# Title 45 — Insurance, Commissioner of

## Article 45-03 — Regulation of Insurance Companies

## Chapter 45-03-22 — Mutual Insurance Holding Company Act Rules

### § 45-03-22-01. Definitions.

As used in this chapter:
1. "Affiliate" means a person who 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. "Commissioner" means the North Dakota insurance commissioner.
3. "Department" means the North Dakota insurance department.
4. "Domestic mutual insurance company" means an insurance company organized on a mutual
plan and incorporated under the laws of North Dakota.
5. "Interested person" means:
a. An officer, director, partner, copartner, or employee of the mutual insurance holding
company or its subsidiary or affiliates;
b. A member of the immediate family of any natural person who is an officer, director,
partner, or employee of the mutual insurance holding company or its subsidiary or
affiliates or who owns, controls, or holds with power to vote, directly or indirectly, five
percent or more of the mutual insurance holding company's or its subsidiary's or affiliate's
outstanding voting securities;
c. A person or partner or employee of any person who has acted as legal counsel for the
person within the previous two years; or
d. A natural person whom the commissioner by order shall have determined to be an
interested person by reason of having had, at any time within the last two years, a
material business or professional relationship with another person or with a principal
executive officer of another person.
6. "Intermediate holding company" means a subsidiary holding company of a mutual insurance
holding company or part of a holding company system that is controlled by a mutual insurance
holding company pursuant to North Dakota Century Code chapter 26.1-12.1.
7. "Member of the immediate family" means a spouse, parent, spouse of a parent, child, spouse
of a child, brother or sister, including step and adoptive relationships.
8. "Mutual insurance holding company" means a holding company organized on a mutual plan
and incorporated under the laws of North Dakota, resulting from the reorganization of a
domestic mutual insurance company pursuant to North Dakota Century Code chapter
26.1-12.1.

9. "Plan of reorganization" means a plan to engage or participate in a reorganization subject to
North Dakota Century Code chapter 26.1-12.1.
10. "Stock" means any security evidencing an equity interest in the issuing entity.
11. "Stock offering" means any proposed sale, exchange, transfer, or other change of ownership
of stock or of securities convertible into or exchangeable or exercisable for stock. For the
purposes of these rules, "stock offering" does not mean:
a. An offering of preferred stock that is not convertible or exchangeable into common stock
and which has no ordinary voting rights; or
b. A transfer of stock between any of the following:
(1) A mutual insurance holding company;
(2) An insurance company subsidiary of a mutual insurance holding company;
(3) An intermediate holding company subsidiary of a mutual insurance holding
company; and
(4) An insurance company subsidiary of an intermediate holding company subsidiary to
a mutual insurance holding company.
History: Effective February 1, 2000.
General Authority: NDCC 28-32-02
Law Implemented: NDCC 26.1-12.1
### § 45-03-22-02. Purpose and scope.

A mutual insurance holding company and its subsidiary shall comply with North Dakota Century
Code chapters 26.1-05 and 26.1-10 and the terms of all other applicable statutes or rules, including
statutes or rules regulating investments, material transactions, and changes in control.
History: Effective February 1, 2000.
General Authority: NDCC 28-32-02
Law Implemented: NDCC 26.1-12.1
### § 45-03-22-03. General rules.

1. A merger or acquisition not subject to North Dakota Century Code chapter 26.1-12.1 involving
a mutual insurance holding company must be approved by the commissioner pursuant to
North Dakota Century Code chapter 26.1-07.
2. Each domestic mutual insurance holding company shall provide to the commissioner an
audited annual statement based upon generally accepted accounting principles and statutory
accounting principles by June first of each year.
3. Unless otherwise specified by the commissioner, the mutual insurance holding company's
annual statement must include:
a. An income statement.
b. A balance sheet.
c. A cash flow statement.
d. An investment plan covering all assets.

e. A statement disclosing any intention or agreement to pledge, borrow against, alienate,
hypothecate, or otherwise encumber the assets of the mutual insurance holding
company.
f. Complete information on the composition and status of any closed block formed as a part
of a plan of reorganization.
4. At least fifty percent of the net worth of a mutual insurance holding company as determined
under generally accepted accounting principles must be invested in insurance company
subsidiaries.
History: Effective February 1, 2000.
General Authority: NDCC 28-32-02
Law Implemented: NDCC 26.1-12.1
### § 45-03-22-04. Stock offerings - Content of application.

1. A stock offering by an insurance company subsidiary of a mutual insurance holding company,
an intermediate holding company subsidiary of a mutual insurance holding company, or an
insurance company subsidiary of an intermediate holding company subsidiary to a mutual
insurance holding company may not occur without the prior written approval of the
commissioner secured through the application and hearing process under this chapter. An
application for approval of a stock offering must contain the following:
a. A description of the stock intended to be offered by the applicant, including a description
of all shareholder rights.
b. The total number of shares authorized to be issued, the estimated number the applicant
requests permission to offer, the intended date or range of dates for the offer, and the
manner in which the offer is to be conducted.
c. A justification for a uniform planned offering price or a justification of the method by which
the offering price will be determined.
d. The name of any underwriter, syndicate member, or placement agent involved and, if
known, the name of each entity, person, or group of persons to whom the offering is to be
made who will, as a result of the offering, directly or indirectly control five percent or more
of the total outstanding class of shares. If any involved underwriter, syndicate member, or
placement agent is a corporation, or other entity, the name of each member of its board
of directors or equivalent management team, with the names of the offeror's board of
directors, must be provided. A copy of any offering documents, including any filing with
the securities and exchange commission or a state securities regulator, must be included
in the application.
e. A description of any subscription rights to be afforded a member of the mutual insurance
holding company.
f. A detailed description of all expenses projected to be incurred in connection with the
offering.
g. A statement as to the intended use of the funds raised by the offering.
h. A description of any fee, commission, or other valuable consideration earned by a
director, officer, agent, or employee of the mutual insurance holding company or its
affiliates specifically for aiding, promoting, or assisting in the structuring or placement of
the offering. The commissioner may disallow any fee, commission, or other valuable
consideration deemed to be unreasonable. This subdivision does not apply to the

payment of reasonable fees and compensation to attorneys at law, accountants,
actuaries, and investment bankers for services performed in the independent practice of
their professions, even though the underwriters of such services are also directors of the
mutual insurance holding company, its subsidiaries, or affiliates.
i. A statement that the mutual insurance holding company, either directly or indirectly
through an intermediate holding company of a mutual insurance holding company, shall
retain ownership of at least a majority of the voting shares of the capital stock of the
subsidiary stock insurance company as required by North Dakota Century Code section
26.1-12.1-02.
j. Such other information as the commissioner shall require.
2. An application for a stock offering must include the following provisions:
a. A restriction prohibiting an officer, director, employee, or other interested person of the
mutual insurance holding company or its subsidiaries or its affiliates from the purchase or
ownership of a share of the offering or receipt of an option to or for the benefit of an
officer, director, employee, or other interested person, for a period of at least six months
following the conclusion of the offering. This subdivision does not limit the rights of an
officer, director, or other interested person from exercising a subscription right generally
accorded a member of the mutual insurance holding company, except that, pursuant to
such subscription right, an officer, director, or other interested person of the mutual
insurance holding company or its subsidiaries or affiliates may not purchase or own, in
the aggregate, directly or indirectly, more than five percent of the securities offered in the
offering for a period of at least six months following the conclusion of the offering.
b. A provision that an entity created under a plan of reorganization may issue more than
one class of securities provided, however, that at all times a voting majority of each class
must be held, directly or indirectly, by the mutual insurance holding company and,
provided further, that no class of common stock may receive a dividend or other right
greater than the class held, directly or indirectly, in the mutual insurance holding
company.
History: Effective February 1, 2000.
General Authority: NDCC 28-32-02
Law Implemented: NDCC 26.1-12.1
### § 45-03-22-05. Stock hearing.

The commissioner may hold a public hearing to consider an application for approval of a stock
offering. Upon receipt of an application for approval of an offering that includes an initial stock offering,
the commissioner may hold a public hearing at which all interested parties may appear and present
evidence and argument regarding the applicant's planned offering. If a hearing is held, the
commissioner must publish notice of the hearing in at least one newspaper of general circulation in the
state. The applicant must provide its policyholders with notice of the hearing at least twenty, but not
more than sixty, days prior to the hearing by regular mail. The notice must be approved by the
commissioner. Following the hearing, the commissioner may approve, conditionally approve, or deny
the application.
1. The commissioner must approve the offering if the applicant demonstrates clearly that:
a. The offering complies with this chapter and other provisions of law;
b. The method for establishing the price of the offering is consistent with generally accepted
market or industry practices; and

c. The plan and offering will not be unfair or contrary to the financial interests of the
members of the mutual insurance holding company.
2. In determining whether the application and offering will not be unfair to or contrary to the
financial interests of the members of the mutual insurance holding company, the
commissioner may consider the following:
a. Whether the offering will dilute a current member's interest;
b. Whether the application provides a method whereby accumulated earnings, cash, or
other nonoperating assets are distributed to or otherwise inure to the fair and equitable
benefit of the eligible members, members, and new members;
c. Whether the offering will create a class of security holders with interests adverse to those
of the members;
d. Whether the application and offering require a member to pay additional funds to keep a
membership interest;
e. Whether the application and offering create an opportunity for the officers or directors of
the mutual insurance holding company, its subsidiaries, or affiliates to enrich themselves
at the expense of members;
f. Whether the offering will diminish a policyholder's contractual rights; and
g. Such other factors that the commissioner may deem necessary.
This section does not prohibit the filing of a registration statement with the securities and exchange
commission.
History: Effective February 1, 2000.
General Authority: NDCC 28-32-02
Law Implemented: NDCC 26.1-12.1
### § 45-03-22-06. Subsequent offerings.

Notwithstanding the provisions of section 45-03-22-05, stock offerings that are not initial stock
offerings must be approved by the commissioner and must be made in accordance with the following:
1. If an insurance company subsidiary of a mutual insurance holding company, an intermediate
holding company subsidiary of a mutual insurance holding company, or an insurance company
subsidiary of an intermediate holding company subsidiary to a mutual insurance holding
company intends to make a stock offering that would be governed by the provisions of this
section, then that entity must deliver to the commissioner, not less than thirty days prior to the
offering, a notice of the planned offering which includes:
a. The total number of shares to be offered;
b. The intended date of sale;
c. A record of the trading price and volume of the security during the prior fifty-two weeks;
d. Evidence that, after the completion of the offering, the mutual insurance holding company
will retain ownership of a majority of the voting shares of the capital stock of the
reorganized insurer as required by North Dakota Century Code section 26.1-12.1-02; and
e. Such other information the commissioner may deem necessary.

2. Unless otherwise provided, the commissioner's approval of an offering expires one hundred
eighty days after the date of the commissioner's order unless otherwise extended in writing by
the commissioner.
History: Effective February 1, 2000.
General Authority: NDCC 28-32-02
Law Implemented: NDCC 26.1-12.1
### § 45-03-22-07. Prohibited practices.

The following practices are prohibited:
1. Borrowing funds by the mutual insurance holding company or its subsidiaries or affiliates from
the mutual insurance holding company's subsidiary or affiliates to finance the purchase of a
stock offering by the reorganized insurer.
2. Payment of a commission, special fee, or any other special payment or extraordinary
compensation to an officer, director, interested person, or affiliate for arranging, promoting,
aiding, or assisting in the reorganization of the mutual insurance holding company or for
arranging, promoting, aiding, assisting, or participating in the structuring or placement of an
offering of securities except as permitted by the commissioner.
3. Avoiding this chapter by entering into an understanding or agreement transferring a legal or
beneficial ownership of voting securities to another person.
4. The publication of a prospectus, information, sales material, or sales presentation by the
applicant, or by any representative, agent, or affiliate of the applicant, may not contain a
representation that the commissioner's approval of an offering constitutes an endorsement of
the price, price range, fairness, suitability, or any other information or matter relating to the
offered securities or arising from the offering. The front of the prospectus must contain in
boldface type a statement that the commissioner's approval of an offering does not constitute
an endorsement of the price, price range, fairness, suitability, or any other information or
matter.
History: Effective February 1, 2000.
General Authority: NDCC 28-32-02
Law Implemented: NDCC 26.1-12.1
### § 45-03-22-08. Reporting of stock ownership and transactions.

A director or officer of a mutual insurance holding company, its subsidiary, or affiliate who acquires
directly or indirectly the beneficial ownership of any security issued by any member of the mutual
insurance holding company system, within fifteen days following the transaction, shall file with the
commissioner a statement of the transaction on a form prescribed by the commissioner.
History: Effective February 1, 2000.
General Authority: NDCC 28-32-02
Law Implemented: NDCC 26.1-12.1
