KRS 304.24-300: Borrowed surplus.

(1) A domestic stock or mutual insurer may borrow money to defray the expenses of its

organization, provide it with surplus funds, or for any purpose of its business, upon

a written agreement that such money is required to be repaid only out of the

insurer's surplus in excess of that stipulated in such agreement. The agreement may

provide for interest, which interest shall or shall not constitute a liability of the

insurer as to its funds other than such excess of surplus, as stipulated in the

agreement. No com mission or promotion expense shall be paid in connection with

any such loan, except that if public offering and sale is made of the loan securities,

the insurer may pay the reasonable costs thereof approved by the commissioner.

(2) Money so borrowed, toget her with the interest thereon if so stipulated in the

agreement, shall not form a part of the insurer's legal liabilities except as to its

surplus in excess of the amount thereof stipulated in the agreement, or be the basis

of any setoff; but until repaid, financial statements filed or published by the insurer

shall show as a footnote thereto the amount thereof then unpaid together with any

interest thereon accrued but unpaid. A surplus note shall be reported as surplus and

not as debt only if the surplus note contains the following provisions:

(a) Subordination to policyholder;

(b) Subordination to claimant and beneficiary claims;

(c) Subordination to all other classes of creditors other than surplus note holders;

and

(d) Interest payments and principal repayments require prior approval of the state

of domicile.

(3) Any such loan shall be subject to the commissioner's approval. The insurer shall in

advance of the loan, file with the commissioner a statement of the purpose of the

loan and a copy of the propos ed loan agreement. The loan and agreement shall be

deemed approved unless within fifteen (15) days after date of such filing the insurer

is notified of the commissioner's disapproval and the reasons therefor. The

commissioner shall disapprove any proposed loan or agreement if he or she finds

the loan is unnecessary or excessive for the purpose intended, or that the terms of

the loan agreement are not fair and equitable to the parties and to other similar

lenders, if any, to the insurer, or that the informat ion so filed by the insurer is

inadequate.

(4) Any such loan or substantial portion thereof shall be repaid by the insurer when no

longer reasonably necessary for the purpose originally intended. No repayment of

such a loan shall be made unless approved in advance by the commissioner.

(5) This section shall not apply to other kinds of loans obtained by the insurer in

ordinary course of business, nor to loans secured by pledge or mortgage of assets.