DENVER—Workers compensation fund Pinnacol Assurance says it has offered to pay Colorado $330 million to separate from the state and become a private mutual insurance company.

The Denver-based workers compensation insurer and quasi-governmental entity had offered $200 million to separate from Colorado in a February proposal and increased that offer Thursday to $330 million.

Separation negotiations with Colorado Gov. Bill Ritter have evolved since Pinnacol’s original offer, a company spokesman said.

The insurer’s latest offer to the state would include $230 million in cash paid over two years and $100 million in interest-bearing surplus notes. The surplus notes would pay 11% interest a year for 30 years, Pinnacol said in a statement.

Pinnacol said its board of directors recommends separating from the state to clarify policyholder ownership rights and give them more input into operations, among other reasons. It would continue providing residual market coverage of workers comp.