2013 North Dakota Century Code Title 26.1 Insurance Chapter 26.1-10 Insurance Holding Company Systems
Download as PDF
CHAPTER 26.1-10
INSURANCE HOLDING COMPANY SYSTEMS
26.1-10-01. Definitions.
As used in this chapter, unless the context or subject matter otherwise requires:
1. "Affiliate" means a person that directly, or indirectly through one or more
intermediaries, controls, or is under the control of, or is under common control with, the
person specified.
2. "Control" means the possession, direct or indirect, of the power to direct or cause the
direction of the management and policies of a person, whether through the ownership
of voting securities, by contract other than a commercial contract for goods or
nonmanagement services, or otherwise, unless the power is the result of an official
position with or corporate office held by the person. Control is presumed to exist if any
person, directly or indirectly, owns, controls, holds with the power to vote, or holds
proxies representing ten percent or more of the voting securities of any other person.
This presumption may be rebutted by a showing made in the manner provided for in
subsection 9 of section 26.1-10-04, that control does not exist in fact. The
commissioner may determine, after furnishing all persons in interest notice and
opportunity to be heard and making specific findings of fact to support such
determination, that control exists in fact, notwithstanding the absence of a presumption
to that effect.
3. "Insurance company" means an insurer as described in section 26.1-29-02, except
that it does not include:
a. Agencies, authorities, or instrumentalities of the United States and its
possessions, Commonwealth of Puerto Rico, or a state or political subdivision of
a state.
b. Fraternal benefit societies.
c. Nonprofit health service corporations.
4. "Insurance holding company system" means two or more affiliated persons, one or
more of which is an insurance company.
5. "Person" does not include any securities broker performing no more than the usual
and customary broker's function.
6. "Securityholder" of a specified person means the owner of any security of the person,
including common stock, preferred stock, debt obligations, and any other security
convertible into or evidencing the right to acquire any of the foregoing.
7. "Subsidiary" of a specified person means an affiliate under the control of the person
directly, or indirectly through one or more intermediaries.
8. "Voting security" includes any security convertible into or evidencing a right to acquire
a voting security.
26.1-10-02. Subsidiaries - Additional investment authority - Exception from
investment restrictions.
1. Any domestic insurance company, either by itself or in cooperation with one or more
persons, may organize or acquire one or more subsidiaries. A subsidiary may conduct
any kind of business and its authority to do so is not limited because it is a subsidiary
of a domestic insurer.
2. In addition to investments in common stock, preferred stock, debt obligations, and
other securities permitted under all other sections, a domestic insurance company may
also:
a. Invest, in common stock, preferred stock, debt obligations, and other securities of
one or more subsidiaries, amounts which do not exceed the lesser of ten percent
of the insurance company's admitted assets or fifty percent of the company's
surplus as regards policyholders; provided, that after the investments the
company's surplus as regards policyholders will be reasonable in relation to the
company's outstanding liabilities and adequate to its financial needs. In
calculating the amount of the investments, investments in domestic or foreign
Page No. 1
3.
4.
5.
insurance subsidiaries and health maintenance organizations shall be excluded,
and there must be included:
(1) Total net moneys or other consideration expended and obligations assumed
in the acquisition or formation of a subsidiary, including all organizational
expenses and contributions to capital and surplus of such subsidiary
whether or not represented by the purchase of capital stock or issuance of
other securities.
(2) All amounts expended in acquiring additional common stock, preferred
stock, debt obligations, and other securities, and all contributions to the
capital or surplus, of a subsidiary subsequent to its acquisition or formation.
b. Invest any amount in common stock, preferred stock, debt obligations, and other
securities of one or more subsidiaries; provided, that each subsidiary agrees to
limit its investments in any asset so that the investments will not cause the
amount of the total investment of the insurance company to exceed any of the
investment limitations specified in subdivision a. "The total investment of the
insurance company" includes:
(1) Any direct investment by the company in an asset.
(2) The company's proportionate share of any investment in an asset by any
subsidiary of the company, which must be calculated by multiplying the
amount of the subsidiary's investment by the percentage of the company's
ownership of such subsidiary.
c. With the approval of the commissioner, invest any amount in common stock,
preferred stock, debt obligations, or other securities of one or more subsidiaries;
provided, that after such investment the insurance company's surplus as regards
policyholders will be reasonable in relation to the company's outstanding liabilities
and adequate to its financial needs.
Investments in common stock, preferred stock, debt obligations, or other securities of
subsidiaries made pursuant to subsection 2 are not subject to any of the otherwise
applicable restrictions or prohibitions applicable to such investments of insurance
companies.
Whether any investment pursuant to subsection 2 meets the applicable requirements
thereof is to be determined before such investment is made, by calculating the
applicable investment limitations as though the investment had already been made,
taking into account the then outstanding principal balance on all previous investments
in debt obligations, and the value of all previous investments in equity securities as of
the date they were made net of any return of capital invested, not including dividends.
If an insurance company ceases to control a subsidiary, it shall dispose of any
investment therein made pursuant to this section within three years from the time of
the cessation of control or within such further time as the commissioner prescribes,
unless at any time after the investment has been made, the investment has met the
requirements for investment under any other section, and the company has so notified
the commissioner.
26.1-10-03. Acquisition of control of or merger with domestic company - Filing
requirements - Hearings - Exceptions - Violations - Jurisdiction - Consent to service of
process.
1. A person other than the issuer may not make a tender offer for or a request or
invitation for tenders of, or enter into any agreement to exchange securities for, seek to
acquire, or acquire, in the open market or otherwise, any voting security of a domestic
insurance company if, after consummation, the person would, directly or indirectly, or
by conversion or by exercise of any right to acquire, be in control of the company, and
a person may not enter into an agreement to merge with or otherwise to acquire
control of a domestic insurance company unless, at the time the offer, request, or
invitation is made or the agreement is entered into, or prior to the acquisition of the
securities if no offer or agreement is involved, the person has filed with the
commissioner and has sent to the company, and the company has sent to its
Page No. 2
2.
shareholders, a statement containing the information required by this section and the
offer, request, invitation, agreement, or acquisition has been approved by the
commissioner in the manner hereinafter prescribed. For purposes of this section, a
domestic insurance company includes any other person in control of a domestic
insurance company unless the other person is either directly or through its affiliates
primarily engaged in business other than the business of insurance.
The statement to be filed with the commissioner must be made under oath or
affirmation and must contain the following information:
a. The name and address of each person by whom or on whose behalf the merger
or other acquisition of control referred to in subsection 1 is to be effected,
hereinafter called the "acquiring party":
(1) If the person is an individual, the individual's principal occupation and all
offices and positions held during the past five years, and any conviction of
crimes other than minor traffic violations during the past ten years.
(2) If the person is not an individual, a report of the nature of its business
operations during the past five years or for any lesser period as the person
and any predecessors thereof have been in existence; an informative
description of the business intended to be done by the person and the
person's subsidiaries, and a list of all individuals who are or who have been
selected to become directors or executive officers of the person, or who
perform or will perform functions appropriate to these positions. The list
must include for each individual the information required by this subsection.
b. The source, nature, and amount of the consideration used or to be used in
effecting the merger or other acquisition of control, a description of any
transaction wherein funds were or are to be obtained for any such purpose, and
the identity of persons furnishing the consideration; provided, however, that when
a source of the consideration is a loan made in the lender's ordinary course of
business, the identity of the lender must remain confidential, if the person filing
the statement so requests.
c. Fully audited financial information as to the earnings and financial condition of
each acquiring party for the preceding five fiscal years of each acquiring party, or
for any lesser period as the acquiring party and any predecessors thereof have
been in existence, and similar unaudited information as of a date not earlier than
ninety days prior to the filing of the statement.
d. Any plans or proposals which each acquiring party may have to liquidate the
insurance company, to sell its assets or merge or consolidate it with any person,
or to make any other material change in its business or corporate structure or
management.
e. The number of shares of any security referred to in subsection 1 which each
acquiring party proposes to acquire, and the terms of the offer, request, invitation,
agreement, or acquisition referred to in subsection 1, and a statement as to the
method used to arrive at the fairness of the proposal.
f. The amount of each class of any security referred to in subsection 1 which is
beneficially owned or concerning which there is a right to acquire beneficial
ownership by each acquiring party.
g. A full description of any contracts, arrangements, or understandings with respect
to any security referred to in subsection 1 in which any acquiring party is involved,
including transfer of any of the securities, joint ventures, loan or option
arrangements, puts or calls, guarantees of loans, guarantees against loss or
guarantees of profits, division of losses or profits, or the giving or withholding of
proxies. The description must identify the persons who have entered into the
contracts, arrangements, or understandings.
h. A description of the purchase of any security referred to in subsection 1 during
the twelve calendar months preceding the filing of the statement, by any acquiring
party, including the dates of purchase, names of the purchasers, and
consideration paid or agreed to be paid therefor.
Page No. 3
i.
3.
4.
A description of any recommendations to purchase any security referred to in
subsection 1 made during the twelve calendar months preceding the filing of the
statement, by any acquiring party, or by anyone based upon interviews or at the
suggestion of the acquiring party.
j. Copies of all tender offers for, requests or invitations for tenders of, exchange
offers for, and agreements to acquire or exchange any securities referred to in
subsection 1, and, if distributed, of additional soliciting material relating thereto.
k. The term of any agreement, contract, or understanding made with any
broker-dealer as to solicitation of securities referred to in subsection 1 for tender,
and the amount of any fees, commissions, or other compensation to be paid to
broker-dealers with regard thereto.
l. Any additional information the commissioner by rule prescribes as necessary or
appropriate for the protection of policyholders and securityholders of the
insurance company or in the public interest.
If the person required to file the statement referred to in subsection 1 is a
partnership, limited partnership, syndicate, or other group, the commissioner may
require that the information called for by subdivisions a through l must be given with
respect to each partner of the partnership or limited partnership, each member of the
syndicate or group, and each person who controls the partner or member. If any
partner, member, or person is a corporation or the person required to file the statement
referred to in subsection 1 is a corporation, the commissioner may require that the
information called for by subdivisions a through l must be given with respect to the
corporation, each officer and director of the corporation, and each person who is
directly or indirectly the beneficial owner of more than ten percent of the outstanding
voting securities of the corporation.
If any material change occurs in the facts combined in the statement filed with the
commissioner and sent to the insurance company pursuant to this section, an
amendment setting forth the change, together with copies of all documents and other
material relevant to the change, must be filed with the commissioner and sent to the
insurance company within two business days after the person learns of the change.
The insurance company shall send the amendment to its shareholders.
If any offer, request, invitation, agreement, or acquisition referred to in subsection 1 is
proposed to be made by means of a registration statement under the Securities Act of
1933 or in circumstances requiring the disclosure of similar information under the
Securities Exchange Act of 1934, or under a state law requiring similar registration or
disclosure, the person required to file the statement referred to in subsection 1 may
utilize those documents in furnishing the information called for by that statement.
The commissioner shall approve any merger or other acquisition of control referred to
in subsection 1 unless, after a public hearing, the commissioner finds that:
a. After the change of control, the domestic insurance company referred to in
subsection 1 would not be able to satisfy the requirements for the issuance of a
certificate of authority to write the lines of insurance for which it is presently
licensed.
b. The effect of the merger or other acquisition of control would be substantially to
lessen competition in insurance in this state or tend to create a monopoly therein.
c. The financial condition of any acquiring party might jeopardize the financial
stability of the insurance company or prejudice the interest of its policyholders.
d. The plans or proposals which the acquiring party has to liquidate the insurance
company, sell its assets or consolidate or merge it with any person, or to make
any other material change in its business or corporate structure or management,
are unfair and unreasonable to policyholders of the company and not in the public
interest.
e. The competence, experience, and integrity of those persons who would control
the operation of the insurance company are such that it would not be in the
interest of policyholders of the company and of the public to permit the merger or
other acquisition of control.
Page No. 4
f.
5.
6.
7.
The acquisition is likely to be hazardous or prejudicial to the insurance buying
public.
The commissioner shall hold the public hearing referred to in this subsection within
thirty days after the statement required by subsection 1 is filed and shall give at least
twenty days' notice to the person filing the statement. Not less than seven days' notice
of the hearing must be given by the person filing the statement to the insurance
company and to other persons designated by the commissioner. The commissioner
shall make a determination within thirty days after the conclusion of the hearing. At the
hearing, the person filing the statement, the insurance company, any person to whom
notice of hearing was sent, and any other person whose interests may be affected
have the right to present evidence, examine and cross-examine witnesses, and offer
oral and written arguments and in connection therewith are entitled to conduct
discovery proceedings in the same manner allowed in district court of this state. All
discovery proceedings must be concluded not later than three days prior to the
hearing. The commissioner may retain at the acquiring person's expense any
attorneys, actuaries, accountants, and other experts not otherwise a part of the
commissioner's staff as may be reasonably necessary to assist the commissioner in
reviewing the proposed acquisition of control. The commissioner may waive the
hearing if the companies involved and all the policyholders of the domestic companies
involved consent to waiving the hearing.
This section does not apply to:
a. Any transaction which is subject to the provisions of chapter 26.1-07, dealing with
the merger or consolidation of two or more insurance companies.
b. Any offer, request, invitation, agreement, or acquisition which the commissioner
by order has excepted as:
(1) Not having been made or entered into for the purpose and not having the
effect of changing or influencing the control of a domestic insurance
company; or
(2) As otherwise not comprehended within the purposes of this section.
The following is a violation of this section:
a. The failure to file any statement, amendment, or other material required to be
filed pursuant to subsection 1 or 2.
b. The effectuation or any attempt to effectuate an acquisition of control of, or
merger with, a domestic insurance company without the approval of the
commissioner.
The courts of this state have jurisdiction over every person not resident, domiciled, or
authorized to do business in this state who files a statement with the commissioner
under this section, and over all actions involving the person arising out of violations of
this section, and each person is deemed to have performed acts equivalent to and
constituting appointment of the commissioner as the person's attorney upon whom
may be served all lawful process in any action, suit, or proceeding arising out of
violations of this section.
26.1-10-03.1. Acquisitions involving insurance companies not otherwise covered Penalty.
1. For the purpose of this section:
a. "Acquisition" means any agreement, arrangement, or activity the consummation
of which results in a person acquiring directly or indirectly the control of another
person, and includes the acquisition of voting securities, the acquisition of assets,
bulk reinsurance, and mergers.
b. An "involved insurance company" includes an insurance company which either
acquires or is acquired, is affiliated with an acquirer or acquired, or is the result of
a merger.
2. a. Except as exempted in subdivision b, this section applies to any acquisition in
which there is a change in control of an insurance company authorized to do
business in this state.
Page No. 5
b.
3.
This section does not apply to the following:
(1) An acquisition subject to approval or disapproval by the commissioner
pursuant to section 26.1-10-03.
(2) A purchase of securities solely for investment purposes so long as the
securities are not used by voting or otherwise to cause or attempt to cause
the substantial lessening of competition in any insurance market in this
state. If a purchase of securities results in a presumption of control under
subsection 2 of section 26.1-10-01, it is not solely for investment purposes
unless the commissioner of the insurance company's state of domicile
accepts a disclaimer of control or affirmatively finds that control does not
exist and such disclaimer action or affirmative finding is communicated by
the domiciliary commissioner to the commissioner of this state.
(3) The acquisition of a person by another person when both persons are
neither directly nor through affiliates primarily engaged in the business of
insurance, if preacquisition notification is filed with the commissioner in
accordance with subdivision a of subsection 3 thirty days prior to the
proposed effective date of the acquisition. However, the preacquisition
notification is not required for exclusion from this section if the acquisition
would otherwise be excluded from this section by any other paragraph of
this subdivision.
(4) The acquisition of already affiliated persons.
(5) An acquisition if, as an immediate result of the acquisition:
(a) In no market would the combined market share of the involved
insurance companies exceed five percent of the total market;
(b) There would be no increase in any market share; or
(c) In no market would the combined market share of the involved
insurance companies exceed twelve percent of the total market, and
in no market would the market share increase by more than two
percent of the total market.
For the purpose of this paragraph, a "market" means direct written
insurance premium in this state for a line of business as contained in the
annual statement required to be filed by insurance companies licensed to do
business in this state.
(6) An acquisition for which a preacquisition notification would be required
pursuant to this section due solely to the resulting effect on the ocean
marine insurance line of business.
(7) An acquisition of an insurance company whose domiciliary commissioner
affirmatively finds that the insurance company is in failing condition, there is
a lack of feasible alternative to improving the insurance company's
condition, the public benefits of improving the insurance company's
condition through the acquisition exceed the public benefits that would arise
from not lessening competition, and such findings are communicated by the
domiciliary commissioner to the commissioner of this state.
An acquisition covered by subsection 2 may be subject to an order pursuant to
subsection 5 unless the acquiring person files a preacquisition notification and the
waiting period has expired. The acquired person may file a preacquisition notification.
The commissioner shall give confidential treatment to information submitted under this
subsection in the same manner as provided in section 26.1-10-07.
a. The preacquisition notification must be in the form and contain the information
prescribed by the national association of insurance commissioners relating to
those markets which, under paragraph 5 of subdivision b of subsection 2, cause
the acquisition not to be exempted from the provisions of this section. The
commissioner may require additional material and information as the
commissioner deems necessary to determine whether the proposed acquisition, if
consummated, would violate the competitive standard of subsection 4. The
required information may include an opinion of an economist as to the
Page No. 6
b.
4.
a.
b.
competitive impact of the acquisition in this state accompanied by a summary of
the education and experience of such person indicating that person's ability to
render an informed opinion.
The waiting period required begins on the date of receipt of the commissioner of
a preacquisition notification and ends on the earlier of the thirtieth day after the
date of its receipt, or termination of the waiting period by the commissioner. Prior
to the end of the waiting period, the commissioner on a one-time basis may
require the submission of additional needed information relevant to the proposed
acquisition, in which event the waiting period ends on the earlier of the thirtieth
day after receipt of the additional information by the commissioner or termination
of the waiting period by the commissioner.
The commissioner may enter an order under subdivision a of subsection 5 with
respect to an acquisition if there is substantial evidence that the effect of the
acquisition may be substantially to lessen competition in any line of insurance in
this state or tend to create a monopoly therein or if the insurance company fails to
file adequate information in compliance with subsection 3.
In determining whether a proposed acquisition would violate the competitive
standard of subdivision a, the commissioner shall consider the following:
(1) Any acquisition covered under subsection 2 involving two or more insurance
companies competing in the same market is prima facie evidence of
violation of the competitive standards:
(a) If the market is highly concentrated and the involved insurance
companies possess the following shares of the market:
Insurer A
Insurer B
4%
4% or more
10%
2% or more
15%
1% or more
(b) Or, if the market is not highly concentrated and the involved insurance
companies possess the following shares of the market:
Insurer A
Insurer B
5%
5% or more
10%
4% or more
15%
3% or more
19%
1% or more
A highly concentrated market is one in which the share of the four
largest insurance companies is seventy-five percent or more of the
market. Percentages not shown in the tables are interpolated
proportionately to the percentages that are shown. If more than two
insurance companies are involved, exceeding the total of the two
columns in the table is prima facie evidence of violation of the
competitive standard in subdivision a. For the purpose of this
paragraph, the insurance company with the largest share of the
market must be deemed to be insurer A.
(2) There is a significant trend toward increased concentration when the
aggregate market share of any grouping of the largest insurance companies
in the market, from the two largest to the eight largest, has increased by
seven percent or more of the market over a period of time extending from
any base year five to ten years prior to the acquisition up to the time of the
acquisition. Any acquisition or merger covered under subsection 2 involving
two or more insurance companies competing in the same market is prima
facie evidence of violation of the competitive standard in subdivision a if:
(a) There is a significant trend toward increased concentration in the
market;
(b) One of the insurance companies involved is one of the insurance
companies in a grouping of large insurance companies showing the
requisite increase in the market share; and
Page No. 7
c.
5.
a.
b.
c.
(c) Another involved insurance company's market is two percent or more.
(3) For the purposes of this subdivision:
(a) The term "insurance company" includes any company or group of
companies under common management, ownership, or control.
(b) The term "market" means the relevant product and geographical
markets. In determining the relevant product and geographical
markets, the commissioner shall give due consideration to, among
other things, the definitions or guidelines, if any, promulgated by the
national association of insurance commissioners and to information, if
any, submitted by parties to the acquisition. In the absence of
sufficient information to the contrary, the relevant product market is
assumed to be the direct written insurance premium for a line of
business, such line being that used in the annual statement required
to be filed by insurance companies doing business in this state, and
the relevant geographical market is assumed to be this state.
(c) The burden of showing prima facie evidence of violation of the
competitive standard rests upon the commissioner.
(4) Even though an acquisition is not prima facie violative of the competitive
standard under paragraphs 1 and 2, the commissioner may establish the
requisite anticompetitive effect based upon other substantial evidence. Even
though an acquisition is prima facie violative of the competitive standard
under paragraphs 1 and 2, a party may establish the absence of the
requisite anticompetitive effect based upon other substantial evidence.
Relevant factors in making a determination under this paragraph include the
following: market shares, volatility of ranking of market leaders, number of
competitors, concentration, trend of concentration in the industry, and ease
of entry into and exit from the market.
An order may not be entered under subdivision a of subsection 5 if:
(1) The acquisition will yield substantial economies of scale or economies in
resource utilization that cannot be feasibly achieved in any other way, and
the public benefits which would arise from such economies exceed the
public benefits which would arise from not lessening competition; or
(2) The acquisition will substantially increase the availability of insurance, and
the public benefits of such increase exceed the public benefits which would
arise from not lessening competition.
If an acquisition violates the standards of this section, the commissioner may
enter an order:
(1) Requiring an involved insurance company to cease and desist from doing
business in this state with respect to the line or lines of insurance involved in
the violation; or
(2) Denying the application of an acquired or acquiring insurance company for a
license to do business in this state.
The order may not be entered unless there is a hearing, notice of such hearing is
issued prior to the end of the waiting period and not less than fifteen days prior to
the hearing, and the hearing is concluded and the order is issued no later than
sixty days after the end of the waiting period. Every order must be accompanied
by a written decision of the commissioner setting forth findings of fact and
conclusions of law.
An order entered under this subsection may not become final sooner than thirty
days after it is issued, during which time the involved insurance company may
submit a plan to remedy the anticompetitive impact of the acquisition within a
reasonable time. Based upon the plan or other information, the commissioner
shall specify the conditions, if any, under the time period during which the aspects
of the acquisition causing a violation of the standards of this section would be
remedied and the order vacated or modified.
Page No. 8
d.
e.
f.
g.
An order pursuant to this subsection does not apply if the acquisition is not
consummated.
Any person who violates a cease and desist order of the commissioner under this
subsection and while the order is in effect, after notice and hearing and upon
order of the commissioner, may be subject at the discretion of the commissioner
to any one or both of the following:
(1) A monetary penalty of not more than ten thousand dollars for every day of
violation.
(2) Suspension or revocation of such person's license.
Any insurance company or other person who fails to make any filing required by
this section and who also fails to demonstrate a good-faith effort to comply with
any such filing requirement is subject to a fine of not more than fifty thousand
dollars.
Subsections 2 and 3 of section 26.1-10-08 and section 26.1-10-10 do not apply to
acquisitions covered under subsection 2.
26.1-10-04. Registration - Amendments - Termination - Alternative registration Exceptions - Disclaimer - Violation.
1. Every insurance company which is authorized to do business in this state and which is
a member of an insurance holding company system shall register with the
commissioner, except a foreign insurance company subject to disclosure requirements
and standards adopted by statute or rule in the jurisdiction of its domicile which are
substantially similar to those contained in this section and section 26.1-10-05. Any
insurance company subject to registration under this section shall register before
August 31, 1981, or fifteen days after it becomes subject to registration, whichever is
later, and annually thereafter by March first of each year for the previous calendar year
unless the commissioner for good cause shown extends the time for registration, and
then within the extended time. The commissioner may require any authorized
insurance company which is a member of a holding company system not subject to
registration under this section to furnish a copy of the registration statement or other
information filed by the insurance company with the insurance regulatory authority of
the domiciliary jurisdiction.
2. Every insurance company subject to registration shall file a registration statement on a
form approved by the commissioner, which must contain current information about:
a. The capital structure, general financial condition, ownership, and management of
the insurance company and any person in control of the insurance company.
b. The identity and relationship of every member of the insurance holding company
system.
c. The following agreements in force, relationships subsisting, and transactions
currently outstanding or which have occurred during the last calendar year
between the insurance company and its affiliates:
(1) Loans, other investments, or purchases, sales, or exchanges of securities of
the affiliates by the insurance company or of the insurance company by its
affiliates.
(2) Purchases, sales, or exchange of assets.
(3) Transactions not in the ordinary course of business.
(4) Guarantees or undertakings for the benefit of an affiliate which result in an
actual contingent exposure of the insurance company's assets to liability,
other than insurance contracts entered into in the ordinary course of the
insurance company's business.
(5) All management agreements, service contracts, and all cost-sharing
arrangements.
(6) Reinsurance agreements.
(7) Dividends and other distributions to shareholders.
(8) Consolidated tax allocation agreements.
Page No. 9
d.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
Any pledge of the insurance company's stock, including stock of any subsidiary or
controlling affiliate, for a loan made to any member of the insurance holding
company system.
e. Other matters concerning transactions between registered insurance companies
and any affiliates as may be included from time to time in any registration forms
adopted or approved by the commissioner.
No information need be disclosed on the registration statement filed pursuant to
subsection 2 if the information is not material for the purposes of this section. Unless
the commissioner by rule or order provides otherwise, sales, purchases, exchanges,
loans or extensions of credit, or investments, or guarantees involving one-half of one
percent or less of an insurance company's admitted assets as of December thirty-first
next preceding are not material for purposes of this section.
In addition to the annual filing requirement under subsection 1, each registered
insurance company shall keep current the information required to be disclosed in its
registration statement by reporting all material changes or additions on amendment
forms approved by the commissioner within fifteen days after the end of the month in
which it learns of each change or addition; provided, however, that subject to
subsections 7, 8, and 9 of section 26.1-10-05, each registered insurance company
shall report all dividends and other distributions to shareholders within five business
days following the declaration and no less than ten business days prior to payment
thereof.
The commissioner shall terminate the registration of any insurance company which
demonstrates that it no longer is a member of an insurance holding company system.
The commissioner may require or allow two or more affiliated insurance companies
subject to registration hereunder to file a consolidated registration statement or
consolidated reports amending their consolidated registration statement or their
individual registration statements.
The commissioner may allow an insurance company which is authorized to do
business in this state and which is part of an insurance holding company system to
register on behalf of any affiliated insurance company which is required to register
under subsection 1 to file all information and material required to be filed under this
section.
This section does not apply to any insurance company, information, or transaction if
and to the extent excepted by the commissioner by rule or order.
Any person may file with the commissioner a disclaimer of affiliation with any
authorized insurance company or a disclaimer may be filed by the insurance company
or any member of an insurance holding company system. The disclaimer must fully
disclose all material relationships and bases for affiliation between the person and the
insurance company as well as the basis for disclaiming the affiliation. After a disclaimer
has been filed, the insurance company is relieved of any duty to register or report
under this section which arises out of the insurance company's relationship with the
person unless and until the commissioner disallows the disclaimer. The commissioner
shall disallow the disclaimer only after furnishing all parties in interest with notice and
opportunity to be heard and after making specific findings of fact to support the
disallowance.
All registration statements must contain a summary outlining all items in the current
registration statement representing changes from the prior registration statement.
Any person within an insurance holding company system subject to registration must
provide complete and accurate information to an insurance company, when the
information is reasonably necessary to enable the insurance company to comply with
the provisions of this chapter.
The failure to file a registration statement or any summary of the registration statement
thereto required by this section within the time specified for the filing is a violation of
this section.
Page No. 10
26.1-10-05. Standards - Transactions with affiliates - Adequacy of surplus - Dividends
and other distributions.
1. Transactions within a holding company system to which an insurance company subject
to registration is a party are subject to the following standards:
a. The terms must be fair and reasonable.
b. 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.
c. The insurance company's surplus as regards to policyholders following any
dividends or distributions to shareholder affiliates must be reasonable in relation
to the insurance company's outstanding liabilities and adequate to its financial
needs.
d. Charges or fees for services performed must be reasonable.
e. Expenses incurred and payment received must be allocated to the insurance
company in conformity with statutory accounting practices consistently applied.
2. The following transactions involving a domestic insurance company and any person in
its holding company system may not be entered into unless the insurance company
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.
a. Sales, purchases, exchanges, loans, or extensions of credit, guarantees, or
investments provided the transactions are equal to or exceed:
(1) With respect to nonlife insurance companies, the lesser of three percent of
the insurance company's admitted assets or twenty-five percent of surplus
as regards policyholders as of December thirty-first next preceding.
(2) With respect to life insurance companies, three percent of the insurance
company's admitted assets as of December thirty-first next preceding.
b. Loans or extensions of credit to any person who is not an affiliate, when the
insurance company makes the 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 insurance company making the
loans or extensions of credit provided the transactions are equal to or exceed:
(1) With respect to nonlife insurance companies, the lesser of three percent of
the insurance company's admitted assets or twenty-five percent of surplus
as regards policyholders as of December thirty-first next preceding.
(2) With respect to life insurance companies, three percent of the insurance
company's admitted assets as of December thirty-first next preceding.
c. Reinsurance agreements or modifications thereto in which the reinsurance
premium or a change in the insurance company's liabilities equals or exceeds five
percent of the insurance company'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 insurance company to a
nonaffiliate, if an agreement or understanding exists between the insurance
company and nonaffiliate that any portion of such assets will be transferred to
one or more affiliates of the insurance company.
d. All management agreements, service contracts, and all cost-sharing
arrangements.
e. Any material transactions, specified by rule, which the commissioner determines
may adversely affect the interests of the insurance company's policyholders.
Nothing herein contained may be deemed to authorize or permit any transactions
which, in the case of an insurance company which is not a member of the same
holding company system, would be otherwise contrary to law.
3. A domestic insurance company may not enter into transactions which are part of a
plan or series of like transactions with persons within the holding company system if
Page No. 11
4.
5.
6.
7.
8.
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 into over any twelve-month period for that
purpose, the commissioner may exercise the commissioner's authority under the
penalty sections of this chapter.
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.
The commissioner must be notified within thirty days of any investment of the domestic
insurance company 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.
For purposes of this chapter, in determining whether an insurance company's surplus
as regards policyholders is reasonable in relation to the insurance company's
outstanding liabilities and adequate to its financial needs, the following factors, among
others, must be considered:
a. The size of the insurance company as measured by its assets, capital and
surplus, reserves, premium writings, insurance in force, and other appropriate
criteria.
b. The extent to which the insurance company'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 insurance company's insured
risks.
e. The nature and extent of the insurance company's reinsurance program.
f. The quality, diversification, and liquidity of the insurance company's investment
portfolio.
g. The recent past and projected future trend in the size of the insurance company's
investment portfolio.
h. The surplus as regards policyholders maintained by other comparable insurance
companies.
i. The adequacy of the insurance company'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.
k. The quality of the company's earnings and the extent to which the reported
earnings include extraordinary items.
An insurance company subject to registration under section 26.1-10-04 may not pay
any extraordinary dividend or make any other extraordinary distribution to its
shareholders until:
a. Thirty days after the commissioner has received notice of the declaration thereof
and has not within such period disapproved the payment; or
b. The commissioner has approved the payment within the thirty-day period.
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 greater of:
a. Ten percent of the insurance company's surplus as regards policyholders as of
December thirty-first next preceding; or
b. The net gain from operations of the insurance company, if the company is a life
insurance company, or the net income, if the company is not a life insurance
company, 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 insurance company's own securities.
Page No. 12
9.
Notwithstanding any other provision of law, an insurance company may declare an
extraordinary dividend or distribution which is conditional upon the commissioner's
approval thereof, 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.
26.1-10-05.1. Dividends and other distribution.
1. The board of directors of any company subject to this chapter may declare and the
company may pay dividends and other distributions on its outstanding shares and
cash, property, or its own shares and on its treasury stock in its own shares, subject to
the following provisions:
a. No dividend or other distribution may be declared or paid at any time except out
of earned, as distinguished from contributed, surplus, nor when the surplus of the
company is less than the surplus required by law for the kind or kinds of business
authorized to be transacted by such company, nor when the payment of a
dividend or other distribution would reduce its surplus to less than such amount.
b. Except in the case of share dividends, surplus for determining whether dividends
or other distributions may be declared may not include surplus arising from
unrealized appreciation in value, or revaluation of assets, or from unrealized
profits upon investments.
c. No dividend or other distribution may be declared or paid contrary to any
restriction contained in the articles of incorporation.
d. No dividend or other distribution may be declared or paid contrary to section
26.1-10-05.
2. No payment may be made to policyholders by way of dividends unless the company
possesses admitted assets in the amount of such payment in excess of its capital,
minimum required surplus, and all liabilities.
26.1-10-06. Examination - Consultants - Expenses.
1. Subject to the limitations contained in this section and in addition to the powers which
the commissioner has relating to the examination of insurance companies, the
commissioner may order any insurance company registered under section 26.1-10-04
to produce any information in the possession of the insurance company or its affiliates
necessary to ascertain the financial condition or legality of conduct of the insurance
company. If the insurance company fails to comply with the order, the commissioner
may examine the affiliates to obtain the information.
2. The commissioner may exercise the power under subsection 1 only if the examination
of the insurance company, under other provisions of the law, is inadequate or the
interests of the policyholders of the insurance company may be adversely affected.
3. The commissioner may retain at the registered insurance company's expense any
attorneys, actuaries, accountants, and other experts, not otherwise a part of the
commissioner's staff, as are reasonably necessary to assist in the conduct of the
examination under subsection 1. Any persons so retained are under the direction and
control of the commissioner and shall act in a purely advisory capacity.
4. Each registered insurance company producing information for examination pursuant to
subsection 1 is liable for and shall pay the expense of the examination.
26.1-10-07. Information confidential.
Any information obtained by or disclosed to the commissioner or any other person in the
course of an examination or investigation made pursuant to section 26.1-10-06 and all
information reported pursuant to section 26.1-10-04 must be given confidential treatment and is
not subject to subpoena and may not be made public by the commissioner or any other person,
except to insurance departments of other states, without the prior written consent of the
insurance company to which it pertains unless the commissioner, after giving the insurance
Page No. 13
company and its affiliates who would be affected thereby, notice and opportunity to be heard,
determines that the interests of policyholders, shareholders, or the public will be served by the
publication thereof, in which event the commissioner may publish all or any part thereof in any
manner the commissioner deems appropriate.
26.1-10-08. Injunctions - Prohibitions against voting securities - Sequestration of
voting securities.
1. Whenever it appears to the commissioner that any insurance company or any director,
officer, employee, or agent thereof has committed or is about to commit a violation of
this chapter or of any rule or order issued by the commissioner under this chapter, the
commissioner may apply to the district court for the county in which the principal office
of the insurance company is located or if the insurance company has no principal
office in this state then to the district court of Burleigh County for an order enjoining the
insurance company or the director, officer, employee, or agent thereof from violating or
continuing to violate this chapter or any rule or order, and for any other equitable relief
as the nature of the case and the interests of the insurance company's policyholders,
creditors, and shareholders or the public may require.
2. A security which is the subject of any agreement or arrangement regarding acquisition,
or which is acquired or to be acquired, in contravention of this chapter or any rule or
order issued by the commissioner hereunder may not be voted at any shareholders'
meeting, or may be counted for quorum purposes, and any action of shareholders
requiring the affirmative vote of a percentage of shares may be taken as though the
securities were not issued and outstanding, but any action taken at the meeting is not
invalidated by the voting of those securities, unless the action would materially affect
control of the insurance company or unless the courts of this state have so ordered. If
an insurance company or the commissioner has reason to believe that any security of
the insurance company has been or is about to be acquired in contravention of this
chapter or any rule or order issued by the commissioner hereunder, the insurance
company or the commissioner may apply to the district court of Burleigh County or to
the district court of the county in which the insurance company has its principal place
of business to enjoin any offer, request, invitation, agreement, or acquisition made in
contravention of section 26.1-10-03 or any rule or order issued by the commissioner
thereunder to enjoin the voting of any security so acquired, to void any vote of the
security already cast at any meeting of shareholders, and for any other equitable relief
as the nature of the case and the interests of the insurance company's policyholders,
creditors, and shareholders or the public may require.
3. When a person has acquired or is proposing to acquire any voting securities in
violation of this chapter or any rule or order issued by the commissioner hereunder, the
district court of Burleigh County or the district court of the county in which the
insurance company has its principal place of business may, on the notice the court
deems appropriate and upon the application of the insurance company or the
commissioner, seize or sequester any voting securities of the insurance company
owned directly or indirectly by the person and issue any orders with respect thereto as
may be appropriate to effectuate this chapter.
4. Notwithstanding any other provision of law, for the purpose of this chapter the site of
the ownership of the securities of domestic insurance companies is deemed to be in
this state.
26.1-10-09. Revocation, suspension, and nonrenewal of license.
Whenever it appears to the commissioner that any person has committed a violation of this
chapter which makes the continued operation of an insurance company contrary to the interests
of policyholders or the public, the commissioner, after giving notice and an opportunity to be
heard, may suspend, revoke, or refuse to renew the insurance company's license or authority to
do business in this state for any period the commissioner finds is required for the protection of
policyholders or the public. Any determination must be accompanied by specific findings of fact
and conclusions of law.
Page No. 14
26.1-10-10. Receivership.
Whenever it appears to the commissioner that any person has committed a violation of this
chapter which so impairs the financial condition of a domestic insurance company as to threaten
insolvency or make the further transaction of business by it hazardous to its policyholders,
creditors, shareholders, or the public, then the commissioner may proceed as provided in
chapter 26.1-06.1 to take possession of the property of the insurance company and to carry on
its business.
26.1-10-10.1. Recovery.
1. Subject to other limitations of this section, if an order for liquidation, conservation, or
rehabilitation of a domestic insurance company has been entered, and if distribution of
payment identified in subdivision a or b is made at any time during the one year
preceding the petition for liquidation, conservation, or rehabilitation, the receiver
appointed under the order may recover on behalf of the insurance company:
a. From any parent corporation, limited liability company, or holding company or
person or affiliate who otherwise controlled the insurance company, the amount of
distributions other than distributions of shares of the same class of stock, paid by
the insurance company on its capital stock; or
b. Any payment in the form of a bonus, termination settlement, or extraordinary
lump sum salary adjustment made by the insurance company or its subsidiaries
to a director, officer, or employee.
2. A distribution may not be recovered if the parent or affiliate shows that, when paid, the
distribution was lawful and reasonable, and that the insurance company did not know
and could not reasonably have known that the distribution might adversely affect the
ability of the insurance company to fulfill its contractual obligations.
3. Any person who was a parent corporation, limited liability company, or holding
company or a person who otherwise controlled the insurance company or affiliate at
the time the distributions were paid is liable up to the amount of distributions or
payments under subsection 1 the person received. Any person who otherwise
controlled the insurance company at the time the distributions were declared is liable
up to the amount of distributions the person would have received if the person had
been paid immediately. If two or more persons are liable with respect to the same
distributions, they are jointly and severally liable.
4. The maximum amount recoverable under this subsection is the amount needed in
excess of all other available assets of the impaired or insolvent insurance company to
pay the contractual obligations of the impaired or insolvent insurance company and to
reimburse any guaranty funds.
5. To the extent that any person liable under subsection 3 is insolvent or otherwise fails to
pay claims due from it pursuant to subsection 3, its parent corporation, limited liability
company, or holding company or person who otherwise controlled it at the time the
distribution was paid must be jointly and severally liable for any resulting deficiency in
the amount recovered from the parent corporation, limited liability company, or holding
company or person who otherwise controlled it.
26.1-10-11. Criminal proceedings - Penalty.
1. Any insurance company failing, without just cause, to file any registration statement as
required in this chapter must be required, after notice and hearing, to pay a penalty of
one hundred dollars for each day's delay. The commissioner may reduce the penalty if
the insurance company demonstrates to the commissioner that the imposition of the
penalty would constitute a financial hardship to the insurance company.
2. Every director or officer of an insurance holding company system who knowingly
violates, participates in, or assents to, or who knowingly permits any of the officers or
agents of the insurance company to engage in transactions or make investments
which have not been properly reported or submitted pursuant to sections 26.1-10-04
and 26.1-10-05, or which violate this chapter, shall pay, in their individual capacity, a
civil penalty of not more than one thousand dollars per violation, after notice and
Page No. 15
3.
4.
5.
hearing before the commissioner. In determining the amount of the civil penalty, the
commissioner shall take into account the appropriateness of the penalty with respect
to the gravity of the violation, the history of previous violations, and such other matters
as justice may require.
Whenever it appears to the commissioner that any insurance company subject to this
chapter or any director, officer, employee, or agent thereof has engaged in any
transaction or entered into a contract which is subject to section 26.1-10-05 and which
would not have been approved had such approval been requested, the commissioner
may order the insurance company to cease and desist immediately any further activity
under that transaction or contract. After notice and hearing, the commissioner may
also order the insurance company to void the contracts and restore the status quo if it
is in the best interest of the policyholders, creditors, or the public.
Whenever it appears to the commissioner that any insurance company or any director,
officer, employee, or agent thereof has committed a willful violation of this chapter, the
commissioner may institute criminal proceedings in the district court of the county in
which the principal office of the insurance company is located or if the insurance
company has no principal office in the state, then in the district court of Burleigh
County against the insurance company or the responsible director, officer, employee,
or agent of the company. Any insurance company that willfully violates this chapter is
guilty of a class B misdemeanor. Any individual who willfully violates this chapter is
guilty of a class A misdemeanor.
Any officer, director, or employee of an insurance holding company system, who
willfully and knowingly subscribes to or makes or causes to be made any false
statements or false reports or false filings with the intent to deceive the commissioner
in the performance of the commissioner's duties under this chapter, may have criminal
proceedings instituted against them. Any individual who violates this chapter is guilty of
a class A misdemeanor. Any fines imposed must be paid by the officer, director, or
employee in the person's individual capacity.
26.1-10-12. Rulemaking.
The commissioner may adopt rules and issue orders necessary to carry out this chapter.
Page No. 16
Disclaimer: These codes may not be the most recent version. North Dakota may have more current or accurate information. We make no warranties or guarantees about the accuracy, completeness, or adequacy of the information contained on this site or the information linked to on the state site. Please check official sources.
