citation: INS § 1284

text:
Notwithstanding any other provision of this chapter or of this code, any reciprocal or interinsurance exchange which meets all of the conditions of this section shall be exempted from all reserve requirements of this code to which it would otherwise be subject:

(a) The subscribers are comprised of a local hospital district formed pursuant to Division 23 (commencing with Section 32000) of the Health and Safety Code and the individual participating members of its attending medical staff, or any hospital (as defined in Section 1250 of the Health and Safety Code) and the individual participating members of its attending medical staff. As used in this section, “attending medical staff” refers to licensed physicians and surgeons, podiatrists, and dentists who have hospital privileges at any hospital and not to interns or residents who are employees of such hospital.

(b) The physicians and surgeons on the attending medical staff are independent contractors, whether individually, through professional corporations, or through partnership or clinic arrangements, and the creation of the reciprocal or interinsurance exchange will not affect the prerogatives of such physicians and surgeons in accepting patients, charging fees, or similar issues in the management of a medical practice. This subdivision shall not be construed to limit the authority of a peer review committee to impose such restrictions on the staff privileges of a participating member of the attending medical staff as deemed warranted by the peer review procedure and medical audit methods provided by subdivision (h).

(c) The initial capitalization for the reciprocal or interinsurance exchange specified in subdivisions (d), (e), and (f) shall be equivalent to the total professional and comprehensive general patient liability losses paid by the hospital and its participating medical staff members during the 10 calendar years immediately preceding the year in which the application for the organizational permit is filed. For the medical staff, “total professional and comprehensive general patient liability losses” shall include all losses paid by the participating medical staff members, whether based on their practice in the hospital or outside the hospital. Such combined total shall be funded or secured by equal contributions from the hospital and, collectively, the individual participating members of its attending medical staff. Such funds shall be used to pay for the losses incurred for awards, settlements, and legal fees relating to alleged acts of medical malpractice committed by the hospital or any or all of its participating medical staff members, whether committed in or out of the hospital, and for the operational costs of the reciprocal or interinsurance exchange. Upon determination of the aggregate paid professional and comprehensive general patient liability claims of the preceding 10 years by a survey, such paid claims shall be categorized as provided by subdivisions (d) and (e). In the case of a hospital which has been in existence for less than 10 years, or which has substantially expanded its facilities over the preceding 10 years, or which has paid for no professional liability losses during the preceding 10 years, the commissioner may establish such capitalization requirements as he deems necessary and proper as compared to the amounts specified in subdivisions (d) and (e).

(d) A primary medical liability risk fund shall be maintained in an amount at least equivalent to the aggregate dollar amount of paid incident claims of one hundred thousand dollars ($100,000) or less per each incident for both the hospital and the participating members of the attending medical staff as provided by subdivision (c).

(e) A catastrophic medical liability risk fund shall be maintained in an amount at least equivalent to the aggregate dollar amount of paid incident claims in excess of one hundred thousand dollars ($100,000) per incident for both the hospital and the participating members of the attending medical staff as provided in subdivision (c). These funds shall be either (1) deposited as cash or secured by letters of credit, certificates of deposit or promissory notes, or (2) be obtained through an executed and delivered loan commitment with a duration of at least one year by a banking institution qualified to do business in California or other forms of credit or assets readily convertible to cash to meet liabilities of the reciprocal or interinsurance exchange organized pursuant to this section.

(f) All funds or assets collected by a reciprocal or interinsurance exchange established under this section and maintained in a form as set forth in subdivisions (d) and (e) shall be admitted assets valued at face value and be held in accordance with Section 1370 of the Insurance Code, except that a credit commitment shall not be considered an admitted asset for the purpose of regulating investment of assets.

(g) The reciprocal or interinsurance exchange may seek from a licensed insurer, or secure in accordance with Chapter 6 (commencing with Section 1760) of Part 2 of Division 1, excess risk coverage for amounts above the self-retention limit of subdivisions (c), (d), and (e). The hospital and the individual members of the attending medical staff shall have unlimited several liability pursuant to Section 1395 to contribute to any liability not covered by such excess risk coverage insurance. Such liability shall be based upon each subscriber’s share of the total liability of the reciprocal or interinsurance exchange as determined by a formula adopted by its board of directors. In the event that a subscriber fails to pay any portion of an assessment, then, without releasing the defaulting subscriber from any obligation to the reciprocal or interinsurance exchange, the remaining subscribers shall be charged with the unpaid assessment in accordance with the adopted formula.

(h) The amounts specified in subdivisions (d), and (e) shall be available in the aggregate to meet the professional and comprehensive general patient liabilities of the hospital and the participating members of the attending medical staff, and shall be replenished annually, or more frequently, if necessary, to an amount equivalent to that specified in subdivision (c) or (q), whichever is greater. Such total shall be maintained by a ratio of contributions annually determined by the governing board of the reciprocal or interinsurance exchange as fair, just and reasonable between the hospital and the participating members of the attending medical staff. Assessments may be required as determined to be necessary by the governing board and shall be due within 60 days of notice thereof. Failure to pay such assessments when due shall constitute grounds for termination of policy benefits or coverage.

(i) Any member of the attending medical staff participating in the program shall, as a condition of such participation, be subject to an extensive peer review procedure and a medical audit method of documenting the quality of medical care.

(j) Any system of rating or assessing individual participating members of the attending medical staff on the basis of their respective risk exposure shall be fair, just and reasonable.

(k) A promissory note, for the purposes of subdivision (e), shall be secured, and such security shall be perfected, by real or personal property having a market value one and one-half times the face value of the note.

(l) “Hospital,” as used in this section, shall also include any two or more hospitals when either of the following conditions is met:

(i) They are governed by the same hospital district; or

(ii) Where there is a medical staff subject to a unified medical audit and peer review procedure.

(m) Any reciprocal or interinsurance exchange which meets all of the conditions of this section shall be exempt from the California Insurance Guarantee Association established pursuant to Article 14.2 (commencing with Section 1063) of Chapter 1 of Part 2 of Division 1.

(n) For the purposes of Section 985, minimum capitalization shall be either the initial capitalization as provided in subdivision (c) or the minimum capitalization required by subdivision (q), whichever is greater.

(o) In the event that the reciprocal or interinsurance exchange has reasonable cause to believe that its minimum capitalization may be impaired by current liabilities, including reported claims, it shall issue within 30 days to its subscribers notices of assessments in amounts sufficient to cure the impairment. Within 30 days of such notice the subscribers shall pay the assessment or present forms of indebtedness as provided by subdivision (e), except that with regard to a promissory note issued by a person or entity other than a banking institution qualified to do business in California, such note shall be secured by assets sufficient to assure payment of the debt should a default occur.

(p) Any notice of assessment issued pursuant to this section shall be considered an admitted asset at face value and reported as such for the purpose of determining solvency under Section 985.

(q) Minimum capitalization of a reciprocal or interinsurance exchange organized and conducted pursuant to this section shall be determined annually. For the first year following issuance of a certificate of authority, the minimum capitalization shall be that specified in subdivision (c). Each year thereafter, the reciprocal or interinsurance exchange shall conduct a new survey of its subscribers to reestablish their total professional and comprehensive patient liability loss history as provided by subdivision (r). If such recalculation of such history discloses total losses exceeding the existing minimum capitalization by 20 percent, the minimum capitalization shall be increased to the amount of such new loss history within six months. Nothing in this subdivision shall be construed to preclude the reciprocal or interinsurance exchange from capitalizing at a level exceeding the minimum capitalization required by this section.

(r) The survey of subscribers which establishes total and comprehensive general patient loss liability history shall be annually recalculated to reflect the following:

(1) All such losses paid by, or on behalf of, the hospital for the immediately preceding 10 years;

(2) All such losses paid by, or on behalf of, participating individual members for the immediately preceding 10-calendar-year period during which they held staff privileges at the subscriber hospital; and

(3) All such losses paid by, or on behalf of, participating individual members of the attending medical staff during any portion of the immediately preceding five-calendar-year period in which they were not members of the subscriber hospital staff.

history: (History: Amended by Stats. 1977, Ch. 904.)

article: 1. General Provisions


kind: section

code: INS

citation: INS § 1300

text: Any persons may exchange reciprocal or interinsurance contracts with one another providing insurance, other than life, title, mortgage, mortgage guaranty, or insolvency insurance, among themselves against any loss which may be insured against under other provisions of law.

history: (History: Amended by Stats. 1971, Ch. 341.)

division: 1. GENERAL RULES GOVERNING INSURANCE

part: 2. THE BUSINESS OF INSURANCE

chapter: 3. Reciprocal Insurers

article: 2. Organization of Exchange

path: 1. GENERAL RULES GOVERNING INSURANCE > 2. THE BUSINESS OF INSURANCE > 3. Reciprocal Insurers > 2. Organization of Exchange


citation: INS § 1301

text: Such persons are termed subscribers.

history: (History: Enacted by Stats. 1935, Ch. 145.)

article: 2. Organization of Exchange


citation: INS § 1302

text: Any domestic corporation, in addition to the rights, powers and franchises specified in its articles of incorporation, has full power and authority to enter into insurance contracts of the kind and character mentioned in this chapter. The right to enter into such contracts is incidental to the purposes for which such corporations are organized and as fully granted as the rights and powers expressly conferred.

article: 2. Organization of Exchange


citation: INS § 1303

text: The organization under which such subscribers so exchange contracts is termed a reciprocal or interinsurance exchange, and shall be deemed the insurer while each subscriber shall be deemed an insured.

history: (History: Amended by Stats. 1963, Ch. 1649.)

article: 2. Organization of Exchange


citation: INS § 1305

text: Such contracts may be executed by an attorney-in-fact, agent or other representative duly authorized and acting for such subscribers under powers of attorney. Such authorized person is termed the attorney, and may be a corporation.

article: 2. Organization of Exchange


citation: INS § 1306

text: The principal office of the attorney shall be maintained at a place designated by the subscribers in the power of attorney.

article: 2. Organization of Exchange


citation: INS § 1307

text:
The power of attorney and contracts made thereunder may:

(a) Provide for the right of substitution of attorney and revocation of the contract or power.

(b) Impose such restrictions upon the exercise of the power as are agreed upon by the subscribers.

(c) Provide for and limit the maximum amount to be paid by subscribers, except that contracts of exchanges writing either liability or workers’ compensation insurance shall be subject to the provisions of Article 6 of this chapter.

(d) Provide for the exercise of any right reserved to the subscribers directly or through a board or other body.

history: (History: Amended by Stats. 2018, Ch. 231, Sec. 6. (AB 2045) Effective January 1, 2019.)

article: 2. Organization of Exchange


citation: INS § 1308

text: The body exercising the subscribers’ rights shall be selected under such rules as the subscribers adopt. It shall supervise the finances of the exchange and shall supervise its operations to such extent as to assure conformity with the subscriber’s agreement and power of attorney.

article: 2. Organization of Exchange


citation: INS § 1309

text: Such body shall have authority to procure the audit of the accounts and records of the exchange and of the attorney-in-fact, at the expense of the exchange.

article: 2. Organization of Exchange


citation: INS § 1310

text: Such body shall be composed of subscribers or agents of subscribers. Not more than one-third of the members serving on such body shall be agents, employees or shareholders of the attorney.

article: 2. Organization of Exchange


text: The board of a reciprocal or interinsurance exchange operating pursuant to Section 1284 shall be composed of members of the governing board of the hospital, the participating members of its attending medical staff, and health care consumers.

history: (History: Added by Stats. 1976, Ch. 1465.)

article: 2. Organization of Exchange


citation: INS § 1311

text:
A reciprocal or interinsurance exchange may engage in the surety insurance business in this state only provided its surplus is at least twice the amount required as paid-in capital of an incorporated insurer writing the same classes of insurance by the provisions of Section 700.01. Paid-in capital as used in this section shall not include any of the surplus amounts required of incorporated insurers by the provisions of Sections 700.02, 700.03 and 700.05 of this code.

Any such reciprocal or interinsurance exchange shall be subject to such of the provisions of Chapter 1, except Sections 12050, 12051, and 12052, Part 4, Division 2, as can be made applicable to the nature of a reciprocal or interinsurance exchange.

article: 2. Organization of Exchange


citation: INS § 1312

text:
(a) Any reciprocal or interinsurance exchange, domestic or foreign, which has obtained a certificate of capability to reinsure or a favorable order under Section 1401.5 and whose subscribers by such order have no liability for assessment, may accept reinsurance of risks for all classes of insurance which it writes in California including the class in which such reinsurance is to be accepted.

(b) Contracts accepting such reinsurance shall be entered into between the ceding insurer and the reinsuring reciprocal or interinsurance exchange by its attorney in fact. The ceding insurer need not become a member of or a subscriber to the reinsuring reciprocal or interinsurance exchange and such contracts of reinsurance may contain any or all of the terms and conditions customary in reinsurances of the classes of insurance covered.

history: (History: Added by Stats. 1965, Ch. 504.)

article: 2. Organization of Exchange


citation: INS § 1313

text: Nothing in Chapter 504 of the Statutes of 1965 shall limit or affect the right of an admitted foreign reciprocal or interinsurance exchange to accept reinsurance.

history: (History: Added by Stats. 1965, Ch. 1805.)

article: 2. Organization of Exchange


citation: INS § 1314

text:
Any reciprocal or interinsurance exchange, domestic or foreign, which has obtained a certificate of surplus under Section 1401, and whose subscribers by such order have no liability for assessment, may issue a policy of insurance required under Article 4 (commencing with Section 11620) of Chapter 1 of Part 3 of Division 2 of this code without requiring such insured to become a member of or a subscriber to such reciprocal or interinsurance exchange.

The attorney-in-fact, agent, or other representatives duly authorized and acting for the regular subscribers of such reciprocal or interinsurance exchange, shall have the same power and authority to act for any such person becoming an insured under Article 4 (commencing with Section 11620) of Chapter 1 of Part 3 of Division 2 of this code as authorized or required under any documents required to be filed with the commissioner under Article 3 (commencing with Section 1320) of Chapter 3 of Part 2 of Division 1 of this code.

history: (History: Added by Stats. 1969, Ch. 103.)

article: 2. Organization of Exchange


citation: INS § 1315

text: A reciprocal exchange or interinsurance exchange may borrow money to defray the expenses of its organization, provide it with surplus funds, or for any purpose of its business, upon a written agreement that the money is required to be repaid only out of the exchange’s surplus in excess of that stipulated in the agreement. The agreement may provide for fixed or variable interest not exceeding an amount allowed by the commissioner, which interest shall or shall not constitute a liability of the exchange as to its funds other than the excess that is stipulated in the agreement. Any agreement of this type shall provide that all interest payments and principal repayments require prior approval by the commissioner. Unless otherwise approved by the commissioner, written agreements evidencing this borrowed money shall not be issued in units of less than ten thousand dollars ($10,000). Unless otherwise allowed by the commissioner, no commission or promotion expense shall be paid in connection with any loan of this type. An agreement to borrow money to provide surplus funds, or for any business purpose, may be termed a surplus note. No surplus note or other agreement may be issued unless it conforms to the requirements set forth at the time the note is issued in the Accounting Practices and Procedures Manual adopted by the National Association of Insurance Commissioners for the reporting of agreements as surplus and not as debt in the financial statements required to be filed by an insurer with the commissioner. No permit or other agreement shall constitute authorization or approval for any other issuance of securities that is connected to the note or agreement in any way.

history: (History: Added by Stats. 2004, Ch. 4, Sec. 1. Effective January 21, 2004.)

article: 2. Organization of Exchange


citation: INS § 1320

text:
The attorney of every admitted reciprocal or interinsurance exchange shall verify and cause to be filed with the commissioner copies of the following forms used by the exchange:

(a) The form of every amendment to, revision of, or substitution for the power of attorney in use at the time of admission.

(b) The form of each application for insurance and the form of each contract for exchange of indemnity which would have to be filed with or approved by the commissioner if such insurer were a capital stock insurer, including where applicable the rates to be used therewith.

(c) Every amendment, revision or replacement of forms described in subdivision (b).

(d) Such other specific forms of applications for insurance or specific contracts for exchange of indemnity as the commissioner may from time to time by written order require be filed.

The commissioner may disapprove of any form filed in accordance with this section if:

(1) It be contrary to law, or

(2) He finds it contains any material which is unintelligible, uncertain, unfair, ambiguous, or obtuse, or likely to mislead a person to whom the form is offered, delivered, or issued.

The procedure for such disapproval shall be that specified in Section 12957 for withdrawal of approval of previously approved forms of other insurers.

It shall be unlawful for such insurer to use any such form after such disapproval has become final.

history: (History: Amended by Stats. 1965, Ch. 1728.)

article: 3. Filing of Documents

path: 1. GENERAL RULES GOVERNING INSURANCE > 2. THE BUSINESS OF INSURANCE > 3. Reciprocal Insurers > 3. Filing of Documents


citation: INS § 1321

text: If the name of the exchange does not contain either the words “interinsurance,” “reciprocal” or “exchange,” then such forms shall have printed under such name the words “an interinsurance exchange” in a prominent place on each of such forms.

article: 3. Filing of Documents


citation: INS § 1322

text:
The attorney prior to admission shall file with the commissioner a declaration verified by his oath or, where such attorney is a corporation, by the oath of its duly authorized officers. Such declaration shall set forth or have annexed thereto:

(a) The name of the attorney and the name under which contracts are to be made.

(b) The location of the principal office of the exchange.

(c) The classes of insurance to be exchanged.

(d) A copy of each form of policy under or by which insurance is to be exchanged.

(e) A copy of the form of the power of attorney or agreement under and by which such insurance is to be exchanged.

(f) A statement that executed contracts or bona fide applications, to be concurrently effective, have been made for the exchange of indemnities by at least 100 separate subscribers, except that such statement shall not be required for organizations operating pursuant to Section 1284.

(g) In the case of employer’s liability or workmen’s compensation insurance, a statement that there have been executed contracts or bona fide applications, to be concurrently effective, representing annual payroll having a total of not less than one million dollars ($1,000,000).

(h) A statement that there are in the possession of such attorney subject to the supervision of the advisory board, assets conforming to the requirements of Article 5 of this chapter.

(i) A financial statement under oath in the form prescribed by the commissioner for the annual statement.

(j) The instrument authorizing service of process as provided in this chapter.

(k) A certificate showing any deposits of funds or securities.

article: 3. Filing of Documents


citation: INS § 1323

text: Concurrently with the filing of the declaration provided for by the terms of section 1322 the attorney shall file with the commissioner an instrument in writing executed by him, providing that after the issuance of the certificate of authority actions against the exchange may be brought either in the county in which the person or property insured is located, or in which the exchange has its principal office or place of business in the State; and also providing that service of process may be had upon the attorney-in-fact or upon the commissioner in suits against the exchange.

article: 3. Filing of Documents


citation: INS § 1324

text: Except as provided in Section 1330, the attorney, concurrently with the filing of the declaration provided for in Section 1322, also shall file with the commissioner a bond, approved by the commissioner, in favor of the people of the State of California.

history: (History: Amended by Stats. 1947, Ch. 578.)

article: 3. Filing of Documents


citation: INS § 1325

text: Such bond shall be executed by the attorney with an admitted surety insurer as surety.

article: 3. Filing of Documents


text: Such attorney may deposit with the commissioner, in lieu of the bond executed by him, securities of a value equal to the required amount of the bond and of the kinds set forth in sections 1170 and 1240. Such deposit shall be subject to the provisions of Article 11, Chapter 1, Part 2, Division 1, of this code. Such deposit shall be subject to levy of execution upon judgments against the attorney.

history: (History: Added by Stats. 1937, Ch. 732.)

article: 3. Filing of Documents


citation: INS § 1326

text: The attorney’s bond shall be in the penal sum of fifty thousand dollars ($50,000), conditioned that the attorney will faithfully account for all moneys and other property which come into his or her hands or are handled by him or her under the terms of the power of attorney and the rules of the exchange, and that the attorney will neither withdraw nor cause to be withdrawn nor appropriate for his or her own use, from the funds of the exchange, anything of value to which he or she is not entitled under the terms of the power of attorney and the rules.

history: (History: Amended by Stats. 1982, Ch. 517, Sec. 282.)

article: 3. Filing of Documents


citation: INS § 1327

text: The attorney’s bond may be sued upon in one and the same action either by any subscriber or any number of subscribers suffering loss through a violation of its conditions or by the receiver or trustee in liquidation of the exchange. Liability thereunder may be enforced by any one or more of such parties.

article: 3. Filing of Documents


citation: INS § 1328

text: Any amount recovered on the attorney’s bond shall be deposited in and become a part of the funds of the exchange.

article: 3. Filing of Documents


citation: INS § 1329

text: Where provision is made, by the power of attorney executed by the subscribers or the rules adopted by the exchange, for the bonding of the attorney-in-fact against fraud and dishonesty with a bond executed as prescribed in Section 1325 and conditioned as provided by this chapter and in a penal sum at least equal to the amount set forth in Section 1326, such bond may be filed with the commissioner in lieu of any other bond required by this chapter and shall be actionable in similar manner and for similar purposes as such other bond.

article: 3. Filing of Documents


citation: INS § 1330

text: Where the home office of an exchange is located outside of this State and the attorney files such a bond in the home State, there may be filed with the commissioner, in lieu of such bond, either a certified copy or duplicate thereof or an affidavit from the insurance authority of the home State to the effect that such a bond has been filed with it.

article: 3. Filing of Documents


citation: INS § 1350

text:
The commissioner shall issue a certificate of authority to the attorney upon compliance with the requirements of this chapter, and the payment of the application fee prescribed by Article 3 (commencing with Section 699) of Chapter 1 of Part 2 of Division 1. The certificate shall authorize the making, by the attorney, of contracts of insurance under this chapter. It shall also specify all of the following:

(a) The classes of insurance to be effected.

(b) The name of the attorney.

(c) The location of the principal office.

(d) The name under which the contracts of insurance are issued.

history: (History: Amended by Stats. 1983, Ch. 142, Sec. 85.)

article: 4. Certificate of Authority

path: 1. GENERAL RULES GOVERNING INSURANCE > 2. THE BUSINESS OF INSURANCE > 3. Reciprocal Insurers > 4. Certificate of Authority


text: In the event of substitution of attorney or a change in any of the matters specified in the certificate of authority pursuant to Section 1350, the attorney shall apply to the commissioner for an amended certificate of authority.

history: (History: Added by Stats. 1945, Ch. 495.)

article: 4. Certificate of Authority


citation: INS § 1370

text:
Every exchange shall maintain its required assets in any one, or more, or all of the following forms:

(a) In cash or deposits in solvent banks.

(b) Invested in securities of the kind designated for the investment of assets of incorporated insurers having a capital stock by the laws of the state where the principal office is located.

(c) Invested in real property acquired by or for it to secure the payment of loans heretofore contracted or for moneys heretofore due, or purchased at sales upon deeds of trust or upon judgments obtained for the loans or debts, or conveyed to it in satisfaction of debts heretofore contracted in the course of its dealings. The real property may be acquired, held, and conveyed on behalf of the exchange in trust by the attorney, but shall be sold and disposed of within five years after acquisition of title thereto unless the time for any such sale or disposal is extended by the commissioner in writing.

(d) Excess fund investments may be made in real estate and in making improvements thereon for business or residential purposes as an investment for the production of income. “Business or residential purposes” does not include real estate primarily intended for use or valued as agricultural, horticultural, farm, ranch, or mineral property. Any such investment may be made only by admitted exchanges having admitted assets aggregating in value not less than twenty-five million dollars ($25,000,000). Real estate acquired and improvements made thereon shall not exceed an amount equal to 5 percent of the admitted assets of the exchange. Any investment in a single parcel of real estate including improvements thereon made under the authority of this subdivision shall not be made in an amount in excess of 1 percent of the admitted assets of the exchange. The percentage or dollar value of assets as provided in this subdivision shall be determined by the exchange’s last preceding annual statement of conditions and affairs made as of the December 31 last preceding and which has been filed with the commissioner pursuant to law.

(e) In addition to the investments authorized by subdivisions (a) to (d), inclusive, every exchange may purchase, hold, or reconvey real estate for any of the following purposes:

(1) The building, and the land upon which that building stands, owned by it and in which is located its home office or principal office in this state by virtue of the occupancy thereof, in whole or in part, by its attorney-in-fact. The exchange may make any type of arrangement which is fair and reasonable for the occupation of the building, in whole or in part, by its attorney.

(2) Real estate requisite for its accommodation in the convenient transaction of its business.

(f) Subject to the limitations established under subdivisions (c), (d), and (e), every exchange in its own name as in the case of an individual, may purchase, receive, own, hold, lease, mortgage, pledge, or encumber, by deed of trust or otherwise, manage, and sell real estate for the purposes and objects of the exchange.

history: (History: Amended by Stats. 1985, Ch. 106, Sec. 94.)

article: 5. Finances

path: 1. GENERAL RULES GOVERNING INSURANCE > 2. THE BUSINESS OF INSURANCE > 3. Reciprocal Insurers > 5. Finances


text:
Except as in this article (commencing with Section 1370) otherwise provides, every exchange subject to this chapter (commencing with Section 1280) shall on and after October 1, 1961, be governed for all purposes as to required minimum surplus, (including that for admission, amendment of certificate of authority and solvency) by the same standards for minimum paid-in capital and surplus applicable to capital stock insurers. As used in this chapter surplus of an exchange is the amount by which its assets exceed a sum sufficient to discharge all its liabilities. When the standard prescribed for capital stock insurers consists of an amount of minimum paid-in capital the minimum surplus required of the exchange shall be such amount, and when the standard prescribed for capital stock insurers consists of an amount of minimum paid-in capital and an amount of surplus the minimum surplus required of the exchange shall be the aggregate of such amounts.

This section shall not affect the provisions of Section 1401.

history: (History: Added by Stats. 1961, Ch. 454.)

article: 5. Finances


text:
An exchange admitted prior to October 1, 1961, shall be exempt from the provisions of Section 1370.2 until it replaces its attorney in fact, except when the replacement is in strict compliance with a contract between the exchange and its current attorney in fact entered into prior to October 1, 1961, or the effective legal control of its attorney in fact passes, by means other than by way of judicial process (including but not limited to: probate proceedings, bankruptcy proceedings or an action by a dissident minority interest to force a sale or partition of the attorney in fact) to persons none of whom had a proprietary interest therein on October 1, 1961, subject to the further provisions of this section and to the provisions of Section 1370.8.

While exempted from the provisions of Section 1370.2 as modified by Section 1370.8, such an exchange shall be subject to and comply with the surplus requirements provided in this chapter (commencing with Section 1280) immediately prior to October 1, 1961.

The exemption from Section 1370.2 provided by this section shall be progressively abolished so that on and after the dates specified in the left-hand column of the following table every exchange shall be required to maintain at least a minimum surplus equal to that percentage of the minimum paid-in capital required by this code of capital stock insurers transacting the same classes of insurance which is set forth in the right-hand column of the following table.January 1, 1967 20%January 1, 1970 40%January 1, 1973 70%January 1, 1976100%In a case where the provisions of Section 1370.8 become applicable any additional minimum surplus required by that section shall be in addition to any required under the provisions of this paragraph.

history: (History: Amended by Stats. 1965, Ch. 181.)

article: 5. Finances


text: Any exchange exempted at any time from the provisions of Section 1370. 2 shall irrespective of such exemption be subject to the provisions of this section. No amended certificate of authority adding classes of insurance shall be issued to the attorney in fact of any such exchange on or after October 1, 1961, unless at the time of the amendment the exchange has a surplus equal in the aggregate to the sum of the surplus amount it was required to maintain by the provisions of this chapter (commencing with Section 1280) as the same were in effect immediately prior to October 1, 1961, plus the aggregate amount of additional minimum amount of capital and surplus which, at the time of such amendment, would be required of a capital stock insurer by the provisions of this code in order to add the same classes of insurance to its certificate of authority if it were authorized at the time of the amendment to transact the same classes of insurance as those which the attorney in fact of such reciprocal is authorized to transact.

article: 5. Finances


citation: INS § 1371

text:
If an exchange does either liability or workers’ compensation insurance, it shall at all times maintain assets in a sum sufficient to discharge all liabilities and to provide a surplus over all liabilities of one hundred thousand dollars ($100,000).

An exchange subject to the provisions of this section is also subject to the provisions of Sections 1370.2, 1370.4, and 1370.8.

history: (History: Amended by Stats. 2018, Ch. 231, Sec. 7. (AB 2045) Effective January 1, 2019.)

article: 5. Finances


citation: INS § 1372

text:
Every other exchange shall maintain at all times assets in a sum sufficient to discharge all liabilities and to provide a surplus over all liabilities of fifty thousand dollars ($50,000).

An exchange subject to the provisions of this section is also subject to the provisions of Sections 1370.2, 1370.4, and 1370.8.

history: (History: Amended by Stats. 1961, Ch. 454.)

article: 5. Finances


text:
No certificate of authority, other than a renewal certificate of authority, shall be issued to the attorney within three years from and after the time when the exchange commences business as an insurer nor within three years from and after the time it is first organized unless assets equal to the sum of its liabilities and the minimum surplus required by this chapter are maintained in cash or one or more of the following:

(a) Securities specified in Sections 1170 to 1175 inclusive;

(b) Bonds specified in Section 1176, if such bonds are legal for investment of savings banks in this State;

(c) Such securities specified in Sections 1178 to 1202, inclusive, as are legal for investment of savings banks in this State;

(d) Premiums in course of collection, or agents’ balances representing premiums, on policies effected not more than 90 days prior to the date on which such premiums or balances are valued for the purposes of this section, and earned service fees receivable, not over 90 days due, and evidences of debt representing such assets;

(e) Interest accrued and dividends declared, receivable on any of the assets specified in subsections (a) to (d), inclusive, no part of which interest or dividends has been due in excess of one year;

(f) Amount of reinsurance recoverable from admitted insurers.

history: (History: Added by Stats. 1951, Ch. 544.)

article: 5. Finances


text:
(a) Except as provided in subsection (b) hereof, an exchange, the attorney for which holds a certificate of authority, which has been in business as an insurer less than three years from and after the time when it commenced business as an insurer shall maintain its assets during the balance of such three-year period in the type of assets specified in Section 1373.1, excepting such of its assets as are in excess of the sum of its liabilities and the surplus required for issuance of a certificate of authority, other than a renewal certificate of authority. Upon its failure so to do the commissioner may revoke the certificate of authority. The proceedings shall be conducted in accordance with Chapter 5 of Part 1 of Division 3 of Title 2 of the Government Code, and the commissioner shall have all the powers granted therein.

(b) This section shall not apply to an exchange, the attorney for which holds a certificate of authority on the effective date hereof, until January 1, 1954.

article: 5. Finances


citation: INS § 1374

text:
In estimating the financial condition of any exchange the commissioner shall observe the following rules:

(a) He or she shall charge as liabilities the same reserves as are required of incorporated insurers issuing nonassessable policies on a reserve basis.

(b) Surplus deposits of subscribers shall not be charged as a liability.

(c) All premium deposits and surplus deposits of subscribers due and unpaid for a period not exceeding 90 days shall be allowed as admitted assets, as in the case of incorporated insurers issuing nonassessable policies on a reserve basis.

(d) An assessment levied as provided in this chapter, and not collected shall in no event be allowed as an asset.

(e) The computation of reserves shall be based upon premium deposits without any deduction for the compensation of the attorney.

history: (History: Amended by Stats. 1984, Ch. 564, Sec. 2.)

article: 5. Finances


text:
(a) “Surplus deposits of subscribers,” as used in this chapter, means amounts, over and above any premium charges, which are contributed by subscribers and which are used for the purpose of funding the surplus of a reciprocal or interinsurance exchange. No subscriber shall have a secured or preferred claim against any of the assets of the reciprocal or interinsurance exchange arising out of surplus deposits. All assets, including the surplus deposits, shall be held by the reciprocal or interinsurance exchange and made available for payment of claims of policyholders and creditors of the reciprocal or interinsurance exchange in preference to any claim for withdrawal by a subscriber. A subscriber may, upon withdrawal from membership and cancellation of all such insurance contracts held by the subscriber with the insurer, withdraw the amount of the subscriber’s surplus deposits, less such surrender charges as may be deducted pursuant to the subscriber’s or insured’s agreement, but only if the subscriber has given written notice to the attorney-in-fact at least 60 days in advance of the withdrawal.

(b) Withdrawal of surplus deposits of subscribers shall not be permitted if, as a result of the withdrawal, the policyholder’s surplus of the exchange would be less than the capital and surplus required by Sections 700.01, 700.02, and 700. 025.

(c) Withdrawal of surplus deposits of subcribers shall not be permitted after an order of conservation or liquidation of, or the appointment of a conservator or liquidator for, any such reciprocal or interinsurance exchange.

history: (History: Added by Stats. 1984, Ch. 564, Sec. 3.)

article: 5. Finances


citation: INS § 1375

text: Where the subscribers are grouped by industries or otherwise under any ruling or agreement which exempts the funds of one group from liability in whole or in part for the payment of losses or expenses chargeable against another group, each such independent group shall maintain the reserves and surplus required for a separate exchange and the requirements of subdivisions (f) and (g) of section 1322 relative to the number and amount of risks to be assumed must be observed as to each group.

history: (History: Enacted by Stats. 1935, Ch. 145.)

article: 5. Finances


citation: INS § 1390

text: The provisions of this article shall apply only to exchanges writing liability, common carrier liability, or workers’ compensation insurance, except that any exchange may apply for and receive the certificate provided for by Section 1401.

history: (History: Amended by Stats. 2018, Ch. 231, Sec. 8. (AB 2045) Effective January 1, 2019.)

article: 6. Assessment of Insurers

path: 1. GENERAL RULES GOVERNING INSURANCE > 2. THE BUSINESS OF INSURANCE > 3. Reciprocal Insurers > 6. Assessment of Insurers


citation: INS § 1391

text: Whenever an exchange subject to this article, is not possessed of admitted assets sufficient to discharge all liabilities and to maintain the required surplus, the attorney may make an assessment for the amount, subject to the limits provided by this article, needed to make up the deficiency. If the attorney fails to make the assessment within 30 days after the commissioner orders him to do so, the commissioner may make the assessment. If liquidation of such an exchange is ordered, the assessment may be levied for such an amount, subject to limits provided by this article, as the commissioner determines to be necessary to discharge all liabilities of the exchange, including the reasonable cost of liquidation.

history: (History: Amended by Stats. 1969, Ch. 1347.)

article: 6. Assessment of Insurers


citation: INS § 1392

text:
Except as provided by Sections 1397, 1398, 1400 and 1401, every subscriber of an exchange subject to this article shall be liable to pay, and shall pay, his proportionate part of any such assessment, in accordance with law and his contract covering any such deficiency assessment (a) if he is notified by either the attorney or the commissioner of intention to levy such assessment within one year after the expiration or cancellation of his policy, or, (b) if an order appointing a conservator or liquidator of such exchange is entered, within one year after such expiration or cancellation.

The period to be covered by the assessment shall be the period of one year immediately preceding (a) the date of notification by either the attorney or the commissioner of the intention to levy such assessment, or, (b) the date of entry of an order appointing a conservator or liquidator of such exchange, as the case may require.

history: (History: Amended by Stats. 1941, Ch. 270.)

article: 6. Assessment of Insurers


citation: INS § 1393

text: Each such subscriber’s share of the deficiency for which an assessment is made pursuant to this article, shall be determined by applying to the premium earned on the member’s policy or policies during the period to be covered by the assessment, the ratio of the total deficiency to the total premiums earned during such period, upon all policies subject to such assessment. For the purpose of this section, premium earned is to be calculated upon the basis of the amount of the consideration for which the policy is issued, without the deduction of attorney-in-fact fees, policy fees, or other charges, excepting charges which do not recur upon the renewal or extension of the policy.

history: (History: Amended by Stats. 1939, Ch. 934.)

article: 6. Assessment of Insurers


citation: INS § 1394

text: Subscribers liable to assessment under this article shall pay the same without offsetting any claim for unearned premiums or losses payable to or for the account of the subscriber.

article: 6. Assessment of Insurers


citation: INS § 1395

text: Assessments under this article shall be made upon the members liable to assessment therefor, in proportion to their several liabilities.

article: 6. Assessment of Insurers


citation: INS § 1396

text: Notice of all such proposed assessments shall be filed with the commissioner and the assessments shall not take effect until approved by him after such investigation as he deems necessary.

article: 6. Assessment of Insurers


citation: INS § 1397

text: Assessments under this article, whether levied by the attorney, or the commissioner in the liquidation of such an exchange or otherwise, shall be of no greater amount than specified in the power of attorney.

article: 6. Assessment of Insurers


citation: INS § 1398

text: The power of attorney of an exchange subject to this article may limit the contingent liability of the subscriber for assessment, but such contingent liability shall not be less than an amount equal to and in addition to the amount of the premium deposit provided in the policy.

article: 6. Assessment of Insurers


citation: INS § 1399

text: Each subscriber to an exchange subject to this article may maintain with the exchange, in addition to the premium deposit provided in the policy, a further deposit to be held as the surplus deposit of such subscriber.

history: (History: Amended by Stats. 1937, Ch. 727.)

article: 6. Assessment of Insurers


citation: INS § 1400

text: Each such subscriber maintaining a surplus deposit equal to, and in addition to, the amount of the total current annual premium deposit provided in his policy, shall have no liability for assessment during the period such surplus deposit is so maintained.

article: 6. Assessment of Insurers


citation: INS § 1401

text: If an exchange has a surplus of admitted assets over all liabilities in a sum equal to 112 times the minimum paid-in capital required of incorporated insurers issuing policies on a reserve basis and doing the same classes of insurance, then the Insurance Commissioner, upon written request, shall issue his certificate stating such fact. Subscribers at an exchange so certified shall have no liability for assessment on policies issued while such certificate remains in effect. Whenever the commissioner finds such fact does not exist, he shall revoke and require the surrender of his certificate. Upon revocation of such certificate no policy shall thereafter be issued nor be permitted to remain in force beyond the date fixed for the next payment of premium without written endorsement thereon providing for assessment liability in accordance with the terms of this chapter.

history: (History: Amended by Stats. 1981, Ch. 1131, Sec. 9. Operative July 1, 1982, by Sec. 29 of Ch. 1401.)

article: 6. Assessment of Insurers


text:
(a) When the commissioner finds after a public hearing that a reciprocal or interinsurance exchange has at all times during any consecutive five-year period terminating on December 31, 1964, or on the last day of any subsequent calendar year, as shown by its annual statements, as filed or as adjusted by the commissioner, as the case may be, maintained a surplus of admitted assets over all liabilities of at least three million dollars ($3,000,000) the commissioner may make an order that the reciprocal or interinsurance exchange need not obtain the certificate provided in Section 1401 and that its subscribers shall thereafter in perpetuity have no liability for assessment on policies issued or renewed at any time after that order becomes final or may, if the reciprocal desires not to become nonassessable, issue a certificate of capability to reinsure. To request the order, the reciprocal or interinsurance exchange shall file a petition with the commissioner, on a form prescribed by the commissioner. The filing fee for the petition shall be five hundred sixty-seven dollars ($567). The commissioner shall give notice of the hearing in the insurance press and in any other ways as he or she deems advisable and to the extent he or she deems advisable. That order is subject to the provisions of Section 12940 and any person with sufficient relevant interest shall be authorized to bring any permitted action thereunder.

(b) When the order of the commissioner becomes final any domestic reciprocal or interinsurance exchange obtaining that order shall no longer be subject to or entitled to the benefits of: subdivision (c) of Section 1307, subdivision (b) of Section 1374, and Article 6 (commencing with Section 1390) of this chapter.

(c) At the time all reciprocal or interinsurance exchanges conducting insurance business in this state are by law governed for all purposes as to required minimum surplus (including that for admission, amendment of certificate of authority, and solvency) by the same standards for minimum paid-in capital and surplus as are then applicable to capital stock insurers, any domestic reciprocal or interinsurance exchange may obtain the order provided in subdivision (a), subject to the provisions in subdivision (a) by showing that it has maintained the minimum paid-in capital and surplus requirement applicable to capital stock insurers for at least five consecutive years in lieu of the three million dollars ($3,000,000) surplus prescribed in subdivision (a).

(d) If the power of attorney or any policy of any domestic reciprocal or interinsurance exchange obtaining the order provided by subdivision (a) contains language directly or indirectly creating a liability for assessment, in respect to policies issued prior to or issued after the order becomes final that power of attorney and all those policies shall be deemed in law to have been amended to delete and repeal any and all of those assessment provisions as of the date that the order becomes final without any further action on the part of the reciprocal or interinsurance exchange, its subscribers, its attorney-in-fact, or the body exercising the subscriber’s rights.

history: (History: Amended by Stats. 2017, Ch. 534, Sec. 30. (AB 1699) Effective January 1, 2018.)

article: 6. Assessment of Insurers


citation: INS § 1402

text: All funds of such exchange and the proceeds of the contingent liability of its subscribers shall be available for the payment of any liability of the exchange.

article: 6. Assessment of Insurers


citation: INS § 1420

text: Savings or credits may be returned to the subscribers irrespective of the source from which such savings or credits accrue whenever such returns do not constitute an impairment of the assets or reserves required to be maintained.

history: (History: Amended by Stats. 1967, Ch. 581.)

article: 7. Dividends

path: 1. GENERAL RULES GOVERNING INSURANCE > 2. THE BUSINESS OF INSURANCE > 3. Reciprocal Insurers > 7. Dividends


citation: INS § 1430

text:
The attorney shall make a report, under oath, to the commissioner covering each calendar year. Such report shall be made annually during the time limited for the filing of annual statements by insurers transacting the same class of insurance. It shall show the financial condition of the exchange.

The attorney shall at any time furnish such additional information and reports, other than names and addresses of subscribers, as the commissioner requires. The attorney shall not be required to furnish the names or addresses of any subscribers except in case of an unpaid final judgment against the exchange.

article: 8. Reports and Examination

path: 1. GENERAL RULES GOVERNING INSURANCE > 2. THE BUSINESS OF INSURANCE > 3. Reciprocal Insurers > 8. Reports and Examination


citation: INS § 1431

text: The assets, business affairs and records of every exchange and its attorney shall be subject to examination by the commissioner at any reasonable time. The cost and expense of such examination shall be paid as prescribed in Section 736.

history: (History: Amended by Stats. 1947, Ch. 1008.)

article: 8. Reports and Examination


citation: INS § 1432

text:
The commissioner has:

(a) The right of examination of and supervision over reciprocal or interinsurance exchanges, their attorneys, agents and brokers.

(b) The right to hold and conduct hearings in the manner and under the same procedure as in the case of other insurers.

article: 8. Reports and Examination


citation: INS § 1433

text: The commissioner’s right of examination shall include the right to examine the records containing the names and addresses of the subscribers. Any information obtained from such records shall be confidential and the disclosure thereof, except under order of court, constitutes a breach of official duty.

article: 8. Reports and Examination


citation: INS § 1434

text: Where the principal office of the attorney is located in another State, the commissioner, in lieu of examination may accept a certified copy of the report of examination made by the insurance authority of another State.

article: 8. Reports and Examination


citation: INS § 1450

text: The exchange may sue or be sued in its own name as in the case of an individual. Any judgment rendered against the exchange shall be binding upon each subscriber only in such proportion as his interests may appear.

article: 9. Suits

path: 1. GENERAL RULES GOVERNING INSURANCE > 2. THE BUSINESS OF INSURANCE > 3. Reciprocal Insurers > 9. Suits


citation: INS § 1451

text: No action shall lie against any subscriber, upon any obligation made or incurred in the name of the exchange, until a final judgment has been obtained against the exchange and remains unsatisfied for thirty days.

article: 9. Suits


citation: INS § 1452

text: Process may be served upon the commissioner as provided in Article 1 (commencing with Section 12919) of Chapter 2 of Division 3.

history: (History: Amended by Stats. 1970, Ch. 949.)

article: 9. Suits


citation: INS § 1453

text: A judgment rendered in any case where service of process has been made on the commissioner shall be binding against the subscribers as their interests appear.

article: 9. Suits


citation: INS § 1470

text: In any form of policy prescribed by this code, the attorney may insert provisions or conditions required by the plan of reciprocal or interinsurance if the plan is not inconsistent with, or in conflict with, any law of this State.

article: 10. Policy

path: 1. GENERAL RULES GOVERNING INSURANCE > 2. THE BUSINESS OF INSURANCE > 3. Reciprocal Insurers > 10. Policy


citation: INS § 1500

text: The provisions of this code regarding the appointment, licensing, qualification and regulation of insurance agents, brokers and solicitors, apply neither to the attorney-in-fact of a reciprocal or interinsurance exchange, nor to the salaried representatives of such exchange or attorney who receive no commissions, but do apply in the case of any agent, broker or solicitor of any reciprocal or interinsurance exchange who receives any commission.

history: (History: Amended by Stats. 1947, Ch. 577.)

article: 12. Agents and Brokers

path: 1. GENERAL RULES GOVERNING INSURANCE > 2. THE BUSINESS OF INSURANCE > 3. Reciprocal Insurers > 12. Agents and Brokers


citation: INS § 1510

text: Any attorney-in-fact or representative of such an attorney who exchanges, or solicits or negotiates the exchange of, any contracts of insurance of the kind and character specified in this chapter, except as provided in section 1511, without compliance by the attorney with the provisions of this chapter, is guilty of a misdemeanor.

article: 13. Penalties

path: 1. GENERAL RULES GOVERNING INSURANCE > 2. THE BUSINESS OF INSURANCE > 3. Reciprocal Insurers > 13. Penalties


citation: INS § 1511

text: For the purpose of organization, and upon issuance of permit by the commissioner, powers of attorney and applications for such policies may be solicited without compliance with the provisions of this chapter, but no attorney, agent or other person shall execute any such policies until all of the provisions of this chapter are complied with.

article: 13. Penalties


citation: INS § 1512

text: In addition to the foregoing penalties and where not otherwise provided, the penalty for failure or refusal to comply with any or all of the provisions of this chapter upon the part of the attorney, shall be the refusal, suspension or revocation of certificate of authority. Before such refusal, suspension or revocation, notice and hearing shall be given such attorney in accordance with the procedure provided in Section 704.

history: (History: Amended by Stats. 1945, Ch. 901.)

article: 13. Penalties


citation: INS § 1530

text:
In lieu of all other taxes, licenses or fees whatever, state or local, each exchange and its corporate attorney in fact considered as a single unit shall together pay annually on account of the transaction of such business in this state, the same fees as are paid by mutual insurers transacting the same kind of business, and the annual tax imposed by Section 28 of Article XIII of the Constitution of the State of California and by the applicable provisions of the Revenue and Taxation Code, except that each corporate attorney in fact of a reciprocal or interinsurance exchange shall be subject to all taxes imposed upon other corporations doing business in the state, other than taxes directly attributable to property used exclusively in or on income derived from its principal business as corporate attorney in fact. In any event, such corporate attorney in fact shall file an annual return and pay the minimum tax provided for by Section 23151 of the Bank and Corporation Tax Law. For the purposes of Section 12221 of the Revenue and Taxation Code, the term gross premiums, as applied to reciprocal or interinsurance exchanges, includes all sums paid by subscribers in this state by reason of the insurance exchange, whether termed premium deposit, membership fee, or otherwise, after deducting therefrom premium deposit returns or cancellations, and all amounts returned to subscribers or credited to their accounts as savings, but does not include such sums received for reinsurance and for ocean marine insurance.

A corporate attorney in fact of each exchange shall annually compute the amount of tax that would be payable by it under the provisions of the Bank and Corporation Tax Law (Part 11 (commencing with Section 23001) of Division 2 of the Revenue and Taxation Code) except for the provisions of this section, and any management fee due from each exchange to its corporate attorney in fact shall be reduced pro tanto by a sum equivalent to the amount so computed.

history: (History: Amended by Stats. 1980, Ch. 676, Sec. 186.)

article: 14. Tax Provisions

path: 1. GENERAL RULES GOVERNING INSURANCE > 2. THE BUSINESS OF INSURANCE > 3. Reciprocal Insurers > 14. Tax Provisions


citation: INS § 1531

text:
(a) On and after January 1, 1994, and before January 1, 1995, every exchange and its corporate attorney in fact that is considered a single unit whose annual taxes exceed fifty thousand dollars ($50,000) shall make payment by electronic funds transfer. On and after January 1, 1995, every exchange and its corporate attorney in fact that is considered a single unit whose annual taxes exceed twenty thousand dollars ($20,000) shall make payment by electronic funds transfer. The exchange and its corporate attorney in fact considered as a single unit shall choose one of the acceptable methods described in Section 45 for completing the electronic funds transfer.

(b) Payment is deemed complete on the date the electronic funds transfer is initiated, if settlement to the state’s demand account occurs on or before the banking day following the date the transfer is initiated. If settlement to the state’s demand account does not occur on or before the banking day following the date the transfer is initiated, payment is deemed to occur on the date settlement occurs.

(c) (1) Any exchange and its corporate attorney in fact considered as a single unit required to remit taxes by electronic funds transfer pursuant to this section who remits those taxes by means other than an appropriate electronic funds transfer, shall be assessed a penalty in an amount equal to 10 percent of the taxes due at the time of the payment.

(2) If the department finds that the failure of an exchange and its corporate attorney in fact, considered as a single unit, to make payment by an appropriate electronic funds transfer in accordance with subdivision (a) is due to reasonable cause or circumstances beyond the exchange’s and its corporate attorney in fact’s control, and occurred notwithstanding the exercise of ordinary care and in the absence of willful neglect, that exchange and its corporate attorney in fact shall be relieved of the penalty provided in paragraph (1).

(3) Any exchange and its corporate attorney in fact seeking to be relieved of the penalty provided in paragraph (1) shall file with the department a statement under penalty of perjury setting forth the facts upon which the claim for relief is based.

history: (History: Amended by Stats. 1995, Ch. 721, Sec. 2. Effective January 1, 1996.)

article: 14. Tax Provisions


citation: INS § 1540

text: Any two or more domestic reciprocal insurers, upon affirmative vote of not less than two-thirds of the subscribers of each such insurer who vote on such merger pursuant to due notice and the prior approval of the commissioner of the terms of such notice, of the manner and form of such voting and of such proposed merger, may merge. The commissioner shall not approve any plan for such merger which is inequitable to subscribers, or in any case where the bylaws or other rules, regulations, power of attorney or other instrument affecting the rights of subscribers of either such reciprocal, has been amended within one year prior to the date of filing with the commissioner of the application for such approval.

history: (History: Amended by Stats. 1965, Ch. 164.)

article: 15. Merger

path: 1. GENERAL RULES GOVERNING INSURANCE > 2. THE BUSINESS OF INSURANCE > 3. Reciprocal Insurers > 15. Merger


citation: INS § 1550

text: This article shall apply only to domestic reciprocal insurers organized after 1974 to provide medical malpractice insurance.

history: (History: Added by Stats. 1995, Ch. 728, Sec. 3. Effective January 1, 1996.)

path: 1. GENERAL RULES GOVERNING INSURANCE > 2. THE BUSINESS OF INSURANCE > 3. Reciprocal Insurers > 16. Merger of Certain Reciprocal Insurers


citation: INS § 1551

text: By following the procedure specified in this article, any domestic reciprocal insurer described in this article may merge, consolidate, or otherwise unite with or become a part of, or may reinsure all of its policies with, and, upon assumption of all of its liabilities, may transfer all of its assets to, any other domestic reciprocal insurer or an incorporated insurer, domestic or foreign. If an insurer not admitted in California is the surviving entity in the transaction, the plan and agreement shall provide either for that insurer to be admitted to transact insurance in California or for any nonsurviving insurer admitted in California to withdraw from the state. The plan and agreement by which the transaction is to be effected shall be approved by a resolution of a majority of the body exercising the subscribers’ rights selected pursuant to Section 1308 for each domestic reciprocal insurer that is a party to the transaction or by such higher number as may be required by the documents governing the reciprocal, before it is submitted to the subscribers for their consideration. The resolution shall specify the reasons for and the purposes of the proposed transaction and the manner in which the transaction is expected to benefit and serve the best interests of the domestic reciprocal insurer and its subscribers. The plan and agreement shall be approved on behalf of each constituent other party by those persons required to approve those transactions by the laws under which that other party is organized or is otherwise governed.

article: 16. Merger of Certain Reciprocal Insurers


citation: INS § 1552

text: The plan and agreement by which the transaction is to be effected shall be submitted to the commissioner, who shall examine it and require those provisions to be inserted in the agreement and any actions to be taken in connection with the transaction, including, but not limited to, (a) the terms and conditions of the transaction, (b) any fee, commission, right, option, benefit, or other valuable consideration paid or offered to or for the benefit of any director, officer, employee, subscriber, agent, or broker of each domestic reciprocal insurer or the insurer’s attorney-in-fact in connection with the transaction, (c) the contents of the notice of the vote on the transaction by the subscribers of each domestic reciprocal insurer that is a party thereto, (d) the manner and form of voting thereon by the subscribers of each domestic reciprocal insurer, and (e) any other change, that he or she may deem necessary in order that the transaction may be fair, just, and equitable to the subscribers of each domestic reciprocal insurer that is a party to the transaction, and the transaction is otherwise fair, just, and equitable to the parties to the transaction and their respective policyholders, owners, creditors, and the public. The commissioner shall not approve any transaction if the bylaws, rules, regulations, power of attorney, or instrument affecting the voting or distribution rights of subscribers of a domestic reciprocal insurer have been amended to change those rights within one year prior to the date of filing of the plan and agreement with the commissioner. The subscribers of a domestic reciprocal insurer who shall be eligible to participate in the transaction shall be those persons who are current subscribers of the domestic reciprocal insurer at the date the commissioner approves the plan and agreement for submission to the subscribers for approval pursuant to Section 1553, or at another date determined by the commissioner. No director, officer, agent, or employee of the domestic reciprocal insurer or the insurer’s attorney-in-fact shall receive any fee, commission, or other valuable consideration whatsoever, other than regular salary and compensation, for in any manner aiding, promoting, or assisting in the transaction, except as set forth in the plan and agreement approved by the commissioner. This provision shall not be deemed to prohibit the payment of reasonable fees and compensation to attorneys at law, accountants, and actuaries for services performed in the independent practice of their professions, even though they may also be directors of the insurer.


citation: INS § 1553

text: When the plan and agreement has been approved by the commissioner, with any changes required by him or her, it shall require the approval of each domestic reciprocal insurer that is a party to the transaction by not less than two-thirds of the votes cast by its subscribers represented in person or by proxy at a meeting called to consider the plan and agreement. At least 30 days before the day fixed for the meeting, notice of the meeting and its purpose shall be given to the subscribers at their addresses appearing on the books maintained at the home office of the insurer. With respect to subscribers whose addresses do not appear on the books of the insurer, notice shall be deemed to have been given if published at least once in some newspaper of general circulation in the county in which the principal office of the insurer is located. At the meeting, the presence in person or by proxy of 10 percent of the subscribers of the insurer shall constitute a quorum. In the absence of a quorum, the subscribers present at the meeting in person or by proxy may adjourn the meeting to a later date. If the meeting is adjourned to the next business day, no further notice need be given of the date to which the meeting is adjourned. If the meeting is adjourned to a date later than the next business day, notice of the date to which the meeting is adjourned shall be given to the subscribers at least 15 days prior to the adjourned meeting date.


citation: INS § 1554

text: If one of the insurers that is a party to the transaction is a domestic incorporated insurer, Section 1109 of the Corporations Code shall apply if the transaction is a merger or consolidation, and Section 1113 of the Corporations Code shall also apply if the transaction is a merger.


citation: INS § 1555

text:
(a) If the vote is in the affirmative, a certified copy of all proceedings relating to the proposed transaction shall be filed with the commissioner. If one of the insurers that is a party to the transaction is a foreign incorporated insurer, there shall also be filed with the commissioner evidence of that approval, consent, or authorization that is required by the laws of the state of incorporation of the foreign insurer. If the commissioner finds that the proceedings have been in accordance with the law and his or her requirements, the commissioner shall issue a certificate approving the plan and agreement and the transaction shall become effective (1) in the case of a merger, when the certificate, the agreement of merger, or the certificate of merger, as applicable, and any other documents required by law have been filed with the Secretary of State, unless a future effective date or time is provided in the agreement of merger or certificate of merger, in which event the merger shall be effective at that future effective date or time, (2) in the case of a consolidation, when any documents required by the commissioner have been filed with and approved by the commissioner, unless a future effective date or time is provided in the agreement of consolidation, in which event the consolidation shall be effective at that future effective date or time, or (3) in the case of another form of transaction, when determined by the commissioner.

(b) The fee of the commissioner for considering the proposed transaction and issuing a certificate approving the transaction shall be four thousand two hundred fifty dollars ($4,250), payable in advance with the filing with the commissioner of the first papers relating to the proposed transaction. Five dollars ($5) shall be charged for each signed and sealed or certified copy of the certificate issued as part of the same transaction in which the original certificate is issued.


citation: INS § 1556

text:
(a) If the surviving entity is a domestic incorporated insurer in a merger in which a domestic reciprocal insurer is a constituent party, after approval of the merger by the constituent reciprocal insurer and constituent incorporated insurer, the surviving incorporated insurer shall file in the office of the Secretary of State a copy of the agreement of merger and attachments required under paragraph (1) of subdivision (g) of Section 1113 of the Corporations Code.

(b) If the surviving entity is a domestic reciprocal insurer in a merger in which a domestic incorporated insurer is a constituent party, after approval of the merger by the constituent disappearing domestic incorporated insurer and constituent reciprocal insurer, the surviving reciprocal insurer shall file in the office of the Secretary of State a copy of the agreement of merger and attachments required under paragraph (2) of subdivision (g) of Section 1113 of the Corporations Code.


citation: INS § 1557

text:
(a) Any plan of merger, consolidation, or other unification under this article shall provide that all rights and properties of the parties to the plan of merger, consolidation, or other unification shall accrue to, and become the rights and properties of, the surviving or consolidated or continuing insurer which shall succeed to and assume all the obligations and liabilities of the merged, consolidating, or transferring insurer in the same manner as if incurred or contracted by the surviving, consolidated, or continuing insurer.

(b) All rights of creditors and all liens upon the property of each of the constituent incorporated insurers and constituent reciprocal insurers shall be preserved unimpaired, provided that those liens upon property of a disappearing incorporated insurer or disappearing reciprocal insurer shall be limited to the property affected thereby immediately prior to the time the merger is effective.

(c) Any action or proceeding pending by or against any disappearing incorporated insurer or disappearing reciprocal insurer may be prosecuted to judgment, which shall bind the surviving incorporated insurer or surviving reciprocal insurer, or the surviving incorporated insurer or surviving reciprocal insurer may be proceeded against or substituted in its place.


citation: INS § 1558

text: In the event a domestic reciprocal insurer is merged, is consolidated, or is part of a reorganization pursuant to the procedures specified in this article and the surviving, consolidated, or continuing company is a stock incorporated insurer, the plan shall provide for the manner of converting or exchanging the equity interests of current subscribers in the reciprocal insurer’s equity into (a) shares, interests, or other securities of the surviving corporation, and (b) if any interests of the subscribers are not to be converted solely into shares, interests, or other securities of the surviving corporation, cash, property rights, interests, warrants, options, premium credits, or securities that may be in addition to, or in lieu of, shares, interests, or other securities of the surviving corporation. However, notwithstanding the foregoing, the equity interests of current subscribers in the reciprocal insurer’s equity may be converted or exchanged solely into premium credits if the plan and agreement so provide but only at the subscriber’s election. The conversion or exchange of the equity interests of subscribers shall be on terms fair, just, and equitable to the parties to the transaction, their subscribers, shareholders, owners, and creditors, as approved by the commissioner, and the commissioner shall require an opinion as to the fairness of those terms and an appraisal of the fair value of the domestic reciprocal insurer, together with the respective equity interests therein, by one or more qualified disinterested persons appointed by the reciprocal insurer with the approval of the commissioner, unless the commissioner finds that such an opinion or appraisal is not necessary to protect the interest of current subscribers of the reciprocal insurer. The expense of any such opinion and appraisal shall be borne by the reciprocal insurer. Any person holding a subscription note or other debt instrument evidencing a capital contribution to the domestic reciprocal insurer shall be entitled upon demand to have redeemed that note or debt instrument for cash or securities if securities are offered to current policyholders as part of the transaction. The plan may authorize the sale of securities to members of the governing board, officers, or employees of the domestic reciprocal insurer or its attorney-in-fact, or to subscribers or former subscribers of the domestic reciprocal insurer, in accordance with the provisions of Article 8 (commencing with Section 820) of Chapter 1 of Part 2 of Division 1. Nothing in this section shall preclude the issuance of different securities, subject to the approval of the commissioner, provided that comparable securities shall be issued at prices not less than the conversion or exchange values of any such securities distributed to current subscribers. The conversion or exchange shall constitute full payment and discharge of the subscribers’ equity interests in the domestic reciprocal insurer, and the subscribers shall have no other rights with respect thereto, except for rights relating to a continuing debt or equity interest that a former subscriber holds in the surviving insurer.


citation: INS § 1559

text:
(a) For all purposes for a merger in which the surviving entity is a domestic reciprocal insurer and a domestic incorporated insurer is not a constituent corporation as that term is defined under Section 161 of the Corporations Code, a copy of the certificate of merger duly certified by the commissioner is conclusive evidence of the merger of the constituent reciprocal insurers, either by themselves or together with any foreign incorporated insurers, into the surviving reciprocal insurer.

(b) For all purposes for a merger in which the surviving entity is a domestic reciprocal insurer and a domestic incorporated insurer is a “constituent corporation” as that term is defined under Section 161 of the Corporations Code, a copy of the certificate of merger duly certified by the Secretary of State is conclusive evidence of the merger of the constituent reciprocal insurers, either by themselves or together with constituent incorporated insurers, into the surviving reciprocal insurers.

(c) For all purposes for a merger in which the surviving entity is a domestic incorporated insurer and the disappearing entity is a domestic reciprocal insurer, a copy of the certificate of merger duly certified by the Secretary of State is conclusive evidence of the merger of the constituent insurers.


citation: INS § 1560

history: (History: Added by Stats. 1998, Ch. 421, Sec. 2. Effective January 1, 1999.)

path: 1. GENERAL RULES GOVERNING INSURANCE > 2. THE BUSINESS OF INSURANCE > 3. Reciprocal Insurers > 17. Conversion of Certain Reciprocal Insurers to Incorporated Stock Insurers


text: By following the procedure specified in this article, any domestic reciprocal insurer described in Section 1560 may be converted into an incorporated stock insurer. To that end, it may provide and carry out a plan for the conversion by complying with the requirements of this article.

article: 17. Conversion of Certain Reciprocal Insurers to Incorporated Stock Insurers


text:
The definitions in this section apply to the following terms when used in this article:

(a) “Adoption date” means the date the governing body adopts the plan of conversion.

(b) “Converted insurer” means the incorporated stock insurer into which a domestic reciprocal insurer has been converted in accordance with the provisions of this article.

(c) “Converting insurer” means, for a plan of conversion under this article, the domestic reciprocal insurer that is converting under the plan.

(d) “Effective date” means the date upon which the conversion of a domestic reciprocal insurer is effective, as specified in the amended articles of incorporation of the reciprocal holding company filed with the Secretary of State, as a result of conversion proceedings under this article.

(e) “Eligible subscribers” means the subscribers of the domestic reciprocal insurer who are of record, fully paid-up, and otherwise in good standing on the domestic reciprocal insurer’s adoption date and on its effective date, but shall not include those persons covered solely under a reporting endorsement to a claims-made policy on either date.

(f) “Governing body” means the body exercising subscribers’ rights selected pursuant to Section 1308 for the domestic reciprocal insurer.

(g) “Independent director” means a member of the governing body of the reciprocal holding company who does not own shares, options, or any other equity interests in the stock holding company.

(h) “Person” means an individual, partnership, firm, association, corporation, joint-stock company, limited liability company, trust, government or governmental agency, state or political subdivision of a state, public or private corporation, board, association, estate, trustee, or fiduciary, or any similar entity.

(i) “Plan of conversion” or “plan” means a plan adopted by a domestic reciprocal insurer in compliance with this article.

(j) “Policy” means an individual or group policy of insurance issued by a domestic reciprocal insurer. If a policy takes a form other than an individual form but holders of certificates or other interests under the policy are treated by the domestic reciprocal insurer as if they were holders of individual policies, the domestic reciprocal insurer may provide in its plan of conversion under this article that such a certificate or other interest is deemed to be a policy and deem the holder of the certificate or other interest to be an owner of a policy. Such a provision shall be for the sole purpose of determining the rights, if any, of policyholders of the domestic reciprocal insurer to vote upon and receive consideration under the plan of conversion and shall not affect the other voting rights and qualifications of members of the domestic reciprocal insurer.

(k) “Policyholder” means the holder of a policy other than a reinsurance contract or a person covered solely under a reporting endorsement to a claims-made policy.

(l) “Reciprocal holding company” means a corporation organized under the laws of this state subject to the General Corporation Law as set forth in the Corporations Code. The articles of incorporation of a reciprocal holding company shall contain provisions stating the following:

(1) It is a reciprocal holding company organized under this article.

(2) One purpose of the reciprocal holding company is to hold not less than 51 percent of the voting stock of a stock holding company, which in turn holds all of the voting stock of a converted insurer. In addition, the reciprocal holding company shall own not less than 51 percent of the total stockholders’ equity of the stock holding company at all times.

(3) It is not authorized to issue voting stock.

(4) Its subscribers have the rights specified in Section 1560.11 and in its articles of incorporation and bylaws.

(5) Its assets and liabilities are subject to inclusion in the estate of the converted insurer in any proceedings successfully prosecuted against the converted insurer under Article 14 (commencing with Section 1010) or Article 14.3 (commencing with Section 1064.1) of Chapter 1.

(m) “Rights in surplus” for a domestic reciprocal insurer, means rights of subscribers to a return of that portion of the surplus that has not been apportioned or declared by the governing body for policyholder dividends. “Rights in surplus” includes rights of subscribers to a distribution of surplus in liquidation or conservation of the insurer under this code, or in a dissolution or winding up. “Rights in surplus” does not include any right expressly conferred solely by the terms of an insurance policy.

(n) “Stock holding company” means a corporation authorized to issue one or more classes of capital stock, the corporate purposes of which include holding all of the voting stock in an insurer that has been converted from a domestic reciprocal insurer into a stock insurer in proceedings under this article in which a reciprocal holding company is formed.

(o) “Subscriber” means a person who, by the records of the domestic reciprocal insurer and its rules and regulations, is deemed to be a holder of a subscriber’s interest in the domestic reciprocal insurer. On and after the effective date of a plan of conversion, the term “subscriber” means a member of a reciprocal holding company, as provided in Section 1560.11.

(p) “Subscriber interests” mean the interests of subscribers arising under this code and the rules and regulations of the domestic reciprocal insurer or otherwise by law.

(q) “Voting stock” means securities of any class or any ownership interest having voting power for the election of directors, trustees, or management of a person, other than securities having voting power only because of the occurrence of a contingency. All references to a specified percentage of voting stock of any person mean securities having the specified percentage of the voting power in that person for the election of directors, trustees, or management of that person, other than securities having voting power only because of the occurrence of a contingency.


text:
A plan of conversion adopted by a domestic reciprocal insurer for the establishment of a reciprocal holding company shall provide that the domestic reciprocal insurer will become a stock insurer, that the subscribers of the domestic reciprocal insurer will become subscribers of a reciprocal holding company, that the reciprocal holding company will acquire at least 51 percent of the voting stock of the stock holding company, and that the stock holding company will acquire all of the voting stock of the converted insurer. The plan of conversion shall include appropriate proceedings for amending the domestic reciprocal insurer’s rules and regulations and other charter documents to give effect to the conversion from a domestic reciprocal insurer into a stock corporation. The plan shall be:

(a) As approved by a resolution of two-thirds of the governing board. The resolution shall specify the reasons for and the purposes of the proposed conversion of the domestic reciprocal insurer and the manner in which the conversion is expected to benefit and serve the best interests of the policyholders.

(b) Submitted to the commissioner for consent in writing, subject to the provisions of Section 1560.05, by an application executed by an authorized officer of the domestic reciprocal insurer and accompanied by the following documents, or true and correct copies of the following documents:

(1) The proposed plan of conversion.

(2) The proposed articles of incorporation of each corporation that is a constituent corporation of the conversion.

(3) The proposed bylaws of each corporation that is a constituent corporation of the conversion.

(4) A list of the officers and directors, together with their biographies in the form customarily required by the commissioner, of each corporation that is a constituent corporation of the conversion.

(5) The resolution of the governing board of the domestic reciprocal insurer, certified by the secretary of the domestic reciprocal insurer, authorizing the conversion under this article, and a report of the percentage of directors approving the resolution.

(6) Financial statements, which may be prepared on a pro forma basis, in the form required by the commissioner.

(7) A plan of operations for the converted insurer.

(8) A summary of the plan of conversion and drafts of written materials to be mailed to subscribers seeking their approval of the plan, including an information statement containing, at a minimum, the information required under Section 1560.06.

(9) A description of any plans for an initial public offering, including a description of the maximum percentage of stock to be sold, the process to be used in offering the stock and setting the initial sale price for the stock, and how policyholders would be treated in an initial public offering.

(10) A description of any plans for the transfer of assets and liabilities, including any subsidiaries, to the reciprocal holding company.

(11) Any final rulings relating to the plan of reorganization obtained from any federal government agency, and all supporting documents submitted to the agency in connection with the rulings.

(12) A copy of the proposed form of notice of special meeting to be sent to members pursuant to Section 1560.06.

(13) Other relevant information that the commissioner may require.

(c) Approved by two-thirds vote of the subscribers of the domestic reciprocal insurer voting at a meeting of the subscribers called for that purpose, subject to the provisions of Section 1560.06.

(d) Filed in the office of the commissioner after receipt of the commissioner’s consent, and after having been approved as provided in Sections 1560.05 and 1560.06.


text:
(a) The commissioner shall examine the plan submitted pursuant to Section 1560.03. As a part of the examination the commissioner shall order a public hearing of the plan after written notice of the hearing to the domestic reciprocal insurer and its subscribers and the public, all of whom shall have the right to appear at the hearing. The hearing shall occur before the policyholder vote. The commissioner may require as a condition of consent that the domestic reciprocal insurer make modifications of the proposed plan that the commissioner finds necessary for the protection of policyholders. The commissioner shall consent to the plan if he or she finds all of the following:

(1) The plan is fair, just, and equitable to the insurer and its policyholders.

(2) The plan does not violate the law.

(3) The converted insurer will, after the conversion, satisfy the requirements for the issuance of a license to write the line or lines of insurance for which it is presently licensed.

(4) The plan will not require subscribers to pay additional funds to retain their rights in surplus, but nothing herein is intended to prohibit or restrict a reciprocal insurer that is converting to a stock insurer by establishing a reciprocal holding company from offering to its subscribers subscription rights that are in addition to the rights in surplus to be held in the reciprocal holding company.

(5) Any stock issued to officers, directors, employees, or employee benefit plans for their benefit, if any, will be fair, just, and equitable and not hazardous to policyholders, stockholders, or creditors.

(6) The plan provides sufficient means for the accumulated earnings, cash, and/or other non-operating assets held by the reciprocal holding company to inure to the exclusive benefit of its members.

(b) The commissioner may appoint one or more actuarial, financial, or other consultants, including legal counsel, as the commissioner finds necessary to advise the commissioner in making the determination of whether the proposed plan of conversion meets the applicable requirements of this article. The domestic reciprocal insurer is responsible for the reasonable fees and expenses of any actuarial, financial, or other consultants, including legal counsel, appointed, and for the mailing and publication of notices to the domestic reciprocal insurer and its members.


text:
The meeting of subscribers prescribed by subdivision (c) of Section 1560.03 shall be called by the governing board, the chairperson of the board, or the president of the domestic reciprocal insurer. Notice of the meeting shall be given to eligible subscribers by mail at least 45 days prior to the date set for the meeting to subscribers of the domestic reciprocal insurer of record on the date the plan of conversion was adopted by the governing board. The notice shall be accompanied by an information statement describing the proposed reorganization. The information statement shall include, at a minimum, all of the following items:

(a) A full copy and summary of the plan of reorganization.

(b) A discussion addressing the reasons and purposes of the proposed restructuring, which shall include a comparison to a dereciprocalization.

(c) An analysis of the benefits and risks associated with the proposed reorganization to the reciprocal company and its policyholders.

(d) An explanation of how the restructuring will benefit policyholders, as well as a description of any potential risks to policyholder interests and a description of how the policyholders’ rights differ at the reciprocal holding company level from those in the existing company.

(e) A description of any stock issuance, including any shares or options to be issued to directors, officers, agents, employees, or employee benefit plans, for their benefit, that will be made in conjunction with the plan of conversion, if any, and the guidelines and parameters that shall apply in the event stock is to be issued, including a detailed discussion of subscription rights that are to be granted to policyholders.

(f) The converted insurer’s proposed articles of incorporation and bylaws.

(g) Any proposed articles and bylaws of the reciprocal holding company and any other entities to be created in the reorganization.

(h) Financial information.

(i) Any other information that the commissioner determines is necessary to make a complete and adequate disclosure to policyholders.

Voting shall be by ballot, in person, or by proxy. A quorum shall consist of 10 percent of the subscribers of the domestic reciprocal insurer entitled to vote at the meeting.


text:
Nothing in this article shall be deemed to prohibit the inclusion in the plan of conversion of provisions under which the insurer’s officers, directors, employees, agents, and employee benefit plans for their benefit may be entitled, in accordance with reasonable classifications of those individuals and employee benefit plans as may be included in the plan, to purchase for cash, at the same price as offered to the public in the initial public offering, voting stock not purchased by subscribers upon exercise of subscription rights. Nothing in this code shall be deemed to prohibit the establishment of stock option, incentive, and share ownership plans customary for publicly traded companies in the same and similar industries. The plan may not permit those persons to acquire any of the following:

(a) Greater than 25 percent of the voting stock issued pursuant to the plan for a domestic reciprocal insurer having assets in excess of two hundred million dollars ($200,000,000) or 35 percent for a domestic reciprocal insurer having assets of two hundred million dollars ($200,000,000) or less.

(b) Greater than 25 percent of the stockholders’ equity for a medical malpractice reciprocal insurer having assets in excess of two hundred million dollars ($200,000,000) or 35 percent for a medical malpractice reciprocal insurer having assets of less than two hundred million dollars ($200,000,000).

(c) Unexercised options that exceed 20 percent of the number of issued and outstanding shares.


text: No director, officer, agent, or employee of the domestic reciprocal insurer shall receive any fee, commission, or other valuable consideration whatsoever, other than regular salary and compensation, for in any manner aiding, promoting, or assisting in the conversion except as set forth in the plan approved by the commissioner. This provision shall not be deemed to prohibit the payment of reasonable fees and compensation to attorneys at law, accountants, and actuaries for services performed in the independent practice of their professions, even though they may also be directors of the domestic reciprocal insurer.


text: At any time before that plan of conversion becomes effective, the domestic reciprocal company may, by resolution of at least two-thirds of the governing board, amend the plan of conversion or withdraw the plan of conversion. Any plan amendment shall require the written consent of the commissioner. For a plan amendment, all references in this article to the plan of conversion shall be deemed to refer to the plan as amended, but no amendment shall be deemed to change the adoption date of the plan of conversion. No amendment may change the plan of conversion in a manner that the commissioner determines is materially disadvantageous to policyholders of the insurer or members of the reciprocal holding company, unless a further public hearing is held on the plan as amended, if the amendment is made after the initial public hearing, or if the plan as amended is submitted for reconsideration by the subscribers if the amendment is made after the plan has been approved by the subscribers.


text: Upon consent by the commissioner to the plan of conversion of a domestic reciprocal insurer and filing of the plan of conversion in accordance with the provisions of this article, the commissioner shall issue a new certificate of authority to the converted insurer. Upon issuance of the certificate of authority to a domestic reciprocal insurer and subject to subdivision (a) of Section 110 of the Corporations Code, the Secretary of State shall accept for filing the articles of incorporation of the reciprocal holding company, the stock holding company, and the converted insurer. The plan is effective upon the filing of the articles of incorporation or the certificate of amendment of the articles of incorporation.