(1) One hundred or more persons, desiring to form and be members of a mutual protective association, are authorized to and may insure each other against loss or damage by any peril or perils resulting in physical loss or damage to property, including theft of personal property, situated in this state in which said persons have an insurable interest if said persons first subscribe their names and addresses to articles of association which provide and set forth:

(a) The name of said association, which shall contain the words "protective association";

(b) The city or town where the principal office of the association is located and where the books and records are maintained;

(c) The names and addresses of directors who shall serve for the first year of existence of the association, which number of directors shall not be less than three nor more than seven and which directors must be members;

(d) That members shall be entitled to one vote each and shall elect directors at each annual meeting for a term not to exceed three years, after the first year of existence. The members of said association shall consist of the one hundred or more persons subscribing the articles of association who shall also be policyholders bona fide applicants for insurance at the time their names are subscribed to the articles and, in addition, all other persons becoming policyholders thereafter for the period during the year in which their policies are in full force and effect. The policies of the members shall be effective concurrently with, or within one year from, the granting of a certificate of authority to said association. If the period of insurance coverage is less than a year, each member will be a full-fledged member for a complete year.

(e) The specific risks which said association purposes to insure, which shall be one or more of the risks specified in this section;

(f) The manner in which premiums will be charged or assessments levied against the members for the purpose of paying losses and expenses of management of said association; except that each association organized on or after April 20, 1949, and authorized to insure against any insurable risks specified in the articles of association and all said associations which charge an advance premium instead of operating on the pure assessment basis shall at all times maintain on deposit with the commissioner a sum equal to twenty-five thousand dollars in cash or convertible securities as a guaranty fund to guarantee faithful performance of the contract. Upon dissolution, such guaranty fund shall become the property of the person who deposits it, subject to all claims provided for in sections 10-12-101 to 10-12-104.

(2) County mutual protective associations now operating in Colorado upon a pure assessment plan and such associations which do not write insurance upon growing crops but operate upon an assessment plan with the stated liability of each member set forth in its policies need not maintain any deposit with the commissioner nor maintain any reserves as provided in this section.

(3) Each association operating on an advance premium system and authorized to insure against any insurable risks specified in this section shall allocate and set aside at least sixty-five percent of all annual gross premiums received under all policies as a loss reserve to be used only for the payment of losses. In the event said loss reserve is insufficient to meet all adjusted loss claims for the year, an amount not exceeding five percent of the net premiums received shall be taken from the guaranty fund and added to the loss reserve to make up any deficit. The amount of said loss reserve then shall be distributed ratably among all policyholders suffering loss.

(4) Losses are defined as the actual amount paid the members and do not include any adjusting expenses or other expenses. If all losses are paid in full in any year and there is an excess sum remaining in the loss reserve, such excess sum shall be retained in the loss fund and shall be available for the following purposes in this order: Payment of current losses; recoupment by the company of all sums which have been removed from the guaranty fund in prior years to pay excess losses; as a permanent loss reserve fund.