§ 26.1-10-05 — Standards and management of an insurer with an insurance holding company system

company system.
1. Transactions within an insurance holding company system to which an insurer subject
to registration is a party are subject to the following standards:
a. The terms must be fair and reasonable.
b. Agreements for cost-sharing services and management must include provisions
as required by rules adopted by the commissioner.
c. The books, accounts, and records of each party must clearly and accurately
disclose the precise nature and details of the transactions, including that
accounting information that is necessary to support the reasonableness of the
charges or fees to the respective parties.
d. The insurer's surplus as regards to policyholders following any dividends or
distributions to shareholder affiliates must be reasonable in relation to the
insurer's outstanding liabilities and adequate to its financial needs.
e. Charges or fees for services performed must be reasonable.
f. Expenses incurred and payment received must be allocated to the insurer in
conformity with statutory accounting practices consistently applied.
g. If an insurer subject to this chapter is deemed by the commissioner to be in a
hazardous financial condition as defined by North Dakota Administrative Code
chapter 45-03-13 or a condition that would be grounds for supervision,
conservation, or a delinquency proceeding, the commissioner may require the
insurer to secure and maintain a deposit, held by the commissioner, or a bond, as
determined by the insurer at the insurer's discretion, for the protection of the
insurer for the duration of the contracts or agreements, or the existence of the
condition for which the commissioner is required to secure and maintain the
deposit or the bond. In determining whether a deposit or a bond is required, the
commissioner must consider whether concerns exist with respect to the affiliated
person's ability to fulfill the contracts or agreements if the insurer were to be put
into liquidation. Once the insurer is deemed to be in a hazardous financial
condition or a condition that would be grounds for supervision, conservation or a
delinquency proceeding, and a deposit or bond is necessary, the commissioner
may determine the amount of the deposit or bond, not to exceed the value of the
contracts or agreements in any one year, and whether such deposit or bond
should be required for a single contract, multiple contracts, or a contract only with
specific persons.
h. All records and data of the insurer held by an affiliate are and remain the property
of the insurer, are subject to the control of the insurer, are identifiable, and are
segregated or readily capable of segregation, at no additional cost to the insurer,
from all other persons' records and data. This includes all records and data that
are otherwise the property of the insurer, in whatever form maintained, including

claims and claim files, policyholder lists, application files, litigation files, premium
records, rate books, underwriting manuals, personnel records, financial records,
or similar records within the possession, custody or control of the affiliate. At the
request of the insurer, the affiliate shall permit the receiver to obtain a complete
set of all records of any type that pertain to the insurer's business, obtain access
to the operating systems on which the data is maintained, obtain the software that
runs those systems either through assumption of licensing agreements or
otherwise, and restrict the use of the data by the affiliate if it is not operating the
insurer's business. The affiliate shall provide a waiver of any landlord lien or other
encumbrance to give the insurer access to all records and data in the event of the
affiliate's default under a lease or other agreement.
i. Premiums or other funds belonging to the insurer which are collected by or held
by an affiliate are the exclusive property of the insurer and are subject to the
control of the insurer. Any right of offset in the event an insurer is placed into
receivership shall be subject to chapter 26.1-06.1.
2. The following transactions involving a domestic insurer and any person in its insurance
holding company system, including an amendment or modification of an affiliate
agreement previously filed pursuant to this section, which is subject to any materiality
standards contained in subdivisions a through g, may not be entered unless the
insurer has notified the commissioner in writing of its intention to enter into the
transaction at least thirty days prior thereto, or a shorter period as the commissioner
may permit, and the commissioner has not disapproved it within that period. The notice
for an amendment or modification must include the reason for the change and the
financial impact on the domestic insurer. Within thirty days after a termination of a
previously filed agreement, informal notice must be reported to the commissioner for
determination of the type of filing required, if any.
a. Sales, purchases, exchanges, loans, or extensions of credit, or investments
provided the transactions are equal to or exceed:
(1) With respect to nonlife insurers, the lesser of three percent of the insurer's
admitted assets or twenty-five percent of surplus as regards policyholders
as of December thirty-first next preceding.
(2) With respect to life insurers, three percent of the insurer's admitted assets
as of December thirty-first next preceding.
b. Loans or extensions of credit to any person that is not an affiliate, if the insurer
makes loans or extensions of credit with the agreement or understanding that the
proceeds of the transactions, in whole or in substantial part, are to be used to
make loans or extensions of credit to, to purchase assets of, or to make
investments in any affiliate of the insurer making the loans or extensions of credit
provided the transactions are equal to or exceed:
(1) With respect to nonlife insurers, the lesser of three percent of the insurer's
admitted assets or twenty-five percent of surplus as regards policyholders
as of December thirty-first next preceding.
(2) With respect to life insurers, three percent of the insurer's admitted assets
as of December thirty-first next preceding.
c. Reinsurance agreements or modifications thereto, including:
(1) All reinsurance pooling agreements.
(2) Agreements in which the reinsurance premium or a change in the insurer's
liabilities, or the projected reinsurance premium or a change in the insurer's
liabilities in any of the next three years, equals or exceeds five percent of
the insurer's surplus as regards policyholders, as of December thirty-first
next preceding, including those agreements which may require as
consideration the transfer of assets from an insurer to a nonaffiliate, if an
agreement or understanding exists between the insurer and nonaffiliate that
any portion of such assets will be transferred to one or more affiliates of the
insurer.

d. All management agreements, service contracts, tax allocation agreements,
guarantees, and cost-sharing arrangements.
e. Any guarantee made by a domestic insurer; however, a guarantee that is
quantifiable as to amount is not subject to the notice requirements of this
subsection unless the guarantee exceeds the lesser of one-half of one percent of
the insurer's admitted assets or ten percent of surplus as regards policyholders
as of December thirty-first next preceding. Additionally, all guarantees that are not
quantifiable as to amount are subject to the notice requirements of this
subsection.
f. Any direct or indirect acquisition or investment in a person that controls the
insurer or in an affiliate of the insurer in an amount that, together with its present
holdings in such investments, exceeds two and one-half percent of the insurer's
surplus to policyholders. A direct or indirect acquisition or investment in a
subsidiary acquired pursuant to section 26.1-10-02, or authorized under any other
section of this chapter, or in a nonsubsidiary insurance affiliate that is subject to
this chapter, is exempt from this requirement.
g. Any material transactions, specified by rule, which the commissioner determines
may adversely affect the interests of the insurer's policyholders.
Nothing in this subsection may be deemed to authorize or permit any transactions
which, in the case of an insurer which is not a member of the same insurance holding
company system, would be otherwise contrary to law.
3. A domestic insurer may not enter transactions that are part of a plan or series of like
transactions with persons within the insurance holding company system if the purpose
of those separate transactions is to avoid the statutory threshold amount and thus
avoid the review that would occur otherwise. If the commissioner determines that the
separate transactions were entered over any twelve-month period for that purpose, the
commissioner may exercise the commissioner's authority under the penalty sections of
this chapter.
4. The commissioner, in reviewing transactions pursuant to subsection 2, shall consider
whether the transactions comply with the standards set forth in subsection 1 and
whether they may adversely affect the interests of the policyholders.
5. The commissioner must be notified within thirty days of any investment of the domestic
insurer in any one corporation if the total investment in that corporation by the
insurance holding company system exceeds ten percent of the corporation's voting
securities.
6. For purposes of this chapter, in determining whether an insurer's surplus as regards
policyholders is reasonable in relation to the insurer's outstanding liabilities and
adequate to meet its financial needs, the following factors, among others, must be
considered:
a. The size of the insurer as measured by its assets, capital and surplus, reserves,
premium writings, insurance in force, and other appropriate criteria.
b. The extent to which the insurer's business is diversified among the several lines
of insurance.
c. The number and size of risks insured in each line of business.
d. The extent of the geographical dispersion of the insurer's insured risks.
e. The nature and extent of the insurer's reinsurance program.
f. The quality, diversification, and liquidity of the insurer's investment portfolio.
g. The recent past and projected future trend in the size of the insurer's investment
portfolio.
h. The surplus as regards policyholders maintained by other comparable insurers.
i. The adequacy of the insurer's reserves.
j. The quality and liquidity of investments in affiliates. The commissioner may treat
the investment as a disallowed asset for purposes of determining the adequacy of
surplus as regards policyholders whenever in the commissioner's judgment the
investment so warrants.

7. A domestic insurer may not pay any extraordinary dividend or make any other
extraordinary distribution to its shareholders until thirty days after the commissioner
has received notice of the declaration thereof and has not within that period
disapproved the payment, or until the commissioner has approved the payment within
the thirty-day period.
8. For purposes of this section, an extraordinary dividend or distribution includes any
dividend or distribution of cash or other property, when the fair market value together
with that of other dividends or distributions made within the preceding twelve months
exceeds the lesser of:
a. Ten percent of the insurer's surplus as regards policyholders as of December
thirty-first next preceding; or
b. The net gain from operations of the insurer, if the insurer is a life insurer, or the
net income, if the company is not a life insurer, not including realized capital
gains, for the twelve-month period ending December thirty-first next preceding,
but shall not include pro rata distributions of any class of the insurer's own
securities.
9. In determining whether a dividend or distribution is extraordinary under subsection 8,
an insurer other than a life insurer may carry forward net income from the previous two
calendar years which has not already been paid out as dividends. This carry-forward
must be computed by taking the net income from the second and third preceding
calendar years, not including realized capital gains, less dividends paid in the second
and immediate preceding calendar years.
10. Notwithstanding any other provision of law, an insurer may declare an extraordinary
dividend or distribution which is conditional upon the commissioner's approval, and the
declaration confers no rights upon shareholders until:
a. The commissioner has approved the payment of the dividend or distribution; or
b. The commissioner has not disapproved the payment within the thirty-day period
referred to in subsection 7.
11. An affiliate that is a party to an agreement or contract with a domestic insurer that is
subject to subdivision d of subsection 2 shall be subject to the jurisdiction of any
supervision, seizure, conservatorship, or receivership proceedings against the insurer
and to the authority of any supervisor, conservator, rehabilitator, or liquidator for the
insurer appointed under chapters 26.1-06.1 and 26.1-06.2 for the purpose of
interpreting, enforcing, and overseeing the affiliate's obligations under the agreement
or contract to perform services for the insurer that are:
a. An integral part of the insurer's operations, such as management, administrative,
accounting, data processing, marketing, underwriting, claims handling,
investment, or any other similar functions; or
b. Essential to the insurer's ability to fulfill its obligations under insurance policies.
12. The commissioner may require that an agreement or contract under subdivision d of
subsection 2 for the provision of services in subdivision a and b specify the affiliate
consents to the jurisdiction as set forth in subsection 11.