Hawaii Revised Statutes, Chapter 432C — Nonprofit Entities; Conversion of Assets

Division 2. Business — Title 24. Insurance

Hawaii Revised Statutes as published by the Hawaii State Legislature (files updated 1/5/2026 7:15 PM).

Division 2 Business

Title 24 Insurance

Chapter 432C Nonprofit Entities; Conversion of Assets

§432C-1 Definitions

As used in this chapter:

"Commissioner" means the insurance commissioner.

"Conversion" means the transfer or sale of a significant amount of a nonprofit entity's assets to a for-profit entity or through any other means as determined by the commissioner. The department of commerce and consumer affairs' business registration division shall assist the commissioner in determining whether a conversion is about to occur or has occurred. As used in this definition, "significant" means twenty per cent or more of the assets of the nonprofit entity or an amount where the for-profit entity gains control or majority ownership of total assets of the nonprofit entity.

"For-profit entity" means a corporation organized under chapter 414, including a stock insurance company.

"Nonprofit entity" means any charitable organization operating pursuant to Title 26 United States Code section 501(c)(3), (4), (8), (9), (26), or 501(e), and whose primary purpose is to provide accident and health or sickness insurance coverage or any type of accident and health or sickness insurance benefits to its members or the public.

[L 1998, c 260, pt of §2; am L 2002, c 40, §74; am L 2003, c 212, §124]

§432C-2 Application for conversion

(a) A nonprofit entity shall file an application with the commissioner at least six months prior to a proposed conversion. The application shall include a report of the activities of the nonprofit entity and a plan for the conversion including the following:

(1) A board resolution indicating that a majority of the board of directors has approved the plan for conversion;

(2) Copies of the original and amended articles of incorporation, if any;

(3) The nature of the public benefit or charitable activities undertaken by the nonprofit entity;

(4) Expenditures incurred by the nonprofit entity on the public benefit or charitable activities;

(5) A means that establishes that the conversion shall not be prejudicial to the subscribers, contract holders, or residents of this State;

(6) A comparative premium rate analysis of the nonprofit entity's major plans and products, with the analysis comparing actual premium rates for the past three years prior to the proposed conversion and projected premium rates for three years following the proposed conversion. The analysis shall address the projected impact, if any, of the proposed conversion upon the nonprofit entity's future underwriting profit, investment income, and loss and claim reserves, including the effect, if any, of adverse market or risk selection upon the reserves; and

(7) A valuation of all assets held by the nonprofit entity.

(b) The commissioner may request any additional information that the commissioner deems necessary to carry out this chapter.

[L 1998, c 260, pt of §2]

§432C-3 Approval process

(a) No nonprofit entity may engage in a conversion without prior approval of the application for conversion by the commissioner. Any conversion without the commissioner's approval shall be voidable by the commissioner.

(b) Prior to approval of the conversion plan, the commissioner shall determine the fair market value of the assets of the nonprofit entity and shall ensure that the assets of the nonprofit entity are transferred to another nonprofit entity at the time of conversion pursuant to section [432C-5].

(c) After reviewing the report and plan for conversion of the nonprofit entity, if the commissioner finds any discrepancy in the valuation of the assets of the nonprofit entity, the commissioner may obtain an independent party to provide a valuation of the assets. The commissioner shall have the discretion of making a final determination of the valuation of the assets of the nonprofit entity; provided that any issues arising from valuation are brought forth during the public hearing.

(d) A public hearing shall be conducted pursuant to chapter 91 prior to approving or disapproving the conversion. Prior to approving or disapproving the conversion, the commissioner may investigate and consider any matter or issue raised at the public hearing.

(e) Within sixty days after the public hearing, the commissioner shall disapprove or approve the conversion or approve an amended conversion plan; provided that the commissioner may extend this period if the commissioner deems more time is needed to resolve any issues brought forth during the public hearing or upon mutual consent of the nonprofit entity and the commissioner.

(f) The commissioner shall approve the conversion if the commissioner finds all of the following have been met:

(1) The conversion plan is in compliance with section 432C-2;

(2) The plan is fair and reasonable and not contrary to law or to the interests of subscribers, contract holders, and the residents of the State; and

(3) Upon conversion, the for-profit corporation will meet the standards and conditions applicable to stock insurance companies, including minimum surplus requirements.

(g) The commissioner shall issue an order approving or disapproving the conversion or approving an amended conversion plan.

[L 1998, c 260, pt of §2]

§432C-4 Directors, officers of nonprofit entity; prohibition

(a) Directors or officers of a nonprofit entity are prohibited from directly benefiting from the conversion.

(b) No officer of the nonprofit entity who is employed by the nonprofit entity at the time the conversion application is submitted, at the time of conversion, or for a one-year period after conversion shall be employed by the for-profit entity.

[L 1998, c 260, pt of §2]

§432C-5 Transfer of assets to other nonprofit entities

The commissioner shall determine prior to any conversion, the nonprofit entities, if any, that are eligible to receive assets from the converting nonprofit entity. The charitable mission and grant-making functions of each eligible nonprofit entity must:

(1) Be dedicated to promoting or serving the health care needs of residents of the State;

(2) Not be in direct competition with the converting nonprofit entity; and

(3) Be in existence and have qualified for tax-exempt status under Title 26 United States Code section 501(c)(3), (4), (8), (9), (26), or (e), before the transfer of assets.

[L 1998, c 260, pt of §2]

§432C-6 For-profit entity; after conversion

After conversion, the for-profit entity shall not be subject to this chapter, but if a stock insurance company, shall be in conformance with title 24.

[L 1998, c 260, pt of §2]

§432C-7 Judicial review

Any final order or action by the commissioner may be subject to judicial review by the circuit court.

[L 1998, c 260, pt of §2]