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House Co-Sponsorship Memoranda

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House of Representatives
Session of 2015 - 2016 Regular Session


Posted: January 13, 2015 01:30 PM
From: Representative Warren Kampf
To: All House members
Subject: Unincorporated Insurer Conversion

I would like to invite you to co-sponsor legislation I plan to introduce which amends Title 40 (Insurance) to authorize a reciprocal insurance exchange that writes medical liability insurance to convert to a stock insurance company. This legislation has the full support of the PA Insurance Department, and received unanimous approval by the full House and the Senate Banking and Insurance Committee late last session before stalling in the final days before adjournment.

As you may know, a reciprocal insurance exchange is a private unincorporated insurer that consists of members who insure each other through the payment of premiums and share the risk of loss. A stock insurance company, on the other hand, is a corporation with stockholders that participate in the gains and losses of the corporation, but also bear the losses of the company.

Presently, The Insurance Company Law prescribes the process for a mutual insurance company to convert its structure to a stock insurance company and raise capital to enhance policyholder protection and provide growth capital. A reciprocal exchange, which is very similar to a mutual insurer, is not provided the same option. This legislation will modernize our law by allowing a medical malpractice reciprocal to convert to a stock company under a similar process.

A reciprocal choosing to convert would benefit from enhanced financial stability and flexibility. It will give the reorganized company maximum access to capital and debt markets to strengthen its operation, improve risk-capital ratios, finance future company growth, and more competitively operate in the modernized financial/insurance market.

A couple of key points are worth noting: 1) This legislation provides the authority for a medical malpractice reciprocal conversion, it is not a requirement; 2) members in a reciprocal exchange seeking to convert would have to approve the conversion by a 2/3 vote; 3) reciprocal members are given preferential investment opportunities to take advantage of the successes of the reorganized company; and 4) any stock conversion would have to be approved by the PA Insurance Department

Presently, there exist approximately 8 reciprocal insurance exchanges domiciled in the Commonwealth. Most operate to provide medical liability coverage to its members.

I hope that you will join me in sponsoring this legislation.

Introduced as HB159