commissioner's approval. The plan must include:

1. the name of the domestic insurer seeking to divide and each resulting insurer that the proposed division creates;

2. for each resulting insurer, the proposed “private organic rules” and, if the insurer will be a filing entity, the proposed “public organic document” (see below);

3. the allocation of (a) property that will not be commonly owned by all resulting insurers and (b) policies and other liabilities of the domestic insurer to which not all of the resulting insurers will be jointly and severally liable;

4. how interests in the new insurers will be distributed among the dividing insurer or its interest holders;

5. a reasonable description of policies or other liabilities, “capital,” “surplus,” and other “property” proposed for allocation to resulting insurers, including how reinsurance contracts are to be allocated;

6. all terms and conditions required by state law and the dividing insurer's “organic rules;” and

7. all other terms and conditions of the division.

Under the act, “private organic rules” are rules, whether or not recorded (i.e., inscribed on a tangible medium, stored electronically, or by other means, and retrievable in perceivable form) that govern an entity's internal affairs, are binding on all of its interest holders, and are not part of the entity's public organic document, if any. A “public organic document” is the public record and any amendments or restatements, that creates an entity when filed. “Capital” is the capital stock component of statutory surplus, as defined in the National Association of Insurance Commissioners Accounting Practices and Procedures Manual (NAIC manual). “Property” is all property, including real, personal, mixed, tangible, and intangible property, and any right or interest to any property, including rights under contracts or binding agreements. “Surplus” is the total statutory surplus, less capital stock, adjusted for the par value of any treasury stock, calculated in accordance with the NAIC manual.

The act requires the plan to include additional information based on whether the insurer will survive the division. If so, the plan must also include:

1. all proposed amendments, if any, to the dividing insurer's public organic documents and private organic rules;

2. if the dividing insurer intends to cancel some, but not all, “interests” in the dividing insurer, the way it will cancel the interests; and

3. if the dividing insurer intends to convert some, but not all, interests in the dividing insurer into any combination of interests, securities, obligations, money, other property, interest or security acquisition rights, a statement disclosing how it will convert these interests.

Under the act, “interests” means a governance or transferable interest in an unincorporated entity or a share or membership in a corporation. A “governance interest” is the right under an entity's organic law or rules, other than as governor, agent, assignee, or proxy, to (1) receive or demand access to entity information, including its books and records; (2) vote for the entity's governors; or (3) receive notice of or vote in the entity's internal affairs or other issues. A “transferable interest” is the right under an entity's organic law to receive distributions from the entity.

If the domestic insurer will not survive the division, the plan must include how the dividing insurer will cancel or convert its interests in the dividing insurer into interests, securities, obligations, money, other property, interests or securities acquisition rights, or any combination of these.

The act also (1) allows a plan of division's terms to be made dependent on objectively ascertainable facts not in the plan and (2) subjects the plans to certain existing requirements for corporate documents filed with the secretary of state, including what constitutes objectively ascertainable facts.

Approving and Filing the Plan ( 3)

The act prohibits an insurer from filing a plan of division with the commissioner unless it has been approved according to the insurer's organic rules or, if its organic rules do not provide for division approval, all organic laws and rules for approval of a merger. “Organic law” is any section of the general statutes governing the dividing insurer's internal affairs, excluding the act's provisions and certain entity merger, conversion, and domestication laws. “Organic rules” are the dividing insurer's private organic rules and public organic document.

The act authorizes insurers to file plans without the approval of interest holders unless the:

1. dividing insurer's organic rules require such approval;

2. plan amends the organic rules to require it;

1. domestic insurer will not survive the division and all interests and other securities and obligations of the new insurer will be owned solely by the dividing insurer; or

1. domestic insurer has only one class of interests outstanding and each new insurer's interests and other securities and obligations will not be proportionally distributed to the interest holders.

In certain circumstances, the act requires divisions to be treated as mergers. If an insurer's organic rules adopted before October 1, 2017 require a specific number or percentage of governors or interest holders to approve a merger, or impose other special procedures for a merger proposal or adoption, the insurer must adhere to the merger provisions in proposing or adopting a plan of division.

Additionally, if the dividing insurer has certain debt or obligations with provisions that (1) require the obligee's consent to a merger or (2) treat a merger as a default, those provisions apply to the division as if it was a merger. This applies to any of the following if they were issued, incurred, or executed by the domestic insurer before October 1, 2017: debt securities; secured or unsecured notes or similar evidence of indebtedness for money borrowed; indentures or other contracts relating to indebtedness; or provisions of any other type of contracts except insurance policies, annuities, or reinsurance agreements.

The act specifies that any provisions of such debt or the dividing insurer's organic rules concerning merger approvals amended on or after October 1, 2017 must apply to a division only according to its express terms.

Commissioner's Approval ( 4)

Under the act, a division is not effective until approved by the insurance commissioner. She may first, if she deems it to be in the public interest, require reasonable notice and a public hearing. (With certain exceptions, the act requires hearings to be conducted according to the state's Uniform Administrative Procedure Act.) Upon approving the plan, she must issue the dividing insurer a certificate of approval on a form she prescribes.

The commissioner must approve a plan of division unless she finds the:

1. interest of any policyholder or interest holder will not be adequately protected or

2. proposed division constitutes a fraudulent transfer under UFTA, which is designed to protect creditors (see BACKGROUND).

If the dividing insurer will survive the proposed division, the commissioner must apply UFTA to the dividing insurer only in its capacity as a resulting insurer. The act prohibits the commissioner from applying UFTA to the dividing insurer if it will not survive the proposed division.

In applying UFTA to each resulting insurer, the commissioner must treat (1) the resulting insurer as a debtor, (2) liabilities allocated to the resulting insurer as obligations incurred by a debtor, (3) the resulting insurer as not having received a reasonably equivalent value in exchange for incurring such obligations, and (4) property allocated to the resulting insurer as remaining property.

Confidentiality ( 4)

Except for a plan of division and its incorporated materials, the act requires all information, documents, materials, and copies submitted to, obtained by, or disclosed to the commissioner in connection with a plan's approval to be confidential and unavailable for public inspection.

Expenses ( 4)

Dividing insurers must pay all expenses the commissioner incurs in reviewing and approving a division, including expenses for attorneys, actuaries, accountants, and other experts not otherwise a part of the commissioner's staff who may be reasonably necessary to conduct the review. The act allows a dividing insurer to allocate these expenses in a plan of division in the same manner as any other liability (e.g., assign them to one of the newly created companies).

Licensure ( 4)

The act appears to require new insurers to meet current state licensing requirements. It does so by prohibiting the commissioner from approving a plan unless she has issued licenses to the new insurers that the division will create. However, she may waive licensing requirements if the new insurer is a non-surviving party to a merger.

Non-Surviving Party to a Merger ( 4 & 10)

The act establishes conditions under which the commissioner may approve the creation of a new insurer as a party to a merger or division and exempt it from state licensure requirements. The commissioner may permit the formation of a domestic insurer established for the sole purpose of merging or consolidating with an existing domestic insurer simultaneously with an approved division. An insurer formed in this way is deemed to exist before the merger and division take effect, but only as a party to the merger and division. Any policies, annuities, or reinsurance agreements allocated to this insurer must become obligations of the surviving insurer at the same time the division and merger are effective. In such cases, the act (1) allows the commissioner, at the request of the dividing insurer, to waive existing licensing, merger, consolidation, and other state insurance laws and (2) exempts such insurers from licensure requirements. The act deems the plan of merger approved by the new insurer if it was approved by the dividing insurer as part of the division.

By law, an insurance company merger is not effective until a certificate of merger is filed with the secretary of the state (CGS 38a-154). The act requires that this certificate state that the merger was approved pursuant to these provisions.

Certificate of Division ( 5)

Once the commissioner approves a division, the act requires the dividing insurer's officer or duly authorized representative to sign a certificate of division, which must be delivered to the secretary of the state. The certificate of division is effective when filed with the secretary or on a later date that is (1) specified in the plan of division and (2) within 90 days after the filing. A division is effective when the certificate takes effect.

The certificate of division must include:

1. the name of the dividing insurer and each new insurer the division creates;

2. whether the dividing insurer will survive the division;

3. the division's effective date;

4. statements that the dividing insurer and commissioner, respectively, approved the division according to the act's provisions;

5. a reasonable description of the dividing insurer's capital, surplus, other property and policies, and other liabilities allocated to resulting insurers; and

6. a statement that the dividing insurer, within 10 days after filing the plan of division, provided reasonable notice to each reinsurer that is a party to a reinsurance contract allocated in the plan.

In certain circumstances, the certificate must include additional information. If the dividing insurer survives and is a filing entity (i.e., an entity created by filing a public organic document), the certificate must include any amendments to its public organic documents approved as part of the plan of division. For each new resulting insurer that is a filing entity, the certificate must include its public organic documents, excluding the name and address of an incorporator of a corporation, organizer of a limited liability company, or similar person with respect to other entities. If the new insurer is a domestic limited liability partnership, the certificate must include its certificate of limited liability partnership.

Any new insurer's public organic document must satisfy state law. However, the act specifies that it need not be signed or include any provision unnecessary for a restatement of the document.


The act allows an insurer, under certain circumstances, to amend or abandon a plan of division.

Amending a Plan of Division ( 2)

A dividing insurer may amend a plan in accordance with the plan's procedures. Absent such procedures, a dividing insurer may amend the plan in any manner determined by the dividing insurer's governors. (The act defines a “governor” as a person under whose authority an entity exercises its powers and under whose direction the entity manages its business and affairs.)

Under the act, an interest holder that was entitled to vote on or consent to approval of the plan of division is also entitled to vote on any amendment changing:

1. the amount or kinds of interests, securities, obligations, money, other property, interests or securities acquisition rights that interest holders receive;

2. the resulting insurer's public organic document or private organic rules in effect after the division, except for changes that do not require interest holder approval under its organic law or rules; or

3. any other terms or conditions of the plan that, if changed, would adversely affect the interest holders in any material respect.

Abandoning a Plan of Division ( 2)

A dividing insurer may abandon an approved plan of division without any action by the interest holders and in accordance with the plan's procedures, or in the absence of procedures, as determined by the dividing insurer's governors.

If the dividing insurer has already delivered a certificate of division to the secretary, it may abandon the plan by delivering to her a certificate of abandonment. The certificate of abandonment is effective when filed, upon which the dividing insurer is deemed to have abandoned the division.

The act prohibits a dividing insurer from abandoning a plan of division once it becomes effective.


Effects ( 6)

The act establishes the effects of the division, as follows:

1. If the dividing insurer survives the division, it continues its corporate existence and its public organic document and private organic rules, if any, must be amended according to the certificate of division and plan of division, respectively.

2. If the dividing insurer does not survive the division, it ceases to exist.

3. Each new insurer created by the division comes into existence and must hold any capital, surplus and other property allocated to it as a successor to the dividing insurer, and not by direct or indirect transfer. Its public organic document and private organic rules become effective and, if it is a limited liability partnership, its partnership also becomes effective. (The act defines “transfer” to include an assignment, conveyance, sale, lease, and encumbrance, including a mortgage or security interest, gift, or transfer by operation of law.)

4. The dividing insurer's capital, surplus, and other property (a) vests, if it is allocated by the plan of division, in resulting insurers according to the plan or remains vested in the dividing insurer; (b) if not allocated by the plan, remains vested in the dividing insurer, if the dividing insurer survives, or is allocated to, and vests equally in, the resulting insurers as tenants in common if the dividing insurer does not survive; or (c) vests in accordance with the act's provisions without transfer, reversion or impairment.

5. The dividing insurer's policies and other liabilities are allocated to resulting insurers, as discussed below, as successors to the dividing insurer and not by direct or indirect transfer.

6. Interests in the dividing insurer that are converted or canceled by the division are converted or canceled, and interest holders are entitled only to the rights provided to them under the plan of division and any appraisal rights the act grants (see below).

Once a division takes effect, a resulting insurer to which a cause of action is allocated may be substituted or added in any pending action or proceeding to which the dividing insurer is a party when the division becomes effective.

Insurer Responsibility ( 7)

When a division becomes effective, a resulting insurer is individually responsible for the policies and other liabilities (1) it issues, undertakes, or incurs in its own name after the division and (2) allocated to or remaining with it by the plan of division. It is jointly and severally responsible with the other resulting insurers for the dividing insurer's policies and other liabilities not allocated by the plan.

If a division breaches a dividing insurer's obligation, all of the resulting insurers are liable, jointly and severally, for the breach. However, the act specifies that the breach does not affect the division's validity and effectiveness.

Additionally, under the act:

1. a direct and indirect allocation of capital, surplus, property, or policies or other liabilities in a division is not a distribution under the dividing or resulting insurer's organic law and

2. the dividing insurer's liens, security interests and other charges on the capital, surplus or other property are not impaired by the division, regardless of any otherwise enforceable allocation of policies or other liabilities.

Collateral ( 6 & 7)

Under the act, any capital, surplus, or other property allocated to a new insurer that is collateral for an existing, effective financing statement is not effective until a new financing statement naming the new insurer as a debtor is effective under the Uniform Commercial Code (UCC).

Resulting insurers are bound by any dividing insurer's security agreement that attaches security interest to after-acquired collateral. This provision applies to binding security agreements governed by Article 9 of the UCC as enacted in any jurisdiction.

Limitations ( 6 & 7)

Under the act and except as provided in the dividing insurer's organic law or rules, the division does not grant any rights that an interest holder, governor, or third party would have upon a dissolution, liquidation, or winding up of the dividing insurer.

The interests in, and any securities of, the new insurers must be distributed to the dividing insurer, if it survives the division. If it does not, the interests and securities of the new insurer must be distributed to the holders of common interest or other residuary interest of the dividing insurer that do not assert their proportional appraisal rights. However, the plan of division may specify alternative methods of distributing these interests and securities.

Except in accordance with the plan and approved by the commissioner, an allocation of a policy or other liability does not:

1. affect the rights of a policyholder or creditor owed payment on the policy, or payment of any other type of liability or performance of the obligation that creates the liability, except that those rights are available only against a resulting insurer responsible for the policy, liability, or obligation or

2. release or reduce the obligation of a reinsurer, surety, or guarantor of the policy, liability, or obligation.


Appraisal Rights and Fair Value ( 8)

Under the act, if the dividing insurer is a business corporation, its shareholders are entitled to appraisal rights and payment of the fair value of their shares.

If the dividing insurer is not a business corporation, its interest holders are entitled to contractual appraisal rights to the extent provided by the dividing insurer's organic rules, plan of division, or by action of its governors. If the dividing insurer's organic law does not include provisions for conducting appraisal rights proceedings in such a case, the act specifies that state appraisal rights laws apply to the extent practicable or as otherwise provided in the insurer's organic rules or plan of division.



The Uniform Fraudulent Transfer Act (CGS 52-552 et seq.) protects creditors by, among other things, providing ways to determine and prohibit certain fraudulent transfers. It provides criteria for determining transfers that are fraudulent as to present creditors, identifies factors to consider in determining actual intent to defraud, and prohibits transfers made either with the intent to defraud or without receiving a reasonably equivalent value in exchange for the transfer under certain economic conditions.