ORDER GOVERNING INSURANCE COMPANY DEMUTUALIZATION TRANSACTIONS

WHEREAS the Commissioner of Banking (the "Commissioner") is charged with administering Chapter 672a of the Connecticut General Statutes, the Connecticut Uniform Securities Act, as amended by P.A. 00-61, (the "Act") and Sections 36b-31-2 et seq. of the Regulations of Connecticut State Agencies (the "Regulations") promulgated under the Act;

WHEREAS Section 36b-31(a) of the Act provides that "[t]he commissioner may from time to time make ... such ... orders as are necessary to carry out the provisions of sections 36b-2 to 36b-33, inclusive, including ... orders governing registration statements, applications, and reports, and defining any terms, whether or not used in said sections, insofar as the definitions are not inconsistent with the provisions of said sections. For the purpose of ... orders, the commissioner may classify securities, persons and matters within his jurisdiction, and prescribe different requirements for different classes.";

WHEREAS Section 36b-31(b) of the Act adds that "[n]o ... order may be made ... unless the commissioner finds that the action is necessary or appropriate in the public interest or for the protection of investors and consistent with the purposes fairly intended by the policy and provisions of sections 36b-2 to 36b-33, inclusive. In prescribing ... orders the commissioner may cooperate with the securities administrators of the other states and the Securities and Exchange Commission with a view to effectuating the policy of said sections to achieve maximum uniformity in the form and content of registration statements, applications and reports wherever practicable";

WHEREAS Section 36b-3(15) of the Act provides, in part, that:

As used in sections 36b-2 to 36b-33, inclusive, unless the context otherwise requires ... (15)(A) 'Sale' or 'sell' includes every contract of sale of, contract to sell, or disposition of, a security or interest in a security for value. (B) 'Offer' or 'offer to sell' includes every attempt or offer to dispose of, or solicitation of an offer to buy, a security or interest in a security for value ... (G) The terms defined in this subdivision do not include ... (iii) any act incident to a class vote by security holders on a merger, exchange of securities for securities, consolidation, reclassification of securities, or sale of assets in consideration of the issuance of securities or securities and cash of another person other than an individual; or (iv) any security which is issued in exchange for one or more bona fide outstanding securities, claims or property interests, or partly in such exchange and partly for cash, where the terms and conditions of such issuance and exchange are approved by any state or federal court.

WHEREAS Section 36b-16 of the Act provides that: "No person shall offer or sell any security in this state unless (1) it is registered under sections 36b-2 to 36b-33, inclusive, (2) the security or transaction is exempted under section 36b-21, or (3) the security is a covered security provided such person complies with any applicable requirements in subsections (c), (d) and (e) of section 36b-21";

WHEREAS Section 36b-6 of the Act states, in part, that: "(a) No person shall transact business in this state as a broker-dealer unless he is registered under sections 36b-2 to 36b-33, inclusive. No individual shall transact business as an agent in this state unless he is (1) registered as an agent of the broker-dealer or issuer whom he represents in transacting such business or (2) an associated person who represents a broker-dealer in effecting transactions described in subdivisions (2) and (3) of section 15(h) of the Securities Exchange Act of 1934 ... (b) No issuer shall employ an agent unless such agent is registered under sections 36b-2 to 36b-33, inclusive ...."

WHEREAS demutualization is a reorganizational process by which a mutual insurance company or mutual insurance holding company converts to a stock form of ownership, and may include the merger of one or more affiliated entities;

WHEREAS a demutualization is typically characterized by 1) eligible policyholders (as defined in the Plan of Conversion) exchanging their membership interests in the mutual insurance company or mutual insurance holding company for stock of a newly formed entity; 2) approval of the reorganization by a state insurance regulator; and 3) a required vote by affected policyholders;

WHEREAS were it not for the fact that membership interests are not technically "securities", the offer and sale of stock to eligible policyholders would be excluded from the definitions of "offer" and "sale" as an act incident to a class vote by security holders on an exchange of securities for securities under Section 36b-3(15)(G)(iii) of the Act;

WHEREAS such exchange would also otherwise be excluded from the definitions of "offer" and "sale" under Section 36b-3(15)(G)(iv) of the Act had the exchange been accompanied by judicial, rather than state agency, approval;

WHEREAS the Commissioner acknowledges that other state securities regulators as well as the federal Securities and Exchange Commission have taken a no enforcement action position vis-a-vis registration of the securities offered in conjunction with a demutualization and the registration as broker-dealers and agents of individuals involved in implementing the demutualization plan;

WHEREAS the Commissioner finds that the entry of this Order, which recognizes the high level of scrutiny given to demutualizations by insurance regulators, is necessary or appropriate in the public interest and consistent with the purposes fairly intended by the policy and provisions of the Act;

NOW THEREFORE, THE COMMISSIONER ORDERS AS FOLLOWS: