SECTIONS 4040-4044 - California Statutes

INSURANCE CODE

SECTION 4040-4044

4040. A mutual insurer 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 insurer'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 insurer 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.

4042. The issuance of any document evidencing any such loan shall
require the commissioner's securities permit under Article 8 of
Chapter 1, Part 2, Division 1 (commencing with Section 820).

4044. This section shall not apply to loans obtained by the insurer
in ordinary course of business from banks and other financial
institutions, nor to loans secured by pledge or mortgage of assets.