A.R.S. tit. 20 ch. 4 — Arizona Revised Statutes Title 20 Chapter 4 — Particular Types Of Insurers

20-701. Scope of article A. This article shall apply to domestic stock insurers and domestic mutual insurers only, except that subsection B of section 20-715 and subsection C of section 20-719 shall apply also to foreign and alien mutual insurers. B. Any domestic stock or mutual insurer which as of September 1, 1954, had duly filed its articles of incorporation and was lawfully in process of completing its organization, shall complete its organization according to such procedures as were provided by laws in force immediately prior to January 1, 1955. Any other domestic stock or mutual insurer in process of organization on January 1, 1955 shall be governed by such provisions of this article as the director deems to be practicably applicable, and otherwise according to laws in force immediately prior to January 1, 1955. C. Existing domestic stock and mutual insurers are governed by the applicable provisions of this article. 20-702. "Mutual" insurer defined A "mutual" insurer is an incorporated insurer without capital stock or shares, and which is owned by its policyholders. 20-703. "Stock" insurer defined A "stock" insurer is an incorporated insurer with capital divided into shares and owned by its shareholders. 20-704. Applicability of general corporation laws The general statutes of this state relating to corporations formed for profit, except where inconsistent with the provisions of this title and the reasonable implications thereof, shall apply to domestic stock and mutual insurers. 20-705. Articles of incorporation A. The articles of incorporation shall state: 1. The name of the corporation. If a mutual, the word "mutual" shall be a part of the name. 2. The duration of its existence, which may be perpetual. 3. The kinds of insurance the corporation is formed to transact, according to the definitions thereof in this title. If the corporation is to be a limited stock insurer, the articles shall provide for limitations on the insuring powers of the corporation consistent with section 20-708. 4. If a stock corporation, its authorized capital, the classes and number of shares into which divided, the par value of each such share and the respective rights of each such class. Shares without par value shall not be authorized. 5. If a mutual corporation, the maximum contingent liability of its members, other than as to nonassessible policies, for payment of losses and expenses incurred, which liability shall be as stated in the articles of incorporation but not less than one nor more than six times the premium for the member's policy at the annual premium rate for a term of one year. 6. The number of directors, not less than five nor more than fifteen, who shall conduct the affairs of the corporation, and the names and addresses of the corporation's first directors and officers for stated terms of office of not less than two months or more than one year. 7. The time of the annual meeting of stockholders or members. 8. The city or town in this state in which the principal place of business is to be located, and the counties, states and countries in which business may be transacted. 9. The limitations, if any, on the corporation's indebtedness. 10. If a stock corporation, the extent, if any, to which stock of the corporation shall be liable to assessment. 11. Such other provisions, not inconsistent with law, as deemed appropriate by the incorporators. 12. The names and addresses of the incorporators. B. This section applies to stock and mutual insurers incorporated in this state after January 1, 1955. 20-706. Filing and publication of articles; appointment of agent to receive process; issuance of certificate A. The articles of incorporation shall be filed in the office of the corporation commission and certified copies of the articles of incorporation shall be filed with the director of the department of insurance and financial institutions. B. The articles of incorporation shall be published as required by title 10. C. The corporation shall appoint a statutory agent located in this state on whom all process in any action or proceeding may be served and shall file originals of the appointment in the director's office and in the corporation commission's office. Any termination of the statutory agent shall not take effect until the corporation has appointed a new, valid statutory agent. D. The corporation shall not transact business as an insurer until it has applied for and received from the director a certificate of authority as provided by this title. 20-707. Amendment of articles A. The articles of incorporation of a stock insurer increasing or reducing authorized capital or for other purposes may be amended in accordance with the general laws of this state applying to corporations formed for profit. No amendment shall reduce authorized capital below the amount required by this title for the kinds of insurance thereafter to be transacted. B. The articles of incorporation of a mutual insurer may be amended by the affirmative vote of two thirds of its members present in person or by proxy at a regular or special meeting of members of which notice in writing setting forth the proposed amendment was mailed to all members at least thirty days in advance. A certificate of the amendments, signed and acknowledged by the president and attested by the secretary of the corporation, shall be filed, recorded and published, as required of the original articles of incorporation. 20-708. Limited stock insurers A. Domestic limited stock insurers may be formed, with capital and surplus as specified in sections 20-210 and 20-211, to transact life and disability insurance only or both, except as provided in subsection B of this section, but such an insurer may not: 1. Issue any policy or policies or combination of policies of life or disability insurance whether individual or group as a direct writer. 2. Accept any risk as a reinsurer under which the maximum possible benefits payable on the death or on the disability of any one insured shall exceed five thousand dollars nor without reinsuring the excess over three thousand dollars by noncancellable reinsurance authorized under section 20-261. Any risk accepted as a reinsurer under this paragraph shall be a risk under which the ceding life or disability insurer remains liable for the payment of all policyholder claims. B. Prior to, but not after January 31, 1980, any domestic limited stock insurer that on January 31, 1969 was the holder of a valid certificate of authority and that on or before such date had policy forms approved as provided by this title and had sold and issued any such policies shall continue to have the right and privilege to issue life and disability policies direct without regard to the prohibition prescribed in subsection A of this section, but such company shall not: 1. Issue any policy or combination of life insurance policies or accept any risk direct under which the maximum possible benefits payable on the death of any one insured shall exceed five thousand dollars nor without reinsuring the excess over three thousand dollars by noncancellable reinsurance authorized under section 20-261. 2. Issue any policy or combination of disability insurance policies, or accept any disability risk direct under which the maximum possible benefits payable to or on account of any one insured shall exceed five thousand dollars. 3. Issue pure endowment policies or annuity contracts, but this paragraph does not prohibit the insurer from issuing life insurance endowment policies, limited payment life and other standard plans of life insurance policies, nor from providing therein standard settlement options. C. With appropriate powers in its articles of incorporation by increase of its authorized and paid-in capital and its surplus funds to the minimum amount required by this title as for an insurer newly formed and on application to the director, a domestic limited stock insurer may become a domestic stock insurer free from the restrictions otherwise imposed by this section. D. A domestic limited stock insurer may accept reinsurance of risks of life or disability stock insurers or stock reinsurers, subject to limits as to amount of insurance as to anyone insured as set forth in this section. 20-709. Formation of mutual insurer; applications for insurance A. Upon issuance of its certificate of incorporation by the corporation commission, the directors and officers of a domestic mutual corporation formed for the purpose of becoming a mutual insurer may open books for the registration of such requisite applications for insurance policies as they may accept, and may receive deposits of premiums thereon. B. All such applications shall be in writing signed by the applicant, covering subjects of insurance resident, located or to be performed in this state. C. All such applications shall provide that: 1. Issuance of the policy is contingent upon completion of organization of the insurer and issuance to it of a proper certificate of authority. 2. No insurance is provided until the certificate of authority has been so issued. 3. The prepaid premium or deposit, and membership or policy fee, if any, shall be refunded in full to the applicant if the organization is not completed and the certificate of authority issued before a specified reasonable date, which date shall be not later than one year following date of issuance of the certificate of incorporation. D. All qualifying premiums collected shall be in cash. E. Solicitation for qualifying applications for insurance shall be by licensed agents of the corporation, and the director shall upon application therefor issue temporary agent's licenses expiring on the date specified pursuant to paragraph 3 of subsection C of this section to individuals appointed by the corporation and qualified as for a resident agent's license except as to the taking of an examination. The director may suspend or revoke any such license for the same causes and pursuant to the same procedures applicable to suspension or revocation of licenses of agents in general under article 3 of chapter 2 of this title. 20-710. Formation of mutuals; trust deposit of premiums; issuance of policies A. All sums collected by a domestic mutual corporation as premiums and fees on qualifying applications for insurance therein shall be deposited in trust in a bank or trust company of this state under a written trust agreement consistent with this section and with paragraph 3 of subsection C of section 20-709. The corporation shall file an executed copy of the trust agreement with the director. B. Upon issuance to the corporation of a certificate of authority as an insurer for the kind of insurance for which the applications were solicited, all funds so held in trust shall become the funds of the insurer, and the insurer shall forthwith issue and deliver its policies for which premiums had been paid and accepted. The insurance provided by such policies shall be effective as of the date of the certificate of authority. 20-711. Initial qualification of domestic mutual insurers A. When newly organized a domestic mutual insurer may be authorized to transact any one kind of insurance other than title insurance. B. When applying for an original certificate of authority as an insurer, a domestic mutual insurer shall be otherwise qualified under this title, and shall have received and accepted bona fide applications with respect to substantial insurable subjects for insurance coverage of a substantial character of the kind of insurance proposed to be transacted, shall have collected in full and in cash the proper premium at a rate not less than that usually charged by stock insurers for comparable coverages, shall have surplus funds on hand as at completion of issuance of all such policies so applied for, or, in lieu of such applications, premiums and surplus, may deposit surplus, all in accordance with that portion of the following schedule which applies to the one kind of insurance the insurer then proposes to transact: Minimum Minimum Minimum Maximum number number amount of amount of of of Minimum insurance insurance Kind of applicants subjects premium each each insurance accepted covered collected subject subject ______ Life (i) 300 300 Annual $1,000 $20,000 Disability (ii) 300 300 Quarter 100 monthly 200 monthly indemnity indemnity Property (iii) 100 250 Annual 1,000 30,000 Marine and Transportation 100 250 Annual 1,000 30,000 Vehicle (iv) 100 250 Annual 15,000 30,000 Casualty (iv) 100 250 Annual 15,000 30,000 Surety 100 250 Annual 1,000 50,000 C. The following provisions in the schedule shall govern as to the one kind of insurance the insurer then proposes to transact: 1. Under (i). No group insurance, nor term policies for terms of less than ten years shall be included. 2. Under (ii). No group or blanket or family plans of insurance shall be included. In lieu of weekly indemnity a like premium value in medical, surgical and hospital benefits may be provided. Any accidental death or dismemberment benefit provided shall not exceed two thousand dollars. 3. Under (iii). Only insurance of the owner's interest in real property may be included, and all such coverages shall be in compliance with the provisions of subsection E of section 20-260 (two properties reasonably subject to loss from the same fire may not be insured by the same insurer if results in excess of limit of risk). 4. Under (iv). Shall include insurance of legal liability for bodily injury and property damage to which the maximum and minimum insured amounts apply. 5. Under (v). The deposit in the amount specified shall thereafter be maintained. The deposit is subject to the provisions of this title governing deposits of insurers in general. 20-712. Additional kinds of insurance authorized to be issued by mutual insurer A domestic mutual insurer after being authorized to transact one kind of insurance shall be authorized by the director to transact such additional kinds of insurance as are authorized under section 20-209 and upon otherwise qualifying therefor and depositing and thereafter maintaining on deposit as required through the director unimpaired surplus funds in an amount not less than the amount of minimum required capital stock required of a domestic stock insurer transacting like kinds of insurance, and subject further to the additional surplus requirements of section 20-211. 20-713. Bylaws of mutual insurer A. The initial board of directors of a domestic mutual insurer shall adopt original bylaws for the government of the corporation and conduct of its business. The bylaws shall be subject to the approval of the insurer's members at the next succeeding annual meeting of members, and no bylaw provision shall thereafter be effective that is not so approved. Bylaws shall be revoked or modified only by vote of the insurer's members at a meeting of which notice was given as provided in the bylaws. B. The bylaws shall provide that each member of the insurer is entitled to one vote in the election of corporate directors and on all matters coming before membership meetings and that each vote may be exercised in person or by proxy. C. The insurer shall promptly file with the director of the department of insurance and financial institutions a copy, certified by the insurer's secretary, of the bylaws and of every modification of or addition to the bylaws. The director shall disapprove any bylaw provision deemed by the director to be unlawful, inadequate, unfair or detrimental to the proper interests and protection of the insurer's members or any class of the insurer's members. The insurer shall not, after receiving written notice of such disapproval and during the existence thereof, effectuate any disapproved bylaw provision. 20-713.01. Directors; terms; staggered terms The members of a domestic mutual insurer or mutual insurance holding company shall elect directors at the annual meeting of members. Directors may be elected for terms of not more than one year each and shall serve until their successors are elected and qualified unless, notwithstanding any law to the contrary, the insurer's articles of incorporation or bylaws provide for staggering the terms of directors by dividing the total number of directors into groups containing as equal a number of directors as is possible and providing an initial term of office for directors in each group that expires at succeeding annual meetings of members, with at least one director elected each year. Such staggered terms may not exceed five years each. 20-714. Quorum of members of mutual insurer A domestic mutual insurer may in its bylaws adopt a reasonable provision for determining a quorum of members at any meeting of the insurer, but no provision recognizing a quorum of fewer than a simple majority of all the insurer's members shall be effective unless approved as reasonable by the director of the department of insurance and financial institutions. This section does not affect any other law requiring a vote of a larger percentage of members for a specified purpose. 20-715. Membership in mutual insurer A. Each holder of one or more insurance policies or contracts issued by a domestic mutual insurer, other than a contract of reinsurance, is a member of the insurer with all the rights and obligations of such membership, and each such policy or contract so issued shall so specify. B. Any person, government or governmental agency, state or political subdivision thereof, public or private corporation, board, association, firm, estate, trustee or fiduciary may be a member of a domestic, foreign or alien mutual insurer. 20-716. Rights of mutual insurer member With respect to the management, records and affairs of the insurer, a member of a domestic mutual insurer shall have the same character of rights and relationship as a stockholder has toward a domestic stock insurer. 20-717. Contingent liability of mutual insurer members A. Each member of a domestic mutual insurer shall, except as otherwise provided in this article with respect to nonassessable policies, have a contingent liability, pro rata and not one for another, for the discharge of its obligations, which contingent liability shall be in such maximum amount as it stated in the insurer's articles of incorporation. B. Each policy issued by the insurer shall contain a statement of the contingent liability, if any, of its members. C. Termination of the policy of any such member shall not relieve the member of contingent liability for his proportion, if any, of the obligations of the insurer which accrued while the policy was in force. D. Unrealized contingent liability of members does not constitute an asset of the insurer in any determination of its financial condition. 20-718. Enforcement of contingent liability A. If at any time the assets of a domestic mutual insurer are less than its liabilities and the minimum amount of surplus required of it by this title for authority to transact the kinds of insurance being transacted, and the deficiency is not cured from other sources, its directors shall levy an assessment only on its members who, at any time within the twelve months immediately preceding the date notice of such assessment was mailed to them, held policies providing for contingent liability, and such members shall be liable to the insurer for the amount so assessed. B. The assessment shall be for such an amount as is required to cure such deficiency and to provide a reasonable amount of working funds above such minimum amount of surplus, but such working funds so provided shall not exceed five percent of the insurer's liabilities as of the date on which the amount of such deficiency was determined. C. No one policy or member as to such policy shall be assessed or charged with an aggregate of contingent liability as to obligations incurred by the insurer in any one calendar year, in excess of the number of times the premium as stated in the policy as computed solely on premium earned on such policy during that year. D. No member shall have an offset against any assessment for which the member is liable, on account of any claim for unearned premium or loss payable. E. As to life insurance, any part of such an assessment on a member that remains unpaid following notice of assessment, demand for payment and lapse of a reasonable waiting period as specified in such notice, if approved by the director of the department of insurance and financial institutions as being in the best interests of the insurer and its members, may be secured by placing a lien on the cash surrender values and accumulated dividends held by the insurer to the credit of such member. 20-719. Issuance of nonassessable policies by mutual insurers A. While it maintains on deposit with the state treasurer through the director surplus funds in an amount not less than the paid-in capital required of a domestic stock insurer transacting like kinds of insurance, a domestic mutual insurer may extinguish the contingent liability of its members as to all its policies in force, and may omit provisions imposing contingent liability in all its policies currently issued. B. When such surplus funds have been so deposited and the director has so ascertained, he shall issue to the insurer at its request his certificate authorizing such extinguishment and omission of contingent liability. C. A foreign or alien mutual insurer may issue nonassessable policies to its members in this state in accordance with its charter and the laws of its domicile. 20-720. Revocation of authority to issue nonassessable policies A. The director shall revoke the authority of a domestic mutual insurer to issue policies without contingent liability if at any time the insurer's assets are less than the sum of its liabilities and the surplus required for such authority, or if the insurer, by resolution of its board of directors approved by a majority of its members, requests that the authority be revoked. B. Upon revocation of such authority for any cause the insurer shall not thereafter issue new policies without contingent liability, nor renew or accept further premiums on old policies without endorsing them to provide for such liability. 20-721. Participating policies A. If so provided in its articles of incorporation, a domestic stock or domestic mutual insurer may issue any or all of its policies with or without participation in profits, savings or unabsorbed portions of premiums, may classify policies issued on a participating or nonparticipating basis, and may determine the right to participate and the extent of participation of any class or classes of policies. Any such classification or determination shall be reasonable, and shall not unfairly discriminate as between policyholders within the same such classification. A life insurer may issue both participating and nonparticipating policies only if the right or absence of right to participate is reasonably related to the premium charged. B. No dividend, otherwise earned, shall be made contingent upon the payment of renewal premium on any policy. 20-722. Stock dividends A. A domestic stock insurer shall not pay any cash dividend to stockholders except out of that part of its available surplus funds which is derived from realized net profits on its business. B. A stock dividend may be paid out of any available surplus funds in excess of the aggregate amount of surplus loaned to the insurer pursuant to section 20-725. C. A dividend otherwise proper, may be payable out of the insurer's earned surplus even though its total surplus is then less than the aggregate of its past contributed surplus resulting from issuance of its capital stock at a price in excess of the par value thereof. 20-723. Dividends to mutual policyholders A. The directors of a domestic mutual insurer may from time to time apportion and pay or credit to its members dividends only from that part of its surplus funds which represents net realized savings and net realized earnings from its business. B. A dividend otherwise proper may be payable from such savings and earnings even though the insurer's total surplus is then less than the aggregate of its contributed surplus. 20-724. Illegal dividends; violation; classification A. Any director of a domestic stock or mutual insurer who knowingly votes for or concurs in declaration or payment of an illegal dividend to stockholders or members is guilty of a class 2 misdemeanor and is jointly and severally liable, together with other such directors, for any loss thereby sustained by the insurer. B. The stockholders or members knowingly receiving such an illegal dividend shall be liable in the amount of the illegal dividend to the insurer. C. The director of the department of insurance and financial institutions may revoke or suspend the certificate of authority of an insurer that has declared or paid an illegal dividend. 20-725. Borrowed surplus A. A domestic stock or mutual insurer may borrow money to defray the expenses of its organization, provide it with surplus funds or for any purpose required by its business, on 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 interest at the rate agreed on, but not exceeding twelve per cent per year. This interest only constitutes a liability of the insurer if the director has approved payment of the interest. B. The surplus note shall provide that the holder's interest is subordinate to the claims of policyholders, claimants and beneficiaries and to all other classes of creditors other than surplus noteholders and that interest payments and principal payments require prior approval of the director. C. Money so borrowed, together with the interest if so stipulated in the agreement, shall not form a part of the insurer's legal liabilities or be the basis of any setoff until the director approves repayment. Until the money and interest are repaid, financial statements filed or published by the insurer shall show as a footnote the amount remaining unpaid plus any accrued, unpaid interest, pursuant to the accounting practices and procedures manual adopted by the national association of insurance commissioners. D. Before entering a loan transaction as described in this section, a domestic mutual insurer shall file with the director a statement of the purposes of the loan and a copy of the proposed loan agreement, which shall be subject to the director's approval. The loan and agreement shall be deemed approved unless within fifteen days after the date of filing the insurer is notified in writing of the director's disapproval and the reasons for the disapproval. The director shall disapprove any proposed loan or agreement if the director finds that the loan is reasonably unnecessary or excessive for the purpose intended, that the terms of the loan agreement are not fair and equitable to the parties and to other similar lenders, if any, or to the insurer or that the information so filed by the insurer is inadequate, specifying the inadequacies. E. A mutual insurer shall repay the loan or a substantial portion of the loan when the loan is no longer reasonably necessary for the purpose originally intended and after receiving the director's approval for repayment. F. This section does not apply to loans obtained by the insurer in the ordinary course of business from banks and other financial institutions nor to loans secured by a pledge of assets. G. Any eligible investment as prescribed in chapter 3, article 2 of this title may be contributed or borrowed pursuant to this section subject to any limitations provided in that article for that investment. 20-726. Prohibited interests of officers and directors in certain transactions A. No director or officer of an insurer shall accept, except for the insurer, or be the beneficiary of any fee, brokerage, gift or other emolument in addition to his fixed salary or compensation, because of any investment, loan, deposit, purchase, sale, exchange, reinsurance or other similar transaction made by or for the insurer, or be pecuniarily interested therein in any capacity except on behalf of the insurer. B. No insurer shall guarantee the financial obligation of any of its officers or directors. C. This section shall not prohibit such a director or officer from becoming a policyholder of the insurer and enjoying thereunder the rights customarily provided therein for holders of such policies. D. This section shall not prohibit any transaction which meets the requirements of title 10, chapter 8, article 6. 20-726.01. Insider trading by officers, directors and principal stockholders A. Every person who is directly or indirectly the beneficial owner of more than ten per cent of any class of equity security of a domestic stock insurance company, or who is a corporate director or an officer of such company, shall file in the office of the director before the first day of July, 1966, or thereafter within ten days after he becomes such beneficial owner, corporate director or officer, a statement, in such form as the director may prescribe, of the amount of all classes of equity securities of such company of which he is the beneficial owner, and within ten days after the close of each calendar month thereafter, if there has been a change in such ownership during such month, shall file in the office of the director a statement, in such form as the director may prescribe, indicating his ownership at the close of the calendar month and such changes in his ownership as have occurred during such calendar month. B. For the purpose of preventing the unfair use of information which may have been obtained by such beneficial owner, corporate director or officer by reason of his relationship to such company, any profit realized by him from any purchase and sale, or any sale and purchase, of any equity security of such company within any period of less than six months unless such equity security was acquired in good faith in connection with a debt previously contracted, shall inure to and be recoverable by the company, irrespective of any intention on the part of such beneficial owner, director or officer in entering into such transaction of holding the equity security purchased or of not repurchasing the equity security sold for a period exceeding six months. Suit to recover such profit may be instituted at law or in equity in any court of competent jurisdiction by the company or by the owner of any security of the company in the name and in behalf of the company if the company shall fail or refuse to bring such suit within sixty days after the request or shall fail diligently to prosecute the same thereafter, but no such suit shall be brought more than two years after the date such profit was realized. This subsection shall not be construed to cover any transaction where such beneficial owner was not such both at the time of the purchase and sale, or the sale and purchase, of the equity security involved, or any transaction or transactions which the director may by rules or regulations exempt as not comprehended within the purpose of this subsection. C. It shall be unlawful for any such beneficial owner, corporate director or officer, directly or indirectly, to sell any equity security of such company if the person selling the equity security or his principal: 1. Does not own the equity security sold; or 2. If owning the equity security, does not deliver it against such sale within twenty days thereafter, or does not within five days after such sale deposit it in the mails or other usual channels of transportation, but no person shall be deemed to have violated this provision if he proves that notwithstanding the exercise of good faith he was unable to make such delivery or deposit within such time, or that to do so would cause undue inconvenience or expense. D. The provisions of subsection B of this section shall not apply to any purchase and sale, or sale and purchase, and the provisions of subsection C of this section shall not apply to any sale, of an equity security not then or theretofore held by him in an investment account, by a dealer in the ordinary course of his business and incident to the establishment or maintenance by him of a primary or secondary market, otherwise than on an exchange as presently defined in the securities exchange act of 1934, for such security. E. The provisions of this section shall not apply to foreign or domestic arbitrage transactions unless made in contravention of such rules and regulations as the director may adopt in order to carry out the purposes of this section. F. The term "equity security" means: 1. Any stock or similar security. 2. Any security convertible, with or without consideration, into such a security, or carrying any warrant or right to subscribe to or purchase such a security. 3. Any such warrant or right. 4. Any other security which the director shall deem to be of similar nature and consider necessary or appropriate, by such rules and regulations as he may prescribe in the public interest or for the protection of investors, to treat as an equity security. G. The provisions of subsections A, B and C of this section shall not apply to equity securities of a domestic stock insurance company having a class of equity securities which are registered or are required to be registered pursuant to section 12 of the securities exchange act of 1934, as amended, or as may be amended, or of a domestic stock insurance company not having a class of equity securities held of record by one hundred or more persons. H. The director shall have the power to make such rules and regulations as may be necessary for the execution of the functions vested in him by subsections A through G of this section, and may for such purpose classify domestic stock insurance companies, securities, and other persons or matters within his jurisdiction under this section. No provision of subsections A, B and C of this section imposing any liability shall apply to any act done or omitted in good faith in conformity with any rule or regulation of the director, in the event that such rule or regulation may, after such act or omission, be amended or rescinded or determined by judicial or other authority to be invalid for any reason. 20-727. Management and exclusive agency contracts A. A domestic stock or mutual insurer shall not make any contract whereby any person or persons are granted or are to enjoy in fact the management of the insurer to the substantial exclusion of its board of directors, or are to have the controlling or preemptive right to produce substantially all insurance business for the insurer, unless the contract is filed with the director of the department of insurance and financial institutions and is subject to the director's approval. The contract shall be deemed approved unless disapproved by the director within twenty days after date of filing, subject to such reasonable extension of time as the director may require by notice given within such twenty days. Any disapproval shall be delivered to the insurer in writing, stating the grounds for the disapproval. B. The director shall disapprove any such contract if the director finds that it: 1. Subjects the insurer to excessive charges. 2. Is to extend for an unreasonable length of time. 3. Does not contain fair and adequate standards of performance. 4. Contains other inequitable provisions or provisions that impair the proper interests of stockholders or members of the insurer. 20-728. Impairment of capital or assets A. If the capital stock of a stock insurer becomes impaired, or the assets of a mutual insurer are less than its liabilities and the minimum amount of surplus required of it by this title for authority to transact the kinds of insurance being transacted, the director shall at once determine the amount of the deficiency and serve notice upon the insurer to make good the deficiency within ninety days after service of such notice. B. The deficiency may be made good in cash or in assets eligible under this title for the investment of the insurer's funds, or if a stock insurer, by reduction of the insurer's capital to an amount not below the minimum required for the kinds of insurance thereafter to be transacted, or if a mutual insurer, by amendment of its certificate of authority to cover only such kind or kinds of insurance for which the insurer has on deposit sufficient surplus. C. If the deficiency is not made good and proof thereof filed with the director within the ninety day period, the insurer shall be deemed insolvent and the director shall institute delinquency proceedings against it as authorized by this title. If the deficiency exists because of increased loss reserves required by the director, or because of disallowance by the director of certain assets or reduction of the value at which carried in the insurer's accounts, the director may in his discretion and upon application and good cause shown, extend for not more than an additional ninety days the period within which the deficiency may be so made good and proof thereof so filed. 20-729. Conversion of stock insurer to mutual insurer A. A domestic stock insurer other than a title insurer may become a domestic mutual insurer pursuant to such plan and procedure as may be approved in advance by the director. B. The director shall not approve any such plan, procedure or mutualization unless: 1. It is equitable to both stockholders and policyholders. 2. It is subject to approval by a vote of the holders of not less than three-fourths of the insurer's capital stock having voting rights and by a vote of not less than two-thirds of the insurer's policyholders who vote on such plan in person, by proxy or by mail pursuant to such notice and procedure as may be approved by the director. 3. If a life insurer, the right to vote thereon is limited to those policyholders whose policies have face amounts of not less than $1,000 and have been in force for one year or more. 4. Mutualization will result in retirement of shares of the insurer's capital stock at a price not in excess of the fair market value thereof as determined by competent disinterested appraisers. 5. The plan provides for the purchase of the shares of any nonconsenting stockholder in accordance with title 10, chapter 13 and such nonconsenting stockholders shall have all the rights and restrictions applicable under such section to stockholders of a private corporation who do not consent to the agreed manner of converting the shares of stock of such private corporation on proposal for consolidation. 6. The plan provides for definite conditions to be fulfilled by a designated early date on which such mutualization will be deemed effective. 7. The mutualization leaves the insurer with surplus funds reasonably adequate for the security of its policyholders and to continue successfully in business in the states in which it is then authorized to transact insurance, and for the kinds of insurance included in its certificate of authority. C. This section does not apply to mutualization under order of court pursuant to rehabilitation or reorganization of an insurer under chapter 3, article 4 of this title. 20-730. Conversion of mutual insurer to stock insurer A. A domestic mutual insurer may become a domestic stock insurer pursuant to such plan or procedure as is approved in advance by the director. B. The director shall not approve any such plan or procedure unless: 1. It is equitable to the insurer's members. 2. It is subject to approval by vote of not less than three-fourths of the insurer's current members voting thereon in person, by proxy or by mail at a meeting of members called for the purpose pursuant to such notice and procedure as may be approved by the director. If a life insurer, the right to vote may be limited to members whose policies have face amounts of not less than $1,000 and have been in force one year or more. 3. The equity of each policyholder in the insurer is determinable under a fair formula approved by the director, which shall be based on not less than the insurer's entire surplus, after deducting contributed or borrowed surplus funds, plus a reasonable present equity in its reserves and in all nonadmitted assets. 4. The policyholders entitled to participate in the purchase of stock or distribution of assets include all current policyholders and all existing persons who had been a policyholder of the insurer within three years before the date such plan was submitted to the director. 5. The plan gives to each policyholder of the insurer as specified in paragraph 4 of this subsection a preemptive right to acquire the policyholder's proportionate part of all of the proposed capital stock of the insurer, within a designated reasonable period, and to apply on the purchase thereof the amount of the policyholder's equity in the insurer as determined under paragraph 3 of this subsection. 6. Shares are so offered to policyholders at a price not greater than that thereafter offered to others nor at more than double the par value of the shares. 7. The plan provides for payment to each policyholder not electing to apply the policyholder's equity in the insurer for or on the purchase price of stock to which preemptively entitled, of cash in the amount of not less than fifty percent of the amount of the policyholder's equity not so used for the purchase of stock, and which cash payment together with stock so purchased, if any, shall constitute full payment and discharge of the policyholder's equity as an owner of such mutual insurer. 8. The plan, when completed, would provide for the converted insurer paid-in capital stock in an amount not less than the minimum paid-in capital required of a domestic stock insurer transacting like kinds of insurance, together with surplus funds in amount not less than one-half of such required capital. 20-731. Merger or consolidation of stock insurers; hearings; notice A. Any domestic stock insurer except a title insurer may merge or consolidate with another domestic or foreign stock insurer by complying with the provisions of general law governing the merger or consolidation of stock corporations formed for profit, but subject to subsection B of this section. B. A merger or consolidation is not effective under this section unless in advance of the merger or consolidation the plan and agreement have been filed with and approved in writing by the director. The director may hold a public hearing on the plan and agreement as prescribed in section 20-161, and the director shall approve the merger or consolidation unless the director finds the plan or agreement: 1. Is contrary to law. 2. Is unfair in the terms and conditions of the issuance and exchange of securities. 3. Would substantially reduce the security of and service to be rendered to policyholders of the domestic insurer in this state or elsewhere. C. Any public hearing referred to in subsection B of this section shall be held within thirty days after the plan and agreement of merger is filed, and at least twenty-five days' written notice thereof shall be given by the director to the insurer corporations involved. Not less than ten days' written notice of the hearing shall be given by the insurer corporations to their shareholders. The insurers filing the plan and agreement, shareholders, any person to whom written notice of hearing was sent and any other person whose interest may be affected thereby shall have the right to present evidence, examine and cross-examine the witnesses and offer oral and written arguments at the hearing. The director shall make a determination within thirty days after the conclusion of the hearing. Except as otherwise provided in this subsection, title 41, chapter 6, article 10 shall apply to hearings, orders and appeals. D. A domestic title insurer may merge or consolidate with another domestic or foreign title insurer by complying with section 20-1576. 20-732. Acceptance of reinsurance by stock insurers; definition A. A domestic stock insurer or a domestic limited stock insurer may accept reinsurance for the same kinds of insurance and within the same limits as it is authorized to transact directly, unless the reinsurance is prohibited by its articles of incorporation. If a reinsurance contract constitutes all or substantially all of the insurance business, the reinsuring agreement shall not become effective unless filed with and approved in writing by the director. If not acted upon within thirty days, the agreement shall be deemed approved unless the director notifies the parties to the agreement that a thirty day extension to the time period has been imposed. Any person may request a hearing regarding the decision of the director pursuant to title 41, chapter 6, article 10. B. A domestic stock insurer or limited stock insurer may reinsure all or substantially all its business in force, or substantially all of a major class thereof, with another insurer by an agreement of reinsurance, but no agreement shall become effective unless filed with and approved in writing by the director. C. The director shall approve the agreement within a reasonable time after filing unless the director finds that it is inequitable to the stockholders of the domestic insurer or would substantially reduce the protection or service to its policyholders. If the director does not approve the agreement the director shall notify the insurer in writing specifying the reasons for the disapproval of the agreement. D. For the purposes of this section, "reinsurance" means a contract by which an insurer procures a third person to insure the insurer against loss or liability by reason of original insurance, or a contract that one insurer makes with another insurer to protect the latter from a risk already assumed. 20-733. Merger or consolidation of mutual insurers A. A domestic mutual insurer shall not merge or consolidate with a stock insurer. B. A domestic mutual insurer may merge or consolidate with another mutual insurer in accordance with procedures prescribed by general laws applying to corporations formed for profit, except as provided by this section. C. The plan and agreement for merger or consolidation shall be submitted to and approved by at least two-thirds of the members of each mutual insurer involved voting thereon at meetings called for the purpose pursuant to such reasonable notice and procedure as has been approved by the director of the department of insurance and financial institutions. If a life insurer, the right to vote may be limited to members whose policies are in a face amount of not less than $1,000 and have been in force one year or more. D. A merger or consolidation shall not be effectuated unless in advance thereof the plan and agreement therefor have been filed with and approved in writing by the director of the department of insurance and financial institutions. The director shall give approval within a reasonable time after filing unless the director finds the plan or agreement: 1. Inequitable to the policyholders of any domestic insurer involved. 2. Would substantially reduce the security of and service to be rendered to policyholders of the domestic insurer in this state or elsewhere. E. If the director does not approve the plan or agreement the director shall so notify the insurer in writing specifying the reasons for the disapproval. 20-734. Acceptance of reinsurance by mutual insurers A. A domestic mutual insurer may accept reinsurance for the same kinds of insurance and within the same limits as it is authorized to transact direct unless such reinsurance is prohibited by its articles of incorporation. B. A domestic mutual insurer may reinsure all or substantially all its business in force, or all or substantially all of a major class thereof, with another insurer, stock or mutual, by an agreement of bulk reinsurance after compliance with this section. C. In advance of such reinsurance the agreement therefor shall be filed with and be subject to the approval of the director within a reasonable time after filing. The director shall not approve the agreement unless he finds it to be fair and equitable to each domestic insurer involved, and that such reinsurance if effectuated would not substantially reduce the protection or service to its policyholders. If the director does not so approve, he shall so notify each insurer involved in writing specifying his reasons therefor. D. The plan and agreement for such reinsurance shall be approved by vote of not less than two thirds of each domestic mutual insurer's members voting thereon at meetings of members called for the purpose, pursuant to such reasonable notice and procedure as the director may approve. If a life insurer, the right to vote may be limited to members whose policies have face amounts of not less than one thousand dollars and have been in force one year or more. E. If for reinsurance of a mutual insurer in a stock insurer, the agreement shall provide for payment in cash to each member of the insurer entitled thereto as upon a conversion of such insurer pursuant to paragraph 4 of subsection B of section 20-730, of his equity in the business reinsured as determined under a fair formula approved by the director, which equity shall be based upon the member's equity in the reserves, assets, whether or not admitted assets, and surplus, if any, of the mutual insurer to be taken over by the stock insurer. 20-735. Distribution of assets of mutual insurer on liquidation A. On any liquidation of a domestic mutual insurer, its assets remaining after discharge of its indebtedness, policy obligations, repayment of contributed or borrowed surplus, if any, and expenses of administration, shall be distributed to existing persons who were its members at any time within thirty-six months next preceding the date the liquidation was authorized or ordered, or the date of last termination of the insurer's certificate of authority, whichever date is the earliest. B. The distributive share of each such member shall be in the proportion that the aggregate premiums earned by the insurer on the policies of the member during the combined periods of the member's membership bear to the aggregate of all premiums so earned on the policies of all such members. The insurer may, and if the insurer is a life insurer shall, make a reasonable classification of its policies so held by such members and a formula based on such classification for determining the equitable distributive share of each such member. Such classification and formula shall be subject to the approval of the director of the department of insurance and financial institutions. 20-736. Transfer of direct obligations; assignment; notice; findings; approval; applicability A. An authorized insurer shall not transfer or assign the insurer's direct obligations under any insurance contract or policy, including annuities and any guaranteed investment contract, on subjects located, resident or to be performed in this state, that were incurred or assumed under the insurer's authority to transact business as an insurer in this state or under a certificate of exemption pursuant to section 20-401.05 to any other insurer or other party by operation of law, including any law that permits the division of a corporation into two or more resulting corporations, unless the affected contract holder or policyholder consents to or fails to reject the transfer or assignment within one hundred eighty days after receiving a fair, adequate and nonmisleading notice of the transfer or assignment or unless the director approves the transfer or assignment pursuant to this section. B. The director shall not approve any transfer or assignment described in subsection A of this section unless the director makes all of the following findings: 1. The transaction is fair, reasonable and not contrary to law. 2. The transaction will not substantially reduce the security of and service to be rendered to contract holders and policyholders in this state. 3. The transaction will not be hazardous to or prejudicial against insureds in this state. 4. The nature and details of the transaction have been adequately disclosed. 5. The transaction will not have an adverse effect on the financial condition of any insurer. 6. The persons who will control the operation of the insurer or other party to which the obligations to contract holders and policyholders in this state are transferred or assigned possess sufficient competence, experience and integrity. 7. The plans or proposals for administration of the contracts and policies subject to the transfer or assignment are fair and reasonable. 8. The insurer or other party to which or through which the obligations to contract holders and policyholders in this state are transferred or assigned are at all material times authorized or exempted pursuant to section 20-401.05 to transact that kind or kinds of insurance in this state and are in compliance with all applicable legal requirements. 9. The transfer or assignment will not impair any rights to recovery from any insurance guaranty fund or similar association. C. Nothing in this section limits or otherwise affects: 1. The lawful administration of a delinquency proceeding or other similar proceeding initiated against an insurer for the purpose of liquidating, rehabilitating, reorganizing or conserving the insurer. 2. The powers of the receiver or other similar entity in the delinquency proceeding or other similar proceeding. 3. The jurisdiction of a court presiding over the delinquency proceeding or other similar proceeding. 4. The exercise of powers and duties as prescribed by the Arizona property and casualty insurance guaranty fund, the Arizona life and disability insurance guaranty fund or any similar organization in any other state. D. In order to carry out the requirements of this section, the director may use independent contractor examiners, analysts and other technical and professional services in accordance with sections 20-148 and 20-159. All examination and examination related expenses related to the implementation of this section shall be borne by the insurer from which the obligations would be transferred or assigned by virtue of the transaction, and shall be paid by the insurance examiners' revolving fund pursuant to section 20-159. E. This section does not apply to: 1. The transfer of private passenger automobile insurance policies from one insurer to an affiliated insurer pursuant to section 20-1631, subsection L. 2. The transfer or assignment of the direct obligations of an authorized insurer pursuant to a contract of assumption reinsurance. 3. The transfer or assignment of the direct obligations of an authorized insurer pursuant to a provision of a bona fide indemnity reinsurance contract by which the reinsurer becomes directly liable under the policies or contracts to which the reinsurance contract relates. 4. A transfer or assignment resulting from a division or merger of a corporation that was filed for regulatory approval in the corporation's state of domicile on or before December 31, 1996. 20-761. "Reciprocal" insurance defined "Reciprocal" insurance is that resulting from an inter-exchange among persons, known as "subscribers," of reciprocal agreements of indemnity, the inter-exchange being effectuated through an "attorney-in-fact" common to all such persons. 20-762. "Reciprocal insurer" defined A "reciprocal insurer" means an unincorporated aggregation of subscribers operating individually and collectively through an attorney-in-fact to provide reciprocal insurance among themselves. 20-763. Scope of article All authorized reciprocal insurers shall be governed by those sections of this article not expressly made applicable to domestic reciprocals. 20-764. Compliance by existing insurers Existing authorized reciprocal insurers shall after January 1, 1955 comply with the provisions of this article, and shall make such amendments to their subscribers' agreement, power of attorney, policies and other documents and accounts and perform such other acts as may be required for such compliance. 20-765. Powers of reciprocal insurers A. A reciprocal insurer may, upon qualifying therefor as provided for by this title, transact any kind or kinds of insurance defined by this title, other than life or title insurances. B. Such an insurer may purchase reinsurance upon the risk of any subscriber, and may grant reinsurance as to any kind of insurance it is authorized to transact directly. 20-766. Name of insurer; designation by name as party in action A reciprocal insurer shall have and use a business name which shall include the word "reciprocal," "inter-insurer," "inter-insurance," "exchange," "underwriters" or "underwriting," and shall sue and be sued in its own name. 20-767. Attorney-in-fact of reciprocal insurers A. "Attorney," as used in this article refers to the attorney-in-fact of a reciprocal insurer. The attorney may be an individual, firm or corporation. B. The attorney of a foreign or alien reciprocal insurer, which insurer is duly authorized to transact insurance in this state, shall not, by virtue of discharge of its duties as such attorney with respect to the insurer's transactions in this state, be thereby deemed to be doing business in this state within the meaning of any laws of this state applying to foreign firms or corporations. 20-768. Required surplus funds A. A domestic reciprocal insurer formed under this article, if it has otherwise complied with the provisions of this title, may be authorized to transact insurance if it deposits and maintains on deposit with the state treasurer through the office of the director to transact property or vehicle insurance, surplus funds of not less than six hundred thousand dollars. B. A domestic reciprocal insurer may be authorized to transact additional kinds of insurance if it has otherwise complied with the provisions of this title and possesses and so maintains on deposit surplus funds in amount equal to the minimum capital required of a stock insurer for authority to transact a like combination of kinds of insurance. 20-769. Organization of reciprocal insurer A. Twenty-five or more persons domiciled in this state may organize a domestic reciprocal insurer and make application to the director for a certificate of authority to transact insurance. B. The proposed attorney shall fulfill the requirements of and shall execute and file with the director, when applying for a certificate of authority, a declaration setting forth: 1. The name of the insurer. 2. The location of the insurer's principal office, which shall be the same as that of the attorney and shall be maintained within this state. 3. The kinds of insurance proposed to be transacted. 4. The names and addresses of the original subscribers. 5. The designation and appointment of the proposed attorney and a copy of the power of attorney. 6. The names and addresses of the officers and directors of the attorney, if a corporation, or its members, if a firm. 7. The powers of the subscribers' advisory committee, and the names and terms of office of the members thereof. 8. That all monies paid to the reciprocal shall, after deducting therefrom any sum payable to the attorney, be held in the name of the insurer and for the purposes specified in the subscribers' agreement. 9. A copy of the subscribers' agreement. 10. A statement that each of the