2023 California Code › Insurance Code - INS › DIVISION 2 - CLASSES OF INSURANCE › PART 1 - FIRE AND MARINE INSURANCE › CHAPTER 4 - General Mutual Insurers › ARTICLE 10 - Conversion of an Incorporated Medical Malpractice Mutual Insurer into an Incorporated Stock Insurer › Section 4097.04.

4097.04. For the demutualization of a mutual insurer into a stock insurer or for the demutualization of a mutual holding company into a stock corporation, the plan for conversion shall include the following:
(a) A fair, just, and equitable formula, approved by the commissioner, for determining the rights in surplus of each eligible member in the mutual company. The formula shall take account of both the total premiums paid by each eligible member and the duration of his or her membership. The rights in surplus shall be based upon an appraisal of the fair value of the mutual company by one or more qualified disinterested persons appointed by the mutual company with the approval of the commissioner. Those persons shall consider the assets and liabilities of the mutual company and any factors bearing on the value of the mutual company.
(b) Each eligible member of the mutual company shall be given a preemptive right to acquire his or her proportionate part of all of the proposed capital stock of the converting mutual company, within a designated reasonable period, by applying upon the purchase of that part the amount of his or her rights in surplus as determined under the formula described in subdivision (a).
(c) Each member not applying his or her rights in surplus upon the purchase price of stock shall elect to receive either a cash payment or a certificate of contribution. The cash payment shall not be greater than 50 percent of his or her rights in surplus as determined by the formula in subdivision (a). The certificate of contribution shall be in an amount equal to 100 percent of his or her rights in surplus, as determined by the formula in subdivision (a), shall bear interest at the rate established in Section 10489.4 for minimum standard valuation of all life insurance policies of more than 20 years’ duration issued in the year, and shall be repayable within 10 years or, if necessary under the terms of the plan, later, only on written approval of the commissioner and only out of surplus in excess of an amount established in the plan. Any member not electing to receive cash or purchase stock shall be deemed to have elected to receive a certificate of contribution. The stock purchased, cash payment, or certificate of contribution shall constitute full payment and discharge of the member’s rights in surplus or property interest in the mutual company, and, notwithstanding any other provision of law, the member shall have no other rights with respect thereto.
(d) The number of shares to be authorized for the new stock insurer, their par value, and the method for determining the price at which the shares will be offered to eligible members, to the end that the plan, when completed, would satisfy the financial requirements for issuance of a license to transact insurance.
(e) Provision for the offering to others of shares not purchased by eligible members within the designated period referred to in subdivision (b) at a price not less than the offering price to members.
(Added by Stats. 1998, Ch. 421, Sec. 4. Effective January 1, 1999.)