Surplus Notes

When a mutual insurance company is capitalized it obtains capital through surplus notes and member contributions. It is important to keep in mind that a mutual company is only owned by its insureds.   No one individual or company is an owner without being an insured in the mutual company.  All assets and equity are owned by the insureds.  In the case of Nevada Mutual Insurance Company, capital is raised through premium payments by each insured and surplus notes.

To assist Nevada Mutual in obtaining adequate capital quickly to meet provider urgency, many larger capital contributors (i.e. hospital, large practices) provided support capital in the form of a surplus note. This has aided Nevada Mutual in quickly obtaining authority to underwrite and assisted in obtaining financial independence and security for the company.

These capital contributors receive a surplus note that is a pledge by Nevada Mutual to repay their note in accordance to the terms provided in the note. These contributors have no ownership or governance of the company by virtue of providing a surplus contribution or holding a surplus note. In addition, by Nevada statutes, no re-payment of these funds can be made without the approval and consent of the Nevada State Insurance Commissioner. The purpose for this is to insure that the mutual company has adequate funds to pay back the notes and maintain adequate capital and surplus to run the company within State operating criteria.

Nevada Mutual is issuing two types of surplus notes. One note is called Founders Surplus Funds Note and the second is called a Member's Surplus Note. The difference of each is explained in detail below.

Founders Surplus Funds Note:

This is the note between Nevada Mutual and the institution providing capital for surplus funds in the company.

• In most cases the Founders Surplus Note is provided by a hospital or large medical practice.
  
  
• They agree to be repaid from the date of the note at the lesser of the five (5) year treasury note rate per year, determined as of the date the surplus note is funded, or six percent (6%) which is the State maximum rate allowable.
  
  
• Repayment will begin twenty-four (24) months after May 3, 2002 and paid in 12 quarterly installments. No repayment of any principle or interest can be made unless granted by the Nevada Insurance Commissioner.

Member's Surplus Funds Note:

To provide additional capital to strengthen Nevada Mutual's financial position, each insured pays a surplus contribution and, in return, receives a Member's Surplus Note.

• This note accrues no interest and is repaid only when no longer necessary for the purpose intended.
  
  
• Subordinated to the Founders Surplus Funds Note.