§ 1. Reciprocal or interinsurance exchange. Individuals, partnerships and corporations of this state, hereby designated subscribers, are hereby authorized to exchange reciprocal or interinsurance contracts with each other, or with individuals, partnerships and corporations of other states, territories, districts and countries, providing insurance among themselves from any loss which may be insured against under other provisions of law except life insurance. The organization under which such subscribers so exchange contracts shall be termed a reciprocal or interinsurance exchange, hereinafter referred to as the exchange.

§ 2. Contracts Bond. Such contracts may be executed by an attor ney, agent or other representative herein designated as attorney, duly authorized and acting for such subscribers under powers of attorney and such attorney may be a corporation. The principal office of such attorney shall be maintained at such place as is designated by the subscribers in the power of attorney. The power of attorney and contracts made thereunder may further provide for the right of substitution and revocation and impose such restrictions upon the exercise of the power granted as may be agreed upon by the subscribers, including the right to fix the contingent liability of the subscriber for the payment of losses in excess of the available cash funds in the possession of the exchange, and may further provide for the exercise of any right reserved to the subscribers directly or through a board or other body which must be selected under such rules and regulations as the subscribers may adopt. This board or other body shall have supervision over the finances of the exchange and over its operations to the extent that said operations shall be in conformity with the subscriber's agree'ment and power of attorney.

§3. Declaration filed with commissioner. Such subscribers so contracting among themselves shall through their attorney file with the insurance commissioner a declaration verified by the oath of such attorney, or where such attorney is a corporation, by the oath of the duly authorized officers thereof, setting forth:

(a) The name of the attorney and the name or designation under which such contracts are to be issued, which name and/or designation shall not be so similar, to any name and/or designation adopted by any attorney or by any insurance organization transacting business in this state and writing the same class of insurance prior to the adoption of such name and/or designation by the attorney as to confuse or to deceive.

(b) The location of the principal office of the exchange. (c) The kind or kinds of indemnity to be exchanged.

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

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

(f) That executed contracts or bona fide applications, to be concurrently effective, have been made for the exchange of indemnities by at least one hundred separate subscribers; provided, however, that in case of employer's liability or workmen's compensation insurance, there shall have been made executed contracts or bona fide applications, to be concurrently effective, representing a total pay-roll of not less than one million dollars.

(g) That there are in the possession of such attorney in fact, subject to the supervision of the advisory board, assets conforming to the requirements of section five hereof.

(h) A financial statement under oath in such form as is prescribed by the insurance commissioner for the annual statement.

(i) The instrument authorizing service of process as provided for in this act.

(j) Certificate showing deposits of funds or securities.

§ 4. Attorney to file instrument and bond. Concurrently with the filing of the declaration provided for by the terms of section three of this act the attorney shall file with the insurance commissioner:

(a) An instrument in writing executed by him for said subscribers conditioned that upon the issuance of the certificate of authority action may be brought in the county in which the property or person insured therein is located and service of process may be had upon the attorney in fact or upon the insurance commissioner 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. In the event of process being served upon the insurance commissioner three copies of such process shall be served and the insurance commissioner shall file one copy, forward one copy to said attorney by registered mail addressed to the attorney at the principal office as fixed in the certificate filed, and shall return one copy with his admission of service. A judg ment rendered in any such case where service of process has been so made shall be valid and binding against any and all subscribers as their interests appear.

The exchange may sue or be sued in its own name as in the case of an individual; provided, however, that any judgment rendered against the exchange shall be binding upon each subscriber only in such proportion as his interest may appear upon the date that the cause of action arose.

(b) A bond in favor of the people of the state of California executed by the said attorney with two sureties or with a surety company authorized to do business in the state of California, to be approved by and filed with the insurance commissioner in the penal sum of fifty thousand dollars, conditioned that the attorney will faithfully account for all moneys and other property which may come into his hands or be handled by him under the terms of the said power of attorney and the said rules and regulations, and shall not withdraw or cause to be withdrawn, or convert or appropriate for his own use, from the funds of the exchange, any money or moneys or any other thing of value to which he is not entitled under the terms of the said power of attorney and the said rules and regulations.

Such bond may be sued upon in one and the same action by any subscriber or any number of subscribers suffering loss through a violation of the conditions thereof or by the receiver or trustee in liquidation of the exchange. Liability thereunder may be enforced by any individual subscriber, or any number of subscribers, or in case of liquidation or receivership, by the receiver or trustee in liquidation.

Any amount recovered under such bond shall be deposited in and become a part of the funds of the exchange as a whole; provided, how

ever, that where the power of attorney executed by the subscribers or the rules and regulations adopted by the exchange for the conduct of its business thereunder, provide for the bonding of the attorney in fact against fraud and dishonesty and conditioned as the above mentioned bond, in an amount at least equal to the amount above set forth, the bond executed in accordance with such powers of attorney or rules and regulations, may be filed with the insurance commissioner in lieu of any other bond required under this act, and such bond shall be actionable in similar manner and for similar purposes as said first abovementioned bond; provided, further, that where the home office of an exchange is located outside of the state of California, such bond or a certified copy or duplicate thereof shall be filed with the insurance commissioner of this state or, in lieu thereof, there shall be filed an affidavit from the insurance commissioner of the home state to the effect that such a bond has been filed with him.

§ 5. Assets to be maintained. Deficiencies. There shall at all times be maintained as assets in cash or securities of the kind designated by the laws of the state where the principal office is located for the investment of funds of insurance companies:

(a) A sum equal to one hundred per cent of the pro rata unearned premium deposits collected from subscribers.

(b) A sum sufficient to discharge all liabilities other than the unearned premium deposit reserved arising under policies issued.

The liabilities for losses outstanding similar to those for which companies insuring similar risks are required by law to maintain reserves shall be calculated and maintained in the manner provided for by law for the maintenance of such reserves; provided, however, that all reserves for losses outstanding on indemnity exchanged prior to July 1, 1919, shall be calculated according to the provision of law in force at the time said contracts were entered into.

If at any time the assets so held in cash or such securities shall be less than the reserves as required above, the subscribers or their attorney for them shall make up the deficiency within thirty days after notice from the insurance commissioner so to do; provided, however, that every exchange must maintain in cash and such securities an amount not less than fifty thousand dollars in excess of the assets to be maintained to meet the reserves required by subsection (b) of this section.

Savings or credits may be returned to the subscribers irrespective as to the source from which the same accrue whenever such returns do not constitute an impairment of the assets or reserves to be maintained as herein required; provided, however, that there shall be no discrimination in the making of such returns as between persons or places. Where the subscribers are grouped by industries or otherwise under any ruling or agreement which exempts the funds of one group from liability in whole or in part for the payment of losses or expenses chargeable against another group, each independent group must maintain the reserves herein specified and comply with the requirements of subdivi sion (f) of section three hereof relative to the number and amount of risks to be assumed.

§ 6. Annual report by attorney. Examination by commissioner. Such attorney shall, within the time limited for the filing of annual statements by insurance companies transacting the same kind of business,

make a report, under oath, to the insurance commissioner for each calendar year, showing the financial condition of affairs at the office where such contracts are issued, and shall at any time furnish such additional information and reports as may be required; provided, however, that the attorney shall not be required to furnish the names and addresses of any subscribers except in case of an unpaid final judgment. The assets, business affairs and records of such organizations shall be subject to examination by the insurance commissioner at any reasonable time, and such examination shall be at the expense of the organization examined. The right of examination herein granted shall include the right to examine the records containing the names and addresses of the subscribers, but any information obtained therefrom shall be regarded as confidential and the disclosure thereof, except under order of court, shall constitute a breach of official duty. Where the principal office of the attorney is located in another state, the insurance commissioner may, in lieu of the examination provided for in this section, accept a certified copy of the report of examination made by the insurance department of the state where the principal office is located, or by the insurance department of any other state.

§ 7. Right to make contracts. Any corporation now or hereafter organized under the laws of this state shall, in addition to the rights, powers and franchises specified in its articles of incorporation, have full power and authority to enter into insurance contracts of the kind and character herein mentioned. The right to enter into such contracts is hereby declared to be incidental to the purposes for which such corporations are organized and as fully granted as the rights and powers expressly conferred.

§ 8. Certificate of authority or license to attorney. Upon compliance with the requirements of this act, and the payment of a fee of fifty dollars, the insurance commissioner shall issue a certificate of authority or a license to the attorney authorizing him to make such contracts of insurance, which license shall specify the kind or kinds of insurance to be effected and shall contain the name of the attorney, the location of the principal office and the name or designation under which such contracts of insurance are issued. Such license shall be renewed annually upon a showing that the standard of solvency required herein has been maintained and all fees and taxes required have been paid. For such renewal a fee of ten dollars shall be paid.

§ 9. Penalty for making contracts without certificate. Any attorney who shall exchange any contracts of insurance of the kind and character specified in this act, or any attorney or representative of such attorney, who shall solicit or negotiate any applications for same without the attorney first complying with the foregoing provisions, shall be deemed guilty of a misdemeanor. For the purpose of organization, and upon issuance of permit by the insurance commissioner, powers of attorney and applications for such contracts may be solicited without compliance with the provisions of this act, but no attorney, agent or other person shall make any such contracts of insurance until all of the provisions of this act shall have been complied with.

§ 10. Revocation of certificate. In addition to the foregoing penalties and where not otherwise provided, the penalty for failure or re

fusal to comply with any or all of the terms and provisions of this act, upon the part of the attorney, shall be the refusal, suspension or revocation of certificate of authority or license by the insurance commissioner after due notice and opportunity for hearing has been given such attorney so that he may appear and show cause why such action should not be taken.

§ 11. Fees and tax. In lieu of all other taxes, licenses or fees whatever, state or local, such attorney shall pay annually on account of the transaction of such business in this state, the same fees as are paid by mutual companies transacting the same kind of business, and an annual tax upon the gross premium deposits collected from subscribers in this state during the preceding calendar year, after deducting therefrom premium deposit returns or cancellations, consideration for reinsurance and all amounts returned to subscribers and/or credited to their accounts as savings; such tax to be computed at the same rate as fixed by law for the taxation of mutual companies transacting the same kind of business.

§ 12. Insertion of provisions required by plan. The attorney may insert in any form of policy prescribed by the laws of this state any provisions or conditions required by the plan of reciprocal or interin- . surance; provided, that such plan shall not be inconsistent with or in conflict with any law of this state. Such policy, in lieu of conforming to the language and form prescribed by such law, shall be held to conform thereto in substance if such policy includes a provision or indorsement reciting that the policy shall be construed as if in the language and form prescribed by such law. Any such indorsement shall first be filed with the insurance commissioner.

§ 13. Not subject to insurance laws. (a) Except as herein provided, the making of contracts as herein provided for and such other matters as are incident thereto shall not be subject to the laws of this state relating to insurance unless they are therein specifically mentioned. This section shall not be construed, however, as depriving the insurance department of the state of the right of examination of and supervision over reciprocal or interinsurance exchanges, their agents and brokers, or of the right to hold and conduct hearings in the manner and under the same procedure as provided by law in the case of mutual or other insurance companies, but such right is hereby expressly recognized and confirmed. Agents or brokers or reciprocals need not be expressly licensed.

(b) Rebates. It shall be unlawful for any reciprocal or interinsur ance exchange, its attorney in fact, agent or broker to give or offer a rebate to a subscriber, directly or indirectly. A rebate is hereby defined as an allowance, gift, setoff or payment directly or indirectly made or offered as an inducement to secure the exchange of indemnities, other than a savings or credit to be returned to a subscriber in accord with the provisions contained in the power of attorney or in the reciprocal or interinsurance contract executed by him.

§ 14. Repealed. All laws or parts of laws in conflict herewith are hereby repealed.