CHAPTER 170 SENATE BILL No. 574 An Act concerning insurance; relating to deceptive practices involving discount cards; re-
lating to licensure of agents; relating to risk-based capital requirements; relating to re-
ciprocal insurance companies; relating to mortgage insurance guaranty companies;
amending K.S.A. 40-1601, 40-1602, 40-1603, 40-1604, 40-1605, 40-1606, 40-1607, 40-
1608, 40-1610, 40-1611, 40-1612 and 40-1613 and K.S.A. 1999 Supp. 40-240, 40-2c01,
40-1620, 40-1622 and 40-3502 and repealing the existing sections; also repealing K.S.A.
40-1614.
Be it enacted by the Legislature of the State of Kansas:

      New Section  1. As used in this act:

      (a) ``Discount card'' means a card or any other purchasing mechanism
or device, which is not insurance, that purports to offer discounts or access
to discounts in health-related purchases from health care providers.

      (b) ``Health care provider'' means any person licensed to practice any
branch of the healing arts by the state board of healing arts, any person
who holds a temporary permit to practice any branch of the healing arts
issued by the state board of healing arts, a medical care facility licensed
by the department of health and environment, a podiatrist licensed by
the state board of healing arts, an optometrist licensed by the board of
examiners in optometry, a pharmacist licensed by the state board of phar-
macy, a pharmacy registered with the state board of pharmacy, a dentist
licensed by the Kansas dental board, a respiratory therapist, a professional
corporation organized pursuant to the professional corporation law of
Kansas by persons who are authorized by such law to form such a cor-
poration and who are health care providers as defined by this subsection,
a Kansas limited liability company organized for the purpose of rendering
professional services by its members who are health care providers as
defined by this subsection and who are legally authorized to render the
professional services for which the limited liability company is organized,
a partnership of persons who are health care providers under this sub-
section, a Kansas not-for-profit corporation organized for the purpose of
rendering professional services by persons who are health care providers
as defined by this subsection.

      (c) ``Person'' means an individual, corporation, business trust, estate,
trust, partnership, association, joint venture, limited liability company,
government, government subdivision or agency or any other legal, gov-
ernmental or commercial entity.

      New Sec.  2. It shall be unlawful for any person to sell, market, pro-
mote, advertise or otherwise distribute any discount card where:

      (a) The discount card does not expressly state in bold and prominent
type that such discount is not insurance;

      (b) any discount offered by such discount card is not specifically au-
thorized by a separate contract with each health care provider listed in
conjunction with the discount card; or

      (c) the discount or range of discounts offered by such discount card
or the access to any range of discounts offered by such discount card are
misleading, deceptive or fraudulent, regardless of the literal wording used
on such discount card.

      New Sec.  3. (a) Any person may maintain an action to enjoin any
violation of this act, for the recovery of damages or both.

      (b) Any person subject to liability under this act shall be deemed, as
a matter of law, to have conducted business or activities within the state
of Kansas sufficient to subject such person to the personal jurisdiction of
any court in this state.

      (c) An action for violation of this act may be brought:

      (1) In the county where the plaintiff resides;

      (2) in the county where the plaintiff conducts business; or

      (3) in any county where the discount card was sold, marketed, pro-
moted, advertised or otherwise distributed.

      (d)  (1) If the court shall find that the defendant is violating or has
violated any provision of this act, the court shall enjoin the defendant
from such violation or any continuation thereof.

      (2) Except as required for the recovery of actual damages under
clause (B) of paragraph (3) of subsection (d), it shall not be necessary in
any such action, that actual damage to the plaintiff be alleged or proved.

      (3) In addition to injunctive relief, the plaintiff in the action shall be
entitled to recover from the defendant:

      (A) An amount equal to $100 per discount card sold or distributed
within the state of Kansas, or $10,000, whichever is greater;

      (B) three times the amount of the actual damages, if any, sustained;

      (C) reasonable attorney's fees;

      (D) costs; and

      (E) any other relief which the court deems proper.

      (e) All actions under this act shall be commenced within two years
after the date on which the violation occurred or within two years after
the person bringing the action discovered, or in the exercise of reasonable
diligence, should have discovered, the occurrence of the violation of this
act. The period of limitation provided in this section may be extended for
a period of 180 days if the person bringing the action proves by a pre-
ponderance of the evidence that the failure to timely commence the ac-
tion was caused by the defendant engaging in conduct solely calculated
to induce the plaintiff to refrain from or postpone the commencement of
the action.

      (f) The remedies prescribed in this section are cumulative and in
addition to any other applicable criminal, civil or administrative penalties.

      New Sec.  4. Any person who sells, markets, promotes, advertises or
otherwise distributes any discount card in Kansas shall designate a resi-
dent agent, who is a resident of Kansas, for service of process and such
resident agent shall register with the secretary of state.

      New Sec.  5. If any provision of sections 1 through 4 or the applica-
tion thereof to any person or circumstances is held invalid, the validity of
such provision to other persons and circumstances shall not be affected
thereby.

      New Sec.  6. Sections 1 through 5 shall be known as the Kansas dis-
count card deceptive practice act.

      Sec.  7. K.S.A. 1999 Supp. 40-240 is hereby amended to read as fol-
lows: 40-240. (a) Any person desiring as agent to engage in the insurance
business, as herein set out, shall apply to the commissioner of insurance
of this state, in the manner hereinafter prescribed, for an insurance
agent's license, authorizing such agent to engage in and transact such
business. The applicant for such license shall file with the commissioner
of insurance such applicant's written application for a license authorizing
the applicant to engage in the insurance business and the applicant shall
make sworn answers to such interrogatories as the commissioner of in-
surance may require on uniform forms and supplements prepared by the
commissioner. A nonrefundable fee in the amount of $30 shall accompany
such application. Such applicant, if an individual, shall establish:

      (1) That the applicant certifies, by evidence satisfactory to the com-
missioner, that the applicant is a graduate of an accredited four-year high
school or its equivalent. This requirement shall not apply to any person
holding a valid agent's license as of July 1, 1971, or a full-time student
enrolled in an accredited high school in this state while and to the extent
such student is participating in an insurance project sponsored by a bona
fide junior achievement program; and

      (2) that the applicant is of good business reputation and is worthy of
a license.

      (b) Corporations, associations, partnerships, sole proprietorships and
other legal entities acting as insurance agents and holding a direct agency
appointment from an insurance company or companies or health main-
tenance organization are required to obtain an insurance agent's license.
Application for such license shall be made to the commissioner on a form
prescribed by such commissioner. Before granting the license, the com-
missioner shall determine that:

      (1) Each officer, director, partner and employee of the applicant who
is acting as an insurance agent is licensed as an insurance agent;

      (2) the applicant has disclosed to the insurance department all offi-
cers, directors and partners whether or not they are licensed as insurance
agents;

      (3) the applicant has disclosed to the insurance department all offi-
cers, directors, partners and employees who are licensed as insurance
agents; and

      (4) the applicant has designated a licensed officer, employee, partner
or other person to be responsible for the organization's compliance with
the insurance laws and rules and regulations of this state.

      (c) The insurance department may require any documents reasonably
necessary to verify the information contained in the application.

      (d)  (1) Agents licensed pursuant to subsection (b) shall advise the
commissioner of any officers, directors, partners or employees who are
licensed as individual insurance agents and are not disclosed at the time
application is made for a license within 30 working days of their affiliation
with the licensee. Failure to provide the commissioner with such infor-
mation shall subject the licensee to a monetary penalty of $10 per day for
each working day the required information is late subject to a maximum
of $50 per person per licensing year.

      (2) Officers, directors, partners or employees disclosed at the time of
the original application or reported thereafter whose affiliation with the
licensee is terminated shall be reported to the commissioner within 30
days of the effective date of termination. Failure to report such termi-
nation shall subject the licensee to the penalty prescribed in paragraph
(1) of this subsection.

      (e) An applicant whose application for a license is denied shall be
given an opportunity for a hearing in accordance with the provisions of
the Kansas administrative procedure act.

      Sec.  8. K.S.A. 1999 Supp. 40-2c01 is hereby amended to read as
follows: 40-2c01. As used in this act:

      (a) ``Adjusted RBC report'' means an RBC report which has been
adjusted by the commissioner in accordance with K.S.A. 1999 Supp. 40-
2c04, and amendments thereto.

      (b) ``Corrective order'' means an order issued by the commissioner
specifying corrective actions which the commissioner has determined are
required to address a RBC level event.

      (c) ``Domestic insurer'' means any insurance company or risk reten-
tion group which is licensed and organized in this state.

      (d) ``Foreign insurer'' means any insurance company or risk retention
group not domiciled in this state which is licensed or registered to do
business in this state pursuant to article 41 of chapter 40 of the Kansas
Statutes Annotated or K.S.A. 40-209, and amendments thereto.

      (e) ``NAIC'' means the national association of insurance commission-
ers.

      (f) ``Life and health insurer'' means any insurance company licensed
under article 4 or 5 of chapter 40 of the Kansas Statutes Annotated or a
licensed property and casualty insurer writing only accident and health
insurance.

      (g) ``Property and casualty insurer'' means any insurance company
licensed under articles 9, 10, 11, 12, 12a, 15 or 16 of chapter 40 of the
Kansas Statutes Annotated, but shall not include monoline mortgage
guaranty insurers, financial guaranty insurers and title insurers.

      (h) ``Negative trend'' means, with respect to a life and health insurer,
a negative trend over a period of time, as determined in accordance with
the ``trend test calculation'' included in the RBC instructions defined in
subsection (j).

      (i) ``RBC'' means risk-based capital.

      (j) ``RBC instructions'' mean the risk-based capital instructions prom-
ulgated by the NAIC, which are in effect on December 31, 1998 1999,
and adopted as rules and regulations by the commissioner.

      (k) ``RBC level'' means an insurer's company action level RBC, reg-
ulatory action level RBC, authorized control level RBC, or mandatory
control level RBC where:

      (1) ``Company action level RBC'' means, with respect to any insurer,
the product of 2.0 and its authorized control level RBC;

      (2) ``regulatory action level RBC'' means the product of 1.5 and its
authorized control level RBC;

      (3) ``authorized control level RBC'' means the number determined
under the risk-based capital formula in accordance with the RBC instruc-
tions; and

      (4) ``mandatory control level RBC'' means the product of .70 and the
authorized control level RBC.

      (l) ``RBC plan'' means a comprehensive financial plan containing the
elements specified in K.S.A. 1999 Supp. 40-2c06, and amendments
thereto. If the commissioner rejects the RBC plan, and it is revised by
the insurer, with or without the commissioner's recommendation, the
plan shall be called the ``revised RBC plan.''

      (m) ``RBC report'' means the report required by K.S.A. 1999 Supp.
40-2c02, and amendments thereto.

      (n) ``Total adjusted capital'' means the sum of:

      (1) An insurer's capital and surplus or surplus only if a mutual insurer;
and

      (2) such other items, if any, as the RBC instructions may provide.

      (o) ``Commissioner'' means the commissioner of insurance.

      New Sec.  9. As used in this act:

      (a) ``Attorney-in-fact'' means the person designated and authorized by
subscribers as having authority to obligate them on reciprocal insurance
contracts.

      (b) ``Commissioner'' means the commissioner of insurance.

      (c) ``Person'' means any association, aggregate of individuals, busi-
ness, company, corporation, individual, joint-stock company, Lloyds-type
of organization, organization, cooperative, partnership, receiver, trustee
or society, with power to enter into contractual undertakings within or
without the state.

      (d) ``Reciprocal'' means an aggregation of subscribers under a com-
mon name.

      (e) ``Reciprocal insurance'' means insurance resulting from the mu-
tual exchange of insurance contracts among persons in an unincorporated
association under a common name through an attorney-in-fact having
authority to obligate each person both as insured and insurer.

      (f) ``Subscriber'' means a person obligated under a reciprocal insur-
ance agreement.

      New Sec.  10. Every reciprocal shall have and use a business name
that includes the word ``reciprocal,'' ``interinsurer,'' ``interinsurance,''
``exchange,'' ``underwriters'' or ``underwriting.'' The name of the recip-
rocal shall not be so similar to any other name or title previously adopted
by a similar organization, or by any other insurance company or associa-
tion, as in the opinion of the commissioner of insurance is calculated to
result in confusion or deception.

      New Sec.  11. The board of directors exercising the subscribers'
rights in a domestic reciprocal shall be selected under rules adopted by
the subscribers. At least 3/4 of the board of directors of a domestic recip-
rocal shall be composed of subscribers or representatives of subscribers,
other than the attorney-in-fact or any person employed by, representing
or having a financial interest in the attorney-in-fact. An individual shall
not be considered to be employed by, representing or having a financial
interest in the attorney-in-fact if such individual is a subscriber or a rep-
resentative of a subscriber of the reciprocal. The board of directors shall
supervise the finances of the reciprocal and the reciprocal's operations to
the extent required to assure their conformity with the subscriber's agree-
ment and power of attorney and shall exercise any other powers conferred
on it by the subscriber's agreement. The board of directors may also be
referred to as a subscribers advisory committee, board of trustees or by
such other name as the board chooses.

      New Sec.  12. (a) Every subscriber of a domestic reciprocal may ex-
ecute a subscriber's agreement and power of attorney setting forth the
rights, privileges and obligations of the subscriber as an underwriter and
as a policyholder, and the powers and duties of the attorney-in-fact. If a
domestic reciprocal does not require execution of a subscriber's agree-
ment and power of attorney, the reciprocal shall include on its policies a
statement that the subscriber shall be bound by the terms and conditions
of the then current subscriber's agreement and power of attorney on file
with the attorney-in-fact and the commissioner of insurance, and each
subscriber shall by operation of law be bound by such subscriber's agree-
ment and power of attorney as if individually executed. Without additional
execution, notice or acceptance, every subscriber of a reciprocal agrees
to be bound by any modification of the terms of the power of attorney
and subscriber's agreement which is jointly made by the attorney-in-fact
and the board of directors pursuant to K.S.A. 40-1616, and amendments
thereto, and which shall be on file with the attorney-in-fact and the com-
missioner of insurance. The subscriber's agreement and power of attorney
shall contain in substance the following provisions:

      (1) A designation and appointment of the attorney-in-fact to act for
and bind the subscriber in all transactions relating to or arising out of the
operations of the reciprocal;

      (2) a provision empowering the attorney-in-fact:

      (A) To accept service of process on behalf of the reciprocal; and

      (B) to appoint the commissioner as an agent of the reciprocal upon
whom may be served all lawful process against or notice to the reciprocal;
and

      (3) the maximum amount to be deducted from advance premiums or
deposits to be paid the attorney-in-fact, and the items of expense, in
addition to losses, to be paid by the reciprocal.

      (b) The subscriber's agreement may:

      (1) Provide for the right of substitution of the attorney-in-fact and
revocation of the power of attorney;

      (2) impose any restrictions upon the exercise of the power agreed
upon by the subscribers;

      (3) provide for the exercise of any right reserved to the subscribers
directly or through the board of directors; or

      (4) contain other lawful provisions deemed to be advisable.

      New Sec.  13. Any modification of the terms of the power of attorney
and subscriber's agreement of a domestic reciprocal shall be made jointly
by the attorney-in-fact and the board of directors. Any such modification
shall be filed with the attorney-in-fact and the commissioner of insurance.
By operation of law any such filing shall bind all subscribers the same as
if each subscriber individually had adopted and executed the modified,
altered or amended subscriber's agreement and power of attorney. No
modification shall be effective retroactively, nor shall such modification
affect any insurance contract issued prior to the date of such modification.

      New Sec.  14. A reciprocal may return to its subscribers any savings
or credit which accrues to such subscriber's accounts.

      New Sec.  15. Upon the liquidation of a domestic reciprocal, the as-
sets remaining after discharge of its indebtedness and policy obligations,
the return of any contributions of the attorney-in-fact or any other person
made as provided in K.S.A. 40-1606, and amendments thereto, and the
return of any unused deposits, savings or credits, shall be distributed. The
distribution shall be made to the persons who were its subscribers within
the 12 months prior to the final termination of such reciprocal's license
in accordance with a formula approved by the commissioner of insurance
or the court.

      New Sec.  16. No reciprocal shall issue any assessable insurance poli-
cies. The subscribers of a reciprocal shall not be personally liable for the
payment of the reciprocal's debts or obligations. Any judgment against a
reciprocal shall be binding only upon the reciprocal and not upon each
of the reciprocal's subscribers.

      Sec.  17. K.S.A. 40-1601 is hereby amended to read as follows: 40-
1601. Individuals, partnerships and corporations Persons of this state,
hereby designated subscribers, are hereby authorized to exchange recip-
rocal or interinsurance contracts with each other, or with individuals,
partnerships and corporations persons of other states and countries, pro-
viding indemnity among themselves from any loss which may be the sub-
ject of legal insurance, excepting life insurance.

      Sec.  18. K.S.A. 40-1602 is hereby amended to read as follows: 40-
1602. Such Reciprocal insurance contracts may be executed by an attor-
ney in fact, herein designated attorney attorney-in-fact, duly authorized
and acting for such the subscribers of a reciprocal, and such attorney
attorney-in-fact may be a corporation. The office or offices of such attor-
ney attorney-in-fact may be maintained at such place or places as may be
designated by the subscribers in the power of attorney. Such contracts
and the exchange thereof and such subscribers, their attorneys and rep-
resentatives shall be regulated by this article and by no other law relating
to insurance unless such law is referred to in this article, and no law
hereafter enacted shall apply to them unless they be expressly designated
therein.

      Sec.  19. K.S.A. 40-1603 is hereby amended to read as follows: 40-
1603. Such attorney (a) The attorney-in-fact of a domestic reciprocal
shall file with the commissioner of insurance of this state a declaration
verified by the oath of such attorney attorney-in-fact, or when such at-
torney attorney-in-fact is a corporation by the oath of a chief officer
thereof, setting forth:

      (a) (1) The name of the attorney attorney-in-fact, and the name or
title of the office under which such contracts are to be issued. Said name
or title shall not be so similar to any other name or title previously adopted
by a similar organization, or by any insurance company or association, as
in the opinion of the commissioner of insurance is calculated to result in
confusion or deception. The office or offices through which such indem-
nity contracts shall be exchanged shall be classified as reciprocal or in-
terinsurance exchanges of the domestic reciprocal.

      (b) (2) The kind or kinds of insurance to be effected or exchanged.

      (c) A copy of the form of policy contract or agreement under or by
which such insurance is to be effected or exchanged and which comprises
the standard provisions, as provided in the law of this state. Such contract
or agreement shall, in lieu of complying with the language and form pre-
scribed, be held to conform thereto in substance if such contract or agree-
ment includes a provision or endorsement reciting that the policy shall
be construed as if in the language and form prescribed by law. The at-
torney may insert in the policy prescribed by the laws of this state any
provision or condition which is required by the plan of reciprocal or in-
terinsurance.

      (d) (3) A copy of the form of power of attorney and subscriber's agree-
ment or other authority of such attorney attorney-in-fact under which
such insurance is to be effected or exchanged.

      (e) (4) The location of the office or offices from which such contracts
or agreements are to be issued.

      (f) (5) That except as to the kinds of insurance hereinafter specifically
mentioned in this subdivision, applications shall have been made for in-
demnity upon at least one hundred 100 separate risks aggregating not
less than one and one-half million dollars $1,500,000, represented by
executed contracts or bona fide applications to become concurrently ef-
fective. In the case of employers' liability or workmen's workers compen-
sation insurance, applications shall have been made for indemnity upon
at least one hundred 100 separate risks, covering a total annual payroll of
not less than two and one-half million dollars $2,500,000, as represented
by executed contracts or bona fide applications to become concurrently
effective. In the case of automobile insurance, applications shall have
been made for indemnity upon at least one thousand motor vehicles,
represented by executed contracts or bona fide applications to become
concurrently effective on any or all classes of automobile insurance ef-
fected by such subscribers through said attorney.

      (g) (6) That there is in the possession of such attorney attorney-in-
fact, and available for the payment of losses, assets conforming to the
requirements of section 40-1605 hereof K.S.A. 40-1605 and amendments
thereto.

      (h) (7) A financial statement in form prescribed for the annual state-
ment.

      (i) (8) An instrument authorizing service of process as provided in
this article.

      (b) No declaration shall be required under this section for any recip-
rocal organized in this state as a result of a conversion under the provi-
sions of K.S.A. 40-1620 and amendments thereto.

      Sec.  20. K.S.A. 40-1604 is hereby amended to read as follows: 40-
1604. There shall be filed with the commissioner of insurance of this state
a statement under oath by the attorney attorney-in-fact giving the maxi-
mum amount of indemnity upon any single risk, and such attorney shall
attorney-in-fact, whenever and as often as he such attorney-in-fact shall
be required, shall file with the commissioner of insurance a statement
verified by his such attorney-in-fact's oath, to the effect that the exchange
reciprocal has not assumed on any one risk an amount greater than ten
(10) percentum 10% of its surplus, unless the excess shall be reinsured
(1) in some other insurance company duly authorized to transact similar
business in this state or as otherwise provided in the insurance code; or
(2) as provided by the laws of the state in which the principal office of
the attorney reciprocal is located.

      Sec.  21. K.S.A. 40-1605 is hereby amended to read as follows: 40-
1605. There shall be maintained at all times, unearned premiums or (a)
At all times, each reciprocal shall maintain the same unearned premium
and loss or claim reserves, in cash or securities authorized by the laws of
the state in which the principal office of the attorney is located, for the
investment of similar funds of insurance companies doing the same kind
of business, in an amount equal to a pro rata amount of the premium or
deposits collected from subscribers on all unexpired risks. In addition to
the assets previously provided in this section there shall also be main-
tained as a claim or loss reserve, cash or such securities sufficient to
discharge all liability on all outstanding losses arising under policies is-
sued, the same to be calculated in accordance with the laws of the state
relating to similar reserves for companies insuring similar risks. Any re-
ciprocal exchange the reciprocal is domiciled, as required for domestic
stock and mutual companies writing the same classes of insurance.

      (b) No reciprocal shall be licensed to transact the business of insur-
ance in this state unless such reciprocal shall have and maintain a surplus
equal to the capital and surplus required of a domestic stock insurance
company transacting the same kinds of insurance and may provide for the
issuance of a nonassessable policy. Any reciprocal exchange issuing non-
assessable policies

      (c) Each reciprocal shall have lawful securities on deposit, for the
protection of all subscribers or creditors, or both, of the exchange recip-
rocal, with the department of insurance of this or any other state in the
United States in an amount equal to the minimum capital stock required
of a domestic stock insurance company transacting the same kinds of
insurance. Until May 1, 1989, companies which were authorized to do
business in Kansas after January 1, 1969, but before January 1, 1984, shall
be required to have surplus and deposit equal to that which was required
by this section prior to the passage of this act. After May 1, 1989, such
companies shall comply with the paid-up capital stock, surplus and deposit
requirements provided by this act.

      Until May 1, 1989, companies doing business in this state on January
1, 1969, shall be required to have a surplus and deposit equal to that
required of such companies prior to the passage of this act. On and after
May 1, 1989, companies doing business in this state on January 1, 1969,
shall be required to have a surplus and deposit equal to that required of
all other companies to whom this section applies immediately prior to the
passage of this act.

      On and after May 1, 1994, companies doing business in this state on
January 1, 1969, shall comply with the surplus and deposit requirements
provided by this act.

      No reciprocal exchange shall issue any assessable insurance policies.

      Sec.  22. K.S.A. 40-1606 is hereby amended to read as follows: 40-
1606. If at any time it appears that the amount of funds required in section
40-1605 K.S.A. 40-1605, and amendments thereto, has not been accu-
mulated or maintained, then the subscribers or their attorney for them
shall immediately advance such sums as are needed to comply with the
provisions of this section, and the attorney-in-fact or any other interested
party may advance to a reciprocal any funds required in such reciprocal's
operations. The funds so advanced shall not be treated as a liability at the
exchange, and shall not be withdrawn of the reciprocal and interest shall
not be paid or funds repaid except with the approval of the supervising
insurance official of the state wherein the exchange is domiciled, and such
advances in which the reciprocal is domiciled. Any such advance and
interest shall be repaid only out of the surplus funds of the exchange
reciprocal.

      Sec.  23. K.S.A. 40-1607 is hereby amended to read as follows: 40-
1607. Concurrently with the filing of the declaration provided for by the
terms of K.S.A. 40-1603 and any amendments thereto, the attorney at-
torney-in-fact shall file with the commissioner of insurance an instrument
in writing, executed by him such attorney-in-fact for the subscribers re-
ciprocal conditioned that upon the issuance of the certificate of authority
provided for in K.S.A. 40-1610, and amendments thereto, service of pro-
cess may be had upon the commissioner of insurance in all suits in this
state arising out of such policies, contracts or agreements, which service
shall be valid and binding upon all subscribers exchanging at any time
reciprocal or interinsurance contracts through such attorney. Three cop-
ies of such process shall be served, accompanied by a fee of three dollars,
and shall require the defendant to answer by a certain day, not less than
forty days from its date, and the commissioner of insurance shall file one
copy, forward one copy to the said attorney, and return one copy with his
admission of service. Subscribers of any reciprocal or interinsurance
exchange the reciprocal. Such service of process shall be executed in ac-
cordance with the provisions of K.S.A. 40-218 and amendments thereto.
Any reciprocal operating under the laws of this state may sue or be sued
in the declared name of such exchange the reciprocal.

      Sec.  24. K.S.A. 40-1608 is hereby amended to read as follows: 40-
1608. The attorney in fact attorney-in-fact of a reciprocal, or any em-
ployee having the care and handling of the funds and securities of any
reciprocal exchange a reciprocal, shall give maintain a good and sufficient
bond running to the governing committee board of directors of the re-
ciprocal conditioned for the faithful accounting and disbursement of all
money that may come into his such attorney-in-fact's or employee's hands;
such bond may be executed by a surety company or may be a personal
bond approved by the commissioner of insurance of the state where such
exchange is domiciled; and such bond to. Such bond shall be in an amount
fixed in an amount and to be approved by the advisory committee board
of directors or other governing body of such exchange reciprocal. In lieu
of filing the bond, the attorney-in-fact may maintain on deposit with the
commissioner an equivalent amount in approved securities which are sub-
ject to the same conditions as the bond.

      Sec.  25. K.S.A. 40-1610 is hereby amended to read as follows: 40-
1610. Each attorney by whom or through whom are issued any policies
of or contracts for indemnity of the character specified in this article
reciprocal shall procure from the commissioner of insurance annually a
certificate of authority, stating that all of the requirements of this article
have been complied with, and upon. Upon such compliance and the pay-
ment of the fees required by this article, the commissioner of insurance
shall issue such certificate of authority. The commissioner of insurance
may revoke or suspend any certificate of authority issued hereunder in
case of breach of any of the conditions imposed by this article after rea-
sonable notice has been given said attorney, to the reciprocal in writing,
so that he such reciprocal may appear and show cause why such action
should not be taken. Any attorney who may have procured a certificate
of authority hereunder may renew such certificate annually thereafter:
Provided, however, That any The certificate of authority shall continue in
full force and effect until such certificate is suspended or revoked or the
a new certificate of authority be is issued or specifically refused.

      Sec.  26. K.S.A. 40-1611 is hereby amended to read as follows: 40-
1611. Such attorney Each reciprocal shall pay to the commissioner of
insurance levies and taxes in the amount and as specified in K.S.A. 40-
252, 40-1703, 40-1704 and 75-1508, and amendments thereto. The pre-
mium taxes which are set out in subsection 3, of subsection B, of K.S.A.
40-252 , for mutual insurance companies organized under the laws of any
other state, territory or country writing similar lines of insurance, shall be
applicable to such attorney-in-fact of a reciprocal or interinsurance
exchange doing business or seeking authority to do business in this state.
All such levies and taxes on premiums shall be applicable to premiums
received on or after January 1, 1957. The above fees, levies and taxes shall
be in lieu of all license fees and taxes of whatever character in this state
and such attorney-in-fact in calculating all such levies and taxes such re-
ciprocal shall be permitted to deduct therefrom premiums returned on
account of cancellations, all premiums received for reinsurance from any
other company authorized to do business in this state, and savings paid
or credited to subscriber policyholders.

      Sec.  27. K.S.A. 40-1612 is hereby amended to read as follows: 40-
1612. In addition to the laws hereinbefore referred to in provisions of
this article, the requirements and provisions set out forth in the following
sections of articles 2 and 20 of the Kansas Statutes Annotated, or any and
amendments thereto, which govern other types of insurance companies
shall apply to reciprocal or interinsurance exchanges reciprocals to the
extent that such provisions do not conflict with the provisions of this
article: Sections 40-208, 40-209, 40-214, 40-215, 40-216, 40-218, 40-220,
40-221 40-221a, 40-222, 40-223, 40-224, 40-225, 40-226, 40-227, 40-228,
40-229, 40-229a, 40-231, 40-233, 40-234, 40-234a, 40-235, 40-236, 40-
237, 40-238, 40-239, 40-240, 40-241, 40-242, 40-243, 40-244, 40-245, 40-
246 except as to contracts written through traveling salaried representa-
tives to whom no commissions are paid, 40-246a, 40-247, 40-248, 40-249,
40-250, 40-251, 40-253, 40-254, 40-256, 40-281, 40-2,125, 40-2,126, 40-
2,127, 40-2,128, 40-2,156, 40-2,156a, 40-2,157, 40-2,159, 40-952, 40-
2001, 40-2002, 40-2003, 40-2004, 40-2005 and 40-2006. All of the
requirements, provisions and regulations set out in the foregoing sections
of articles 2 and 20 and which apply to insurance companies are hereby
made to apply to reciprocal or interinsurance exchanges and such recip-
rocal or interinsurance exchanges shall comply with and be governed and
regulated by the provisions of such foregoing sections, 40-2006 and 40-
2404 and article 2a of the Kansas Statutes Annotated, and amendments
thereto, and any other provision of law pertaining to insurance which
specifically refers to reciprocals.

      Sec.  28. K.S.A. 40-1613 is hereby amended to read as follows: 40-
1613. Reciprocal or interinsurance exchanges may, pursuant to Under
authority given by the commissioner of insurance, a reciprocal may en-
gage in the business of writing fidelity and surety bonds but only upon
the condition that such reciprocal or interinsurance exchange shall have
and maintain a an amount of surplus equal to the total of capital and
surplus required of domestic stock insurance companies transacting the
same kind of business and any such reciprocal or interinsurance exchange
shall be deemed a stock insurance company for the purposes of sections
K.S.A. 40-214, 40-239 to 40-247, both sections inclusive, 40-252, 40-1107
and 40-1108 of the Kansas Statutes Annotated or any and amendments
thereto. No fidelity or surety bond shall be issued by any such reciprocal
or interinsurance exchange until the form thereof of such bond shall have
been submitted to and accepted by the commissioner of insurance. Any
fidelity or surety bonds executed pursuant to this act shall be received
and accepted as company, corporation or corporate bonds.

      Sec.  29. K.S.A. 1999 Supp. 40-1620 is hereby amended to read as
follows: 40-1620. (a) Any insurance company may convert to a Kansas
insurance reciprocal in accordance with a plan for the conversion of the
insurance company into an insurance reciprocal filed with and approved
by the commissioner.

      (b) The commissioner may establish reasonable requirements and
procedures for the submission and approval of a conversion plan author-
ized by subsection (a).

      (c) No conversion plan shall be approved under this section unless
such conversion plan includes:

      (1) A provision for the conversion of existing stockholder or policy-
holder interests in the insurance company into reciprocal or exchange
subscriber interests in the insurance reciprocal so that each subscriber's
interest in the resulting Kansas insurance reciprocal shall be fairly pro-
portionate to such subscriber's interest in the insurance company;

      (2) a provision for the amendment of the insurance company's exist-
ing articles of incorporation or other chartering document to a sub-
scriber's agreement which complies with the provisions of K.S.A. 40-1602
and 40-1603, 40-1603 and section 12 and amendments thereto;

      (3) a copy of the proposed subscriber's agreement;

      (4) proof of the approval or adoption of the conversion plan by not
less than 75% 2/3 of the shares or policyholders entitled to vote, repre-
sented either in person or by proxy, at a duly called regular or special
meeting of the stockholders or policyholders of the insurance company
at which a quorum, as determined by the bylaws or other chartering
documents of the insurance company, is present:;

      (5) a transition plan for the change of governance of the insurance
company from the board of directors and officer structure of the insur-
ance company to the insurance reciprocal which shall be governed by
article 16 of chapter 40 of the Kansas Statutes Annotated and amend-
ments thereto; and

      (6) any other information required by the commissioner.

      (d) The commissioner shall approve the conversion plan if the com-
missioner finds that the proposed conversion will:

      (1) Not be detrimental to the interests of the stockholders or poli-
cyholders of the insurance company;

      (2) not be detrimental to the interests of the state of Kansas; and

      (3) not render the insurer incapable of fulfilling the insurer's con-
tractual obligations.

      (e) Upon approval of a conversion plan under this section, the com-
missioner shall issue a new or amended certificate of authority, which
shall be deemed to be the final act of conversion at which time the in-
surance company shall concurrently become an insurance reciprocal. The
insurance reciprocal shall be deemed to be a continuation of the insurance
company and deemed to have been organized at the time the converted
insurance company was organized.

      (f) Each insurance reciprocal created pursuant to this section shall
comply with all provisions of K.S.A. 40-1612, and amendments thereto.

      (g) Any conversion of an insurance company to a reciprocal shall not
be subject to the provisions of K.S.A. 40-3304, and amendments thereto.

      (h) For the purposes of this section:

      (1) ``Commissioner'' means the commissioner of insurance.

      (2), ``insurance company'' means a stock or mutual insurance company.

      (3) ``Insurance reciprocal'' means a reciprocal or interinsurance
exchange established to exchange reciprocal or interinsurance contracts
with subscribers to provide indemnity among themselves.

      Sec.  30. K.S.A. 1999 Supp. 40-1622 is hereby amended to read as
follows: 40-1622. The provisions of K.S.A. 1999 Supp. 40-1620 and 40-
1621, and sections 9, 10, 11, 12, 13, 14, 15 and 16 and amendments
thereto, shall be supplemental to article 16 of chapter 40 of the Kansas
Statutes Annotated and amendments thereto.

      Sec.  31. K.S.A. 1999 Supp. 40-3502 is hereby amended to read as
follows: 40-3502. As used in this act the following terms shall have the
meanings respectively ascribed to them herein:

      (a) ``Mortgage guaranty insurance company'' means any corporation,
company, association, reciprocal exchange, persons or partnerships writ-
ing contracts of mortgage guaranty insurance and shall be governed by
the provisions of this act and the other provisions of chapter 40 of the
Kansas Statutes Annotated applicable to companies organized or oper-
ating under the provisions of K.S.A. 40-1101 et seq., and amendments
thereto, to the extent such other provisions are not inconsistent with the
requirements of this act.

      (b) ``Mortgage guaranty insurance'' means and includes: (1) Insur-
ance against financial loss by reason of nonpayment of principal, interest
or other sums agreed to be paid under the terms of any note or bond or
other evidence of indebtedness secured by a mortgage, deed of trust, or
other instrument constituting a lien or charge on real estate, when the
improvement on such real estate is a residential building or a condomin-
ium or townhouse unit or buildings designed for occupancy by not more
than four families;

      (2) insurance against financial loss by reason of nonpayment of prin-
cipal, interest or other sums agreed to be paid under the terms of any
note or bond or other evidence of indebtedness secured by a mortgage,
deed of trust or other instrument constituting a lien or charge on real
estate, when the improvement on such real estate is a building or build-
ings designed for occupancy by five or more families or designed to be
occupied for industrial or commercial purposes; or

      (3) insurance against financial loss by reason of nonpayment of rent
or other sums agreed to be paid under the terms of a written lease for
the possession, use or occupancy of real estate, when the improvement
on such real estate is a building or buildings designed to be occupied for
industrial or commercial purposes.

      (c) ``Authorized real estate security'' means an amortized note, bond
or other evidence of indebtedness, not exceeding (97%) (100%) of the
fair market value of the real estate, secured by a mortgage, deed of trust,
or other instrument which constitutes, or is equivalent to, a first lien or
charge on real estate, when: (1) The real estate loan secured in such
manner is one of a type which a bank, savings and loan association, or an
insurance company, which is supervised and regulated by a department
of this state or an agency of the federal government, is authorized to make,
or would be authorized to make, disregarding any requirement applicable
to such an institution that the amount of the loan not exceed a certain
percentage of the value of the real estate;

      (2) the improvement on such real estate is a building or buildings
designed for occupancy as specified by paragraphs (1) or (2) of subsection
(b); and

      (3) the lien on such real estate may be subject to and subordinate to
the following:

      (i) The lien of any public bond, assessment or tax, when no install-
ment, call or payment of or under such bond, assessment or tax is delin-
quent; and

      (ii) outstanding mineral, oil, water or timber rights, rights-of-way,
easements or rights-of-way of support, sewer rights, building restrictions
or other restrictions or covenants, conditions or regulations of use, or
outstanding leases upon such real property under which rents or profits
are reserved to the owner thereof.

      (d) ``Contingency reserve'' means an additional premium reserve es-
tablished to protect policyholders against the effect of adverse economic
cycles.

      (e) ``Single risk'' means the insurance provided with respect to each
separate loan or lease covered by an individual policy of mortgage guar-
anty insurance or an individual certificate issued pursuant to K.S.A. 40-
3511, and amendments thereto.

 Sec.  32. K.S.A. 40-1601, 40-1602, 40-1603, 40-1604, 40-1605, 40-
1606, 40-1607, 40-1608, 40-1610, 40-1611, 40-1612, 40-1613 and 40-1614
and K.S.A. 1999 Supp. 40-240, 40-2c01, 40-1620, 40-1622 and 40-3502
are hereby repealed.
 Sec.  33. This act shall take effect and be in force from and after its
publication in the statute book.

Approved May 16, 2000.
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