(A) A mutual insurer may engage in any of the transactions specified in § 38-19-815 under such reasonable plan and procedure as approved by the director or his designee after a public hearing on the matter. Notice must be given to those persons who were members, directors or trustees, officers, and employees of the mutual insurer on the date the plan was filed with the department. Notice may be given to any other person at the discretion of the director or his designee. All of these persons have the right to appear and be heard at the hearing.

(B) The director or his designee may not approve any plan or procedure unless:

(1) its terms and conditions are fair and equitable;

(2) it is approved by a vote of not less than two-thirds of the insurer’s members voting on it in person, or by proxy, at a meeting of members called for the purpose pursuant to reasonable notice and procedure as approved by the director or his designee. Only persons who are members on the date the plan was filed with the department are entitled to vote;

(3) the equity of each member in the insurer is determinable under a fair and reasonable formula approved by the director or his designee, which must be based upon the insurer’s entire surplus as shown in the insurer’s financial statement filed with the department, including all voluntary reserves but excluding contingently repayable funds and outstanding guaranty capital shares at the redemption value of them, and without taking into account the value of nonadmitted assets or of insurance business in force;

(4) the members entitled to participate in the distribution of assets, whether cash or property or a combination of them, shall include not less than all members of the insurer as of the date the plan was submitted to the department and each person who had been a member of the insurer within three years prior to that date;

(5) the director or his designee finds that the insurer’s management has not, through reduction and volume of new business written, or cancellation, or through any other means, sought to reduce, limit, or affect the number or identity of the insurer’s members to be entitled to participate in the plan, or to secure for the individuals comprising management any unfair advantage through the plan.

(C) If the plan provides for a conversion from a mutual insurer to a stock insurer, the director or his designee may not approve the plan or procedure unless:

(1) the plan gives to each member of the insurer, as specified in subsection (B)(4), a preemptive right to acquire his proportionate part of all of a proposed capital stock of the insurer, or all of the stock of any corporation affiliated with the insurer, within a designated, reasonable period, as the part is determinable under the plan of conversion, and to apply upon the purchase of it the amount of his equity in the insurer as determined under subsection (B)(3). The plan must provide for an equitable distribution of fractional interests. The plan may provide, subject to the approval of the director or his designee, that the preemptive right will not extend to any member who resides in a jurisdiction in which the issuance of stock is impossible, or to any member if the extension would involve unreasonable delay or require the insurer to bear unreasonable costs, provided that any member shall receive one hundred percent of his equity share in the insurer in the form of a cash payment;

(2) shares are to be offered to members at a price not greater than that offered after that time under the plan to others except as provided in subsection (D);

(3) the plan provides for payment to each member of his entire equity share in the insurer, with that payment to be made in cash or to be applied for or upon the purchase of stock to which the member is preemptively entitled, or both, provided that with respect to each member who is not given the option of receiving his entire equity share in cash, the plan must provide that the member has the option to receive a reasonable portion of his equity share, as provided in the plan, but not in excess of fifty percent of his entire equity, in the form of a cash payment, which payment together with the amount applied to the purchase of stock constitutes full payment and discharge of the member’s equity or property interest in the mutual insurer. The director or his designee may permit an insurer to forego the option of making a cash payment to members if he determines that it would be reasonable not to provide for the cash election, after taking into account all the facts and circumstances, including whether there is expected to be an active market for the stock to be received in the conversion;

(4) the plan, when completed, provides that the insurer’s surplus regarding policyholders is reasonable relating to the insurer’s outstanding liabilities and adequate to meet its financial needs. In determining if the surplus as regarding policyholders is reasonable relating to the insurer’s outstanding liabilities and adequate to meet its financial needs, the following factors, among others, are considered:

(a) the size of the insurer as measured by its assets, capital and surplus, reserves, premium writing, insurance in force, and other appropriate criteria;

(b) the extent to which the insurer’s business is diversified among the several lines of insurance;

(c) the number and size of risks insured in each line of business;

(d) the extent of the geographical dispersion of the insurer’s insured risks;

(e) the nature and extent of the insurer’s reinsurance program;

(f) the quality, diversification, and liquidity of the insurer’s investment portfolio;

(g) the recent past and projected future trend in the size of the insurer’s investment portfolio;

(h) the surplus regarding policyholders maintained by other comparable insurers;

(i) the adequacy of the insurer’s reserves; and

(j) the quality and liquidity of investments in affiliates. The director or his designee may treat any investment as a disallowed asset for purposes of determining the adequacy of surplus regarding policyholders whenever in his judgment the investment warrants it.

(D) Nothing in this section prohibits the inclusion in the conversion plan of provisions under which the individuals comprising the insurer’s management and employee group are entitled to purchase for cash, at a price not lower than the price at which it had been offered to the insurer’s members, shares of stock not taken by members on the preemptive offering to members, in accordance with the reasonable classification of the individuals included in the plan approved by the director or his designee. This price limitation may not extend beyond a date set forth in the plan. After the expiration of such date, the governing body of the insurer, with the approval of the director or his designee, may dispose of any stock not taken before that time to any person and for such consideration as may be necessary or desirable in its discretion.

(E) A director, officer, agent, or employee of the insurer may receive only his usual regular compensation, for aiding, promoting, or assisting in the conversion, except as set forth in the plan approved by the director or his designee. This provision does not prohibit the payment of reasonable fees and compensation to attorneys, accountants, and actuaries for services performed in the independent practice of their professions.

(F) For the purpose of determining whether a conversion plan meets the requirements of this section and any other relevant provisions of this title, the director may employ staff personnel and outside consultants. All reasonable costs related to the review of a plan of conversion, including those costs attributable to the use of staff personnel, must be borne by the insurer making the filing.