# Title 26.1 — Insurance

## Chapter 26.1-05 — Organization and Operation of Domestic Companies

### § 26.1-05-01. General powers and duties of domestic company.

Every insurance company incorporated or formed by authority of any law of this state,
except when otherwise expressly provided, may exercise the powers and is subject to the duties
and liabilities provided by this title. The general law governing profit corporations applies to an
incorporated domestic insurance company so far as the provisions are pertinent and not in
conflict with provisions contained in this title relating to the company.
### § 26.1-05-02. Organization of domestic stock company - Number of persons required -

Authorized lines.
Any number of persons not less than seven may form a corporation on the stock plan to
carry on one or more of the following lines of insurance:
1. Life and annuity means insurance coverage on human lives, including benefits of
endowment, annuities, and credit life.
2. Accident and health means insurance coverage for sickness, disease, injury,
accidental death, and disability.
3. Property means insurance coverage for direct and consequential loss of or damage to
property of every kind.
4. Casualty means insurance coverage against legal liability, including that for death,
injury, or disability or damage to real or personal property.
5. Variable life and annuity means insurance coverage provided under variable life
insurance contracts, variable annuities, or any other life insurance or annuity that
reflects the investment experience of a separate account.
A stock insurance company incorporated under this chapter may carry the lines of insurance
mentioned in this section which have been expressed in its articles of incorporation.
### § 26.1-05-02.1. Authority to define products.

The commissioner may adopt rules that define and set forth the specific insurance products
found under each line of insurance set forth in section 26.1-05-02.
### § 26.1-05-03. Organization of domestic mutual life company - Number of organizers

required.
Repealed by S.L. 1999, ch. 254, § 13.
### § 26.1-05-04. Capital stock and surplus requirements of domestic stock company -

Exceptions.
A stock insurance company may not be incorporated under this chapter unless it has an
authorized capital stock of at least five hundred thousand dollars and a surplus of at least five
hundred thousand dollars. A domestic stock insurance company may not issue any insurance
policy until at least fifty percent of the required capital stock, and all of the required surplus, has
been paid in, the residue of capital stock to be paid in within twelve months from the time of
filing the articles of incorporation. The commissioner, for good cause shown, may extend the
time of payment of the residue for the further period of one year. If the minimum capital stock
and surplus requirements at the time a stock insurance company incorporated under this
chapter were less than the minimum requirements provided by this section, the stock insurance
company shall increase its authorized and paid-in capital stock and surplus to the minimum
requirements under this section according to the following schedule:
1. Capital of two hundred fifty thousand dollars and surplus of two hundred fifty thousand
dollars by December 31, 1994.
2. Capital of three hundred seventy-five thousand dollars and surplus of three hundred
seventy-five thousand dollars by December 31, 1995.
3. Capital of five hundred thousand dollars and surplus of five hundred thousand dollars
by December 31, 1996.

Except as otherwise provided in this section, the total value of paid-in capital stock and surplus
of a stock insurance company organized under the laws of this state may not at any time be
depleted to an amount totaling less than one million dollars.
### § 26.1-05-05. Qualification of directors - Residence requirements of directors and

executive officers.
Repealed by S.L. 1989, ch. 349, § 4.
### § 26.1-05-06. Articles of incorporation - Contents - Filing - Company name.

The articles of incorporation of a corporation organized under this chapter must set forth, in
addition to what is required to be set forth under the general law governing profit corporations:
1. The kind of insurance proposed to be issued.
2. That the company will operate on the stock plan unless it is organized to engage in the
life insurance business, in which case the articles must specify whether the company
will operate on the stock or mutual plan.
3. The period for the commencement and termination of the company's fiscal year.
4. The period of its existence which may be perpetual.
5. The name of the company, which may be any name not previously in use by an
existing corporation authorized to do business in this state, but the words "insurance
company", or, if the business specified in the articles is that of life insurance and the
business is to be conducted upon the mutual plan, the words "mutual life insurance
company" must constitute a part of such name.
The articles must be filed in the office of the secretary of state and a certified copy must be filed
with the commissioner. The commissioner may not issue a certificate to the company if, in the
commissioner's judgment, the company's name too closely resembles the name of an existing
corporation or is liable to mislead the public.
### § 26.1-05-07. Examination of articles by commissioner - Certificate - Filing.

The commissioner shall examine the articles of incorporation and any amendments to
determine if the articles and any amendments are consistent with the constitution and laws of
this state. The commissioner shall examine the company to ascertain whether it has complied
with the requirements of law according to the nature of the business proposed to be transacted
by it. If the commissioner is satisfied by the examination that the corporation has complied with
the law, the commissioner shall deliver to it a certified copy of the articles of incorporation or
amendments to the articles of incorporation and a certificate stating the corporation has
complied with all requirements of law. The certified copy of the articles of incorporation or
amendments to the articles of incorporation and of the certificate may be used for or against the
company with the same effect as the originals and are conclusive evidence of the fact of
organization of the company as of the date of the certificate.
### § 26.1-05-07.1. Approval of the domestic insurer - Premium waiver.

1. An insurer organized under the laws of another state which is admitted to do business
in this state for the purpose of writing insurance may be a domestic insurer by
complying with the requirements of law relative to the organization and licensing of a
domestic insurer of the same type in this state and by designating its principal place of
business at a place in this state. For purposes of this section, a company is deemed to
have designated its principal place of business at a place in this state if the company
locates its home office in this state. If an insurer seeks to become a domestic insurer
but is unable to designate its principal place of business in this state, the insurer may
place on deposit with the Bank of North Dakota, upon the approval of the
commissioner, a sum established by the commissioner, which may not be withdrawn
without the approval of the commissioner. An insurer that complies with this subsection
is entitled to the certificates and licenses to transact the business of a domestic insurer
in this state and is subject to the authority and jurisdiction of this state.

2. After an insurance company has redomesticated to this state and located and
maintained its home office in this state, the insurance company is allowed a credit
against the premium tax imposed and due under section 26.1-03-17 for an amount
equal to the premium tax paid in this state during the first two years as a domestic
company in this state. This credit must be used in the third and fourth years following
the company's redomestication to this state and may not be carried over beyond the
fourth year.
### § 26.1-05-07.2. Effects of redomestication.

In the discretion of the commissioner, the certificate of authority, insurance producer
appointments and licenses, rates, and other items in existence at the time an insurer licensed to
transact the business of insurance in this state transfers its corporate domicile to this state or
another state by merger, consolidation, or any other lawful method, continue in effect upon the
transfer if the insurer remains duly qualified to transact the business of insurance in this state.
An outstanding policy of a transferring insurer remains in effect and does not need to be
endorsed as to the new name of the company or its new location unless so ordered by the
commissioner. A transferring insurer shall file new policy forms with the commissioner on or
before the effective date of the transfer, but may use existing forms with appropriate
endorsements as approved by the commissioner. A transferring insurer shall notify the
commissioner of the details of the proposed transfer and shall file promptly any resulting
amendments to corporate documents filed or required to be filed with the commissioner.
### § 26.1-05-07.3. Conversion to foreign insurer.

A domestic insurer, upon the approval of the commissioner, may transfer its domicile to
another state in which it is admitted to transact the business of insurance. Upon transfer, the
insurer ceases to be a domestic insurer and, if qualified, may be admitted to this state as a
foreign insurer. The commissioner shall approve a proposed transfer unless the commissioner
determines the transfer is not in the interests of the policyholders of the state.
### § 26.1-05-08. Stock subscriptions.

The individuals associated for the purpose of organizing a stock insurance company under
this chapter, after having filed the articles of incorporation as required by section 26.1-05-06,
may open books for subscriptions to the capital stock of the company and keep the books open
until the full amount specified in the articles of incorporation is subscribed.
### § 26.1-05-09. Commissioner authorized to regulate solicitation of proxies.

A person, in contravention of any rules the commissioner may adopt as necessary or
appropriate in the public interest or for the protection of investors, may not solicit or permit the
use of the person's name to solicit any proxy, consent, or authorization in respect of any equity
security of a domestic stock insurance company not listed on a national securities exchange
and registered as such with the federal securities and exchange commission. This section
applies to every domestic stock insurance company having one hundred or more stockholders
of record. However, this section does not apply to any insurance company if ninety-five percent
or more of its stock is owned or controlled by a parent or an affiliated insurance company and
the remaining shares are held by less than five hundred stockholders. A domestic stock
insurance company which files with the federal securities and exchange commission forms of
proxies, consents, and authorizations which comply with the requirements of the Securities and
Exchange Act of 1934, as amended, is exempt from this section.
### § 26.1-05-10. Equity security defined.

"Equity security" as used in sections 26.1-05-11 through 26.1-05-15 means any stock or
similar security; any security convertible, with or without consideration, into such a security, or
carrying any warrant or right to subscribe to or purchase such a security; any such warrant or
right; or any other security which the commissioner deems to be of similar nature and considers

necessary or appropriate to treat as an equity security, by any rules the commissioner adopts in
the public interest or for the protection of investors.
### § 26.1-05-11. Statement of ownership required.

Every person who is directly or indirectly the beneficial owner of more than ten percent of
any class of any equity security of a domestic stock insurance company, or who is a director or
an officer of the company, shall file in the office of the commissioner within ten days after
becoming beneficial owner, director, or officer a statement, in the form the commissioner
prescribes, of the amount of all equity securities of the company of which the person is the
beneficial owner. Within ten days after the close of each month when there has been a change
in ownership during the month, the person shall file in the office of the commissioner a
statement, in the form the commissioner prescribes, indicating the person's ownership at the
close of the month and any changes in the person's ownership which occurred during the
month.
### § 26.1-05-12. Gains to benefit company - Suit to recover.

For the purpose of preventing the unfair use of information which may have been obtained
by a beneficial owner, director, or officer by reason of the relationship to a domestic stock
insurance company, any profit realized by that person from any purchase and sale, or any sale
and purchase, of any equity security of the company within any period of less than six months,
unless the security was acquired in good faith in connection with a debt previously contracted,
inures to and is recoverable by the company, irrespective of any intention on the part of the
beneficial owner, director, or officer in entering into the transaction of holding the security
purchased or of not repurchasing the security sold for a period exceeding six months. Suit to
recover the profit may be instituted at law or in equity in any court of competent jurisdiction by
the company, or by the owner of any security of the company in the name and in behalf of the
company if the company fails or refuses to bring suit within sixty days after request or fails
diligently to prosecute the suit; but no suit may be brought more than two years after the date
the profit was realized. This section does not cover any transaction if the beneficial owner was
not such both at the time of the purchase and sale, or the sale and purchase, of the security
involved, or any transaction or transactions which the commissioner by rule exempts as not
comprehended within the purpose of this section.
### § 26.1-05-13. Conditions of sale.

A beneficial owner, director, or officer, directly or indirectly, may not sell any equity security
of a domestic stock insurance company if the person selling the security or the person's
principal does not own the security sold, or if owning the security, does not deliver it against
such sale within twenty days thereafter, or does not within five days after the sale deposit it in
the mails or other usual channels of transportation. A person does not violate this section if the
person proves that notwithstanding the exercise of good faith the person was unable to make
such delivery or deposit within such time, or that to do so would cause undue inconvenience or
expense.
### § 26.1-05-14. Exceptions.

Sections 26.1-05-11 through 26.1-05-13 do not apply to equity securities of a domestic
stock insurance company if the securities are registered, or are required to be registered,
pursuant to section 12 of the Securities Exchange Act of 1934, as amended, or if the company
does not have any class of its equity securities held of record by one hundred or more persons
on the last business day of the year preceding the year in which equity securities of the
company would be subject to sections 26.1-05-11 through 26.1-05-13 except for this exception.
Sections 26.1-05-11 through 26.1-05-13 do not apply to foreign or domestic arbitrage
transactions unless made in contravention of any rules the commissioner adopts to carry out the
purposes of sections 26.1-05-11 through 26.1-05-15. Section 26.1-05-12 does not apply to any
purchase and sale or sale and purchase, and section 26.1-05-13 does not apply to any sale, of
an equity security of a domestic stock insurance company not held by the dealer in an

investment account, by a dealer in the ordinary course of business and incident to the
establishment or maintenance by the dealer of a primary or secondary market, otherwise than
on an exchange as defined in the Securities Exchange Act of 1934, for the security.
### § 26.1-05-15. Rulemaking authority - Liability.

The commissioner may adopt any rules necessary to administer sections 26.1-05-11
through 26.1-05-14. The commissioner may classify domestic stock insurance companies,
securities, and other persons or matters within the commissioner's jurisdiction and define and
prescribe terms and conditions with respect to securities held in an investment account and
transactions made in the ordinary course of business and incident to the establishment or
maintenance of a primary or secondary market. Sections 26.1-05-11 through 26.1-05-13 do not
impose any liability for any act done or omitted in good faith in conformity with any rule of the
commissioner, notwithstanding that the rule may, after the act or omission, be amended or
rescinded or determined by judicial or other authority to be invalid for any reason.
### § 26.1-05-16. Capital stock reduced - Examination and certificate of commissioner.

When the capital stock of an insurance company is impaired, the company, upon a vote of a
majority of the stock represented at a meeting legally called for that purpose, may reduce its
capital stock, and the number of shares thereof, to an amount not less than the minimum
required by law. No part of its assets and property, however, may be distributed to its
stockholders. Within ten days after the meeting, the company shall submit to the commissioner
a certificate setting forth the proceedings, the amount of the reduction, and the assets and
liabilities of the company, signed and sworn to by its president, secretary, and a majority of its
directors. The commissioner shall examine the facts in the case. If the facts conform to law and
in the commissioner's judgment the proposed reduction may be made without prejudice to the
public, the commissioner shall endorse the commissioner's approval upon the certificate. Upon
the filing of the certificate so endorsed, the company's articles of incorporation are deemed to
be amended to conform to the certificate, the commissioner's certificate must be issued to that
effect, and the company may transact business upon the basis of such reduced capital as
though the same were its original capital. The company, by a majority vote of its directors after
the reduction, may require the return of the original certificates of stock held by each
stockholder in exchange for new certificates in lieu thereof for the number of shares each
stockholder is entitled to in the proportion that the reduced capital bears to the original capital.
### § 26.1-05-17. Transfer of stock pending examination - Liability.

A transfer of the stock of any domestic insurance company made during the pendency of
any examination does not release the party making the transfer from the party's liability for loss
which may have occurred previous to the transfer.
### § 26.1-05-18. Investment of funds must be authorized by directors - Prohibited

investment practices.
An investment or loan, except a policy loan, may not be made by any domestic insurance
company unless the investment or loan first has been authorized by the board of directors of the
company or by an investment committee appointed by the board of directors of the company
charged with the duty of supervising the making of loans or investments by the company. A
domestic insurance company may not:
1. Subscribe to or participate in any underwriting of the purchase or sale of securities or
property.
2. Enter into any transaction for the purchase or sale of any securities or property on
account of the company jointly with any other person, firm, or corporation, except for
authorized real estate joint ventures, partnerships, and limited liability companies.
3. Enter into any agreement to withhold any of its property from sale, but the disposition
of its property at all times is within the control of its board of directors, except for
authorized real estate joint ventures, partnerships, and limited liability companies.

4. Invest any of its funds in, or loan the funds upon, the shares of stock of any
corporation except as otherwise provided in this chapter.
5. Invest any of its funds in, or loan the funds upon, any bonds or obligations, except
government, state, or municipal securities, which are not secured by adequate
collateral security, except as otherwise provided in this chapter.
6. Invest its capital, surplus funds, or other assets in, or loan the same upon, any
property owned by any officer or director of the company, or by any of the immediate
members of the family of any such officer or director, nor in any manner which will
permit any such officer or director to gain through the investment of funds of the
company.
### § 26.1-05-19. Authorized investment of funds of insurance companies.

A domestic insurance company may invest any of its funds and accumulations in:
1. Securities or obligations made specifically eligible for such investment by law.
2. Bonds or other evidences of indebtedness issued, assumed, or guaranteed by the
United States, the District of Columbia, or by any state, territory, or insular possession
of the United States or by any county, city, township, school district, or other civil
division of a state, including loan-backed securities, those payable from special
revenues or earnings specifically pledged for the payment thereof, and those payable
from special assessments, including rights to purchase or sell these securities or
obligations if these rights are traded upon a contract market designated and regulated
by a federal agency and purchased for legitimate hedging, nonspeculative purposes.
3. Bonds or other evidences of indebtedness issued, assumed, or guaranteed by any
instrumentality or agency of the United States, including rights to purchase or sell
these securities or obligations if these rights are traded upon a contract market
designated and regulated by a federal agency and purchased for legitimate hedging,
nonspeculative purposes.
4. Notes or bonds secured by mortgage or deed of trust insured by the federal housing
administrator, debentures issued by the federal housing administrator, and securities
issued by national mortgage associations.
5. Bonds guaranteed under former chapter 6-09.2.
6. Bonds issued by the public finance authority pursuant to chapter 6-09.4.
7. Bonds issued by the state board of higher education under chapter 15-55.
8. Revenue bonds issued by the state water commission.
9. Interim financing notes issued by the state water commission pursuant to chapter
61-02.
10. Warrants issued by a city under chapter 40-24.
11. Bonds or notes issued pursuant to chapter 40-33.2.
12. Bonds or other obligations issued pursuant to chapter 40-58.
13. Bonds issued under chapter 40-61.
14. Bonds issued under chapter 54-30.
15. Notes or other evidences of indebtedness of the North Dakota life and health
insurance guaranty association not in default.
16. Notes or other interest-bearing obligations of any state development corporation of
which the company is a member, issued in accordance with chapter 10-30.
17. Bonds or other evidences of indebtedness issued, assumed, or guaranteed by Canada
or any province thereof, or by any municipality or district therein, provided that the
obligations are valid and legally authorized and issued.
18. Mortgage bonds and debentures of any solvent railway company duly incorporated
and authorized under the laws of this state or of any other state or insular possession
of the United States or of Canada or of any province thereof.
19. Obligations, including bonds or evidences of indebtedness, or participation in those
bonds or evidences of indebtedness, or loan-backed securities, which are issued,
assumed, guaranteed, or insured by any solvent legal entity duly incorporated and
authorized under the laws of the United States or of any state or insular possession
thereof, or of Canada or of any province thereof, including rights to purchase or sell

these securities or obligations if these rights are traded upon a contract market
designated and regulated by a federal agency and purchased for legitimate hedging,
nonspeculative purposes.
20. Preferred stock, of, or common or preferred stock guaranteed as to dividends by, and
common stock of, any corporation organized under the laws of the United States, any
state or possession of the United States, Canada or any province of Canada, including
rights to purchase or sell these securities or obligations if these rights are traded upon
a contract market designated and regulated by a federal agency and purchased for
legitimate hedging, nonspeculative purposes, subject to the following restrictions and
limitations:
a. Investments in preferred, guaranteed, and common stocks issued or guaranteed
by a single person may not exceed three percent of the insurance company's
admitted assets.
b. Investments in preferred, guaranteed, and common stocks may not exceed in the
aggregate the greater of twenty-five percent of admitted assets or one hundred
percent of the capital and surplus of a nonlife insurance company.
c. Investments in preferred, guaranteed, and common stocks may not exceed in the
aggregate twenty percent of the life insurance company's admitted assets.
For purposes of this section, preferred stock includes mandatory sinking fund
preferred stock. Common stock includes shares of mutual funds, master limited
partnerships trading as common stock, and American deposit receipts that are traded
on a nationally recognized securities exchange or on the national association of
securities dealers automated quotations system.
21. Savings accounts, under certificates of deposit or in any other form, in solvent banks
and trust companies which have qualified for federal deposit insurance corporation
protection, shares and savings accounts, under certificates of deposit, investment
certificates, or in any other form, in solvent savings and loan associations organized
under federal law or state law of any state which have qualified for federal savings and
loan insurance corporation protection, and shares and deposit accounts, under
certificates of deposit or in any other form, in solvent state or federally chartered credit
unions which are insured by the national credit union administration. Investments in
the shares and accounts are not limited to, or by, the amount of any such insurance
protection. Short-term or liquidity investments such as certificates of deposit,
repurchase agreements, bankers' acceptances, commercial paper, money market
mutual funds, or current interest accounts in solvent banks and trust companies,
savings and loan associations, state or federally chartered credit unions, investment
brokerage houses which are regulated by a federal agency, and such other types of
investments as may be deemed appropriate and authorized by rule by the
commissioner.
22. Loans made upon the security of its own policies, if a life insurance company, but no
loan on any policy may exceed the reserve value thereof.
23. Notes secured by mortgages on unencumbered real estate, including construction
loans and leaseholds substantially having and furnishing the rights and protection of a
first real estate mortgage, within the United States or any province of Canada. An
investment in a construction loan covering any single parcel of real estate may not
exceed one quarter of one percent of the admitted assets of the company. Investments
in construction loans in the aggregate may not exceed two percent of the admitted
assets of the company. No loan may be made under this subsection unless at the date
of acquisition the total indebtedness secured by such lien does not exceed eighty
percent of the value of the property upon which it is a lien, provided that the loan
requires immediate scheduled payment in periodic installments of principal and
interest and periodic payments are made no less frequently than annually. A loan that
does not meet these requirements may not exceed seventy-five percent of the value of
the property. A loan may be made in an amount exceeding these percentage
limitations if the value of the property mortgaged in excess of the limitation is
guaranteed or insured by the federal housing administration or guaranteed by the

administrator of veterans' affairs or is insured by private mortgage insurance through
an insurance company authorized to do business in this state. Loans may be
amortized on the basis of a final maturity not exceeding thirty years from the date of
the loan with an actual maturity date of the loan at any time less than thirty years. A
loan on a single-family dwelling, when the loan is amortized on the basis of a final
maturity twenty-five years or less from the date of the loan, may be made in an amount
not exceeding eighty percent of the value of the property mortgaged. The loan on a
single-family dwelling may be made in an amount exceeding eighty percent so long as
any amount over eighty percent of the value of the property mortgaged is insured by
private mortgage insurance through an insurance company authorized to do business
in this state. Buildings may not be included in the valuation of such property unless
they are insured and the policies are made payable to the company as its interest may
appear. A loan may not be made in excess of the amount of insurance carried on the
buildings plus the value of the land. No insurance company may hold less than the
entire loan represented by the bonds or notes described in this subsection except that
a company may own part of an aggregate obligation if all other participants in the
investment are insurance companies authorized to do business in North Dakota or
banks whose depositors are insured by the federal deposit insurance corporation or
savings and loan associations whose members are insured by the federal savings and
loan insurance corporation or unless the security of the bonds or notes, as well as all
collateral papers, including insurance policies, executed in connection therewith, are
made to and held by a trustee which is a solvent bank or trust company having a
paid-in capital of not less than two hundred fifty thousand dollars, except in case of
banks or trust companies incorporated under the laws of the state of North Dakota,
wherein a paid-in capital of not less than one hundred thousand dollars is required. In
case of proper notification of default, the trustee, upon request of at least twenty-five
percent of the holders of the bonds outstanding, and proper indemnification, shall
proceed to protect the rights of the bondholders under the provisions of the trust
indentures. An insurance company may acquire such an interest in real estate directly
or as a joint venture, limited liability company, or through a limited or general
partnership in which the insurance company is a partner. An insurance company
acquiring such an interest in real estate on the basis of a joint venture, limited liability
company, or through a limited or general partnership may acquire such an interest so
long as the company's interest does not exceed seventy-five percent of the value of
the property.
24. First mortgage bonds on improved city real estate in any state, issued by a corporation
duly incorporated under the laws of any state of the United States, if the loans on the
real estate are made in accordance with the requirements as to first mortgage loans in
subsection 23.
25. Real estate for the production of income or for improvement or development for the
production of income subject to the following provisions and limitations:
a. Real estate used primarily for farming or agriculture may not be acquired under
this subsection.
b. Investments made by any company under this subsection may not at any time
exceed ten percent of the admitted assets of the company.
c. An investment in any single parcel of real estate acquired under this subsection
may not exceed two percent of the admitted assets of the company.
d. The real estate, including the cost of improvements, must be valued at cost and
the improvements may be depreciated annually at an average rate of not less
than two percent of the original cost.
e. An insurance company may acquire such real estate or an interest in such real
estate directly or as a joint venture, limited liability company, or through a limited
or general partnership in which the insurance company is a partner.
26. Land and buildings used as home or regional offices, subject to the following
provisions and limitations:

a. Land and buildings thereon owned by the company in which the square footage
of the property is more than fifty percent occupied by the company and its
affiliates.
b. Investments or total commitment in the land and buildings may not aggregate
more than ten percent of the company's admitted assets without the consent of
the commissioner.
c. The real estate, including the cost of improvements, must be valued at cost and
the improvements must be depreciated annually at an average rate of not less
than two percent of the original cost.
27. Investments by loans or otherwise, in the purchase of electric or mechanical
machines, including software, constituting a data processing system. The company
may hold the system as an admitted asset for use in connection with the business of
the company if its aggregate cost does not exceed three percent of the company's
capital and surplus and the cost of the components constituting the system is fully
amortized over a period of not to exceed five years. If a data processing system
consists of separate components acquired at different times, then the cost of each
component must be amortized over a period not to exceed five years commencing
with the date of acquisition of each component.
28. Promissory notes amply secured by the pledge of bonds or other evidences of
indebtedness in which the company is authorized to invest its funds by the provisions
of this section.
29. Ownership of, or loans secured by first liens upon:
a. Production payments or interests therein payable from oil, gas, other
hydrocarbons, or other minerals in producing properties located in areas of
established and continuing production within the United States or the adjacent
continental shelf areas, which production payments are dischargeable from
property interests appraised by independent petroleum engineers at the time of
the acquisition or loan, based on current market prices, to have a current market
value of at least one hundred fifty percent of the purchase price of, or the amount
loaned upon the security of, such production payments. The term "production
payments" means rights to oil, gas, other hydrocarbons, or other minerals in
place or as produced which entitle the owner thereof to a specified fraction or
percentage of production or the proceeds thereof, until a specified or
determinable sum of money has been received, and which have investment
qualities and characteristics in which the speculative elements are not
predominant.
b. Royalty interests, overriding royalty interests, net profit interests, leasehold
interests, working interests, or other interests or rights in oil, gas, other
hydrocarbons, or other minerals in place or as produced, which interests or rights
may be subject to production payments of the nature described in subdivision a.
No domestic insurance company may invest more than five percent of its admitted
assets in the ownership of such interests or rights. In determining the amount invested
in such interests or rights at any given time, each insurance company may evaluate
such interests or rights in such manner as will permit it to amortize the interests or
rights over a period of time during which not more than seventy-five percent of the
dollar value of the recoverable production accruing to such interests or rights will be
produced, as determined by independent petroleum engineers at the time of
investment.
30. Obligations secured by a pledge of personal property, as follows:
a. Tangible personal property, or equipment trust certificates or other instruments
evidencing an interest in or debt secured by tangible personal property, if there is
a right to receive determined portions of rental, purchase, or other fixed obligatory
payments for the use or purchase of such tangible personal property.
b. Bonds, notes, or other evidences of indebtedness secured wholly or partially by
tangible personal property, provided that at the date of acquisition the amount of

such indebtedness does not exceed sixty-six and two-thirds percent of the value
of such tangible personal property.
The aggregate outstanding investment made under subdivisions a and b may not
exceed five percent of the admitted assets of the life insurance company.
31. Loans, securities, or investments issued by a small business investment company
created by the Myron G. Nelson Fund, Incorporated, and licensed by the small
business administration under the Small Business Investment Company Act of 1958
[Pub. L. 85-699; 72 Stat. 689; 15 U.S.C. 661 et seq.] or the Small Business Equity
Enhancement Act of 1992 [Pub. L. 102-366; 106 Stat. 1007-1020; 15 U.S.C. 661
et seq.].
32. Loans, securities, or investments in addition to those permitted in this section, whether
or not the loans, securities, or investments qualify or are permitted as legal
investments under its charter or under other provisions of this section or under other
provisions of the laws of this state. The aggregate admitted value of the company's
investments under this section may not at any one time exceed either seven percent of
the company's admitted assets, or the amount equal to the company's capital and
surplus in excess of the minimum capital and surplus required by law, whichever is
less.
33. Loans, securities, or investments in a North Dakota low-risk incentive fund organized
under chapter 26.1-50. The aggregate admitted value of the company's investment
under this subsection may not at any time exceed the lesser of five percent of the
company's admitted assets or the amount equal to the company's capital and surplus
in excess of the minimum capital and surplus required by law. A company making an
investment under this subsection may value at par any investment purchased at par.
34. Foreign investments of substantially the same types as those permitted under
subsections 19 and 20.
a. Under this subsection, a foreign investment is subject to the following restrictions
and limitations:
(1) Foreign investments issued, assumed, guaranteed, or insured by a single
person may not exceed three percent of the insurance company's admitted
assets.
(2) Foreign investments in a single foreign jurisdiction may not exceed in the
aggregate ten percent of the insurance company's admitted assets as to a
foreign jurisdiction that has a sovereign debt rating of one as determined by
the securities valuation office of the national association of insurance
commissioners or three percent of the insurance company's admitted assets
as to any other foreign jurisdiction.
(3) Foreign investments may not exceed in the aggregate twenty percent of the
insurance company's admitted assets.
b. Investments acquired under this subsection must be aggregated with investments
of the same type made under subsection 20 for purposes of determining
compliance with the limitations contained in that subsection.
c. For purposes of this subsection, a foreign investment means an investment in a
foreign jurisdiction or an investment in a legal entity domiciled in a foreign
jurisdiction. A foreign jurisdiction is any jurisdiction other than the United States,
any state or possession of the United States, Canada, or any province of
Canada.
The commissioner may adopt rules as to investments which are permissible for any
domestic insurance company which may waive or increase any limitation on investments or
authorize companies to invest their funds in investments which are not specifically mentioned in
statutes relating to investments if the commissioner finds, after notice and hearing, that such
funds would be well invested and available for the payment of losses. The commissioner, in
adopting such rules, may not be any more restrictive, or place any greater limitations on, any
type of investment in which companies are authorized by statute to invest their funds.
This section does not prohibit a company from taking any action deemed necessary or
expedient for the protection of investments made by it or from accepting in good faith, to protect

its interests, securities, or property not mentioned in this section in payment or to secure debts
due to it.
### § 26.1-05-19.1. Call options - Financial futures contracts.

The purchase and sale of put options or call options or financial futures contracts are
subject to this section.
1. As used in this section:
a. "Call option" means an exchange-traded option contract under which the holder
has the right to buy, or to make a cash settlement in lieu of buying, a fixed
number of shares of stock, a fixed amount of an underlying security, or an index
of underlying securities at a stated price on or before a fixed expiration date.
b. "Commodity futures trading commission" means the trading regulatory agency
charged and empowered under the Commodity Futures Trading Commission Act
of 1974, as amended, with the regulation of futures trading in commodities.
c. "Financial futures contract" means an exchange-traded agreement to make or
take delivery of, or to make cash settlement in lieu of delivery of, a fixed amount
of an underlying security, or an index of underlying securities, on a specified date
or during a specified period of time, or a call or put option on such an agreement,
made through a registered futures commission merchant on a board of trade that
has been designated by the commodity futures trading commission as a contract
market. "Financial futures contract" includes a contract involving United States
treasury bills, bonds, or notes; securities or pools of securities issued by the
government national mortgage association; bank certificates of deposit; Standard
and Poor's 500 stock price index; New York stock exchange composite index; or
any other agreement that has been approved by and which is governed by the
rules and regulations of the commodity futures trading commission and the
respective contract markets on which such financial futures contracts are traded.
d. "Margin" means any type of deposit or settlement made or required to be made
with a futures commission merchant, clearinghouse, or safekeeping agent to
ensure performance of the terms of the financial futures contract. For the
purposes of this section, "margin" includes initial, maintenance, and variation
margins as those terms are commonly and customarily employed in the futures
industry.
e. "Put option" means an exchange-traded option contract under which the holder
has the right to sell, or to make a cash settlement in lieu of sale of, a fixed
number of shares of stock, fixed amount of an underlying security, or an index of
underlying securities at a stated price on or before a fixed expiration date.
f. "Securities and exchange commission" means the federal regulatory agency
charged and empowered under the Securities Exchange Act of 1934, as
amended, with the regulation of trading in securities.
g. "Underlying security" means the security subject to being purchased or sold upon
exercise of a call option or put option, or the security subject to delivery under a
financial futures contract.
2. The purchase and sale of put options or call options may take place under the
following conditions:
a. An insurance company may purchase put options or sell call options with regard
to underlying securities owned by the insurance company, underlying securities
that the insurance company may reasonably expect to obtain through exercise of
warrants or conversion rights owned by the insurance company at the time the
put option is purchased or the call option is sold, or to reduce the economic risk
associated with an insurance company asset or liability, group of such assets or
liabilities, or assets, liabilities or groups of assets or liabilities reasonably
expected to be acquired or incurred by the insurance company in the normal
course of business. Such assets or liabilities must be subject to an economic risk,
such as changing interest rates or prices.

b. An insurance company may sell put options or purchase call options to reduce
the economic risk associated with an insurance company asset or liability group
of such assets or liabilities, or assets, liabilities or groups of assets or liabilities
reasonably expected to be acquired or incurred by the insurance company in the
normal course of business, or to offset obligations and rights of the insurance
company under other options held by the insurance company pertaining to the
same underlying securities or index of underlying securities.
c. An insurance company may purchase or sell put options or call options only on
underlying securities, or an index of underlying securities, which are eligible for
investment by a life insurance company under the laws of this state.
d. An insurance company may purchase or sell put or call options only through an
exchange that is registered with the securities and exchange commission as a
national securities exchange pursuant to the provisions of the Securities
Exchange Act of 1934, as amended.
e. An insurance company may not purchase call options or sell put options, if the
purchase or sale could result in the acquisition of an amount of underlying
securities which, when aggregated with current holdings, exceeds applicable
limitations imposed under the laws of this state for investment in those particular
underlying securities.
f. The net amount of premiums paid for all option contracts purchased minus the
premiums received for all option contracts sold, plus the net amount of financial
futures contracts purchased minus financial futures contracts sold, may not at any
time exceed in the aggregate five percent of the insurance company's admitted
assets.
3. The purchase and sale of financial futures contracts may take place under the
following conditions:
a. An insurance company may purchase or sell financial futures contracts for the
purpose of hedging against the economic risk associated with an insurance
company asset or liability, group of such assets or liabilities, or assets, liabilities
or groups of assets or liabilities reasonably expected to be acquired or incurred
by the insurance company in its normal course of business. Such assets or
liabilities must be subject to an economic risk, such as changing interest rates or
prices.
b. An insurance company may not purchase or sell financial futures contracts or
options on such contracts, if the purchase or sale could result in the acquisition of
an amount of underlying securities which, when aggregated with current holdings,
exceeds applicable limitations imposed under laws of this state for investment in
those particular underlying securities.
c. The net amount of financial futures contracts purchased minus financial futures
contracts sold, plus the net amount of premiums paid for all option contracts
purchased minus the premiums received for all option contracts sold, may not at
any time exceed in the aggregate five percent of the insurance company's
admitted assets. For the purposes of transactions in financial futures contracts,
the admitted assets limitation is calculated by taking the net asset value of the
property used to margin the financial futures contract positions, plus option
premiums paid on financial futures contracts, less option premiums received on
financial futures contracts.
4. This section may not be utilized by a domestic insurance company without the prior
approval of the commissioner.
### § 26.1-05-20. Limitation on purchase and conveyance of real property.

A domestic insurance company may acquire, hold, and convey only the real property that
has been:
1. Mortgaged to it in good faith by way of security for loans previously contracted or for
moneys due to it.

2. Conveyed to it in satisfaction of debts previously contracted in the course of its
dealings.
3. Purchased at sales on judgments, decrees, or mortgages obtained or made for debts
previously contracted in the course of its dealings.
4. Acquired as an investment for the production of income or has been acquired to be
improved or developed for an investment for the production of income as provided by
law.
Any company may improve real property so acquired or remodel existing improvements and
exchange the real property for other real property or securities, and real property acquired by
the exchange may be improved or the improvements remodeled.
### § 26.1-05-21. Real property acquired by domestic company - When sale required.

All property acquired by a domestic insurance company in any manner specified in
subsections 1, 2, and 3 of section 26.1-05-20 which is not necessary for the accommodation of
the company or for the convenient transaction of its business must be sold and disposed of
within two years after the company has acquired title, and as to any property so acquired which
was necessary for the accommodation of the company or for the convenient transaction of its
business, within two years after the property has ceased to be necessary for the
accommodation of business. A company may not hold any of such property for a period longer
than is specified in this section unless it procures a certificate from the commissioner stating
that the company's interests will suffer materially by the forced sale of the property. If the
certificate is obtained, the time for the sale may be extended to the time the commissioner
directs in the certificate. A company may select real property acquired under subsections 1, 2,
and 3 of section 26.1-05-20 other than real property used primarily for farming and agriculture,
and hold the property as an investment for income, not exceeding the total amount permitted by
law for such purpose, and the property is not subject to the limitations of this section.
### § 26.1-05-22. Liabilities of officers and directors of domestic company.

Any officer or director of a domestic insurance company who makes or authorizes an
investment or loan in violation of section 26.1-05-19 or 26.1-05-20 is liable personally to the
stockholders of a stock insurance company, or to the policyholders of a mutual insurance
company, for any loss occasioned thereby. If a company is under liability for losses equal to its
net assets and the president or directors, knowing of the liability, make or assent to further
insurance, they are liable personally for any loss under the insurance. If the directors allow to be
insured on a single risk a larger sum than that permitted under section 26.1-03-01, they are
liable for any loss thereon above the amount the company might insure lawfully, unless the
excess is reinsured as required by that section.
### § 26.1-05-23. Domestic life insurance company to deposit securities with

commissioner.
A domestic life insurance company must physically deposit with the commissioner, on the
date on which the company files its annual statement, securities of a value equivalent to the net
value of all policies the company has in force. The securities must be of a kind specified in
section 26.1-05-19. The company, in lieu of the physical deposit, may file, and the commissioner
shall accept, a detailed, verified statement setting forth with sufficient particularity a list of the
items of security held by the company in an amount equivalent to the net value of all policies in
force. The securities specified in the list, although retained by the company, must be kept
separate and distinct from the other securities of the company and must be held as a deposit for
the policyholders of the company under this section. This section does not prevent or prohibit a
domestic life insurance company from depositing with the commissioner securities in an amount
to exceed the cash value of its policies.

### § 26.1-05-24. Commissioner may examine books and securities of domestic life

insurance company.
The commissioner may examine the books, papers, securities, and business of any
domestic life insurance company at any time, or may authorize any other suitable person to
make the examination. The commissioner, or person authorized to make an examination, may
examine under oath any officer or agent of the company, or any other person, relative to the
business and management of the company. If upon the examination the commissioner is of the
opinion that the company is insolvent or that its condition is such as to render a further
continuance of its business hazardous, the commissioner may require the company to deposit
in the commissioner's office all securities specified in any list filed pursuant to section
### § 26.1-05-25. Securities may be exchanged - Withdrawal of securities.

A domestic life insurance company, at any time, may change the securities on physical
deposit or designated on the statement of securities held by the company in lieu of a deposit by
substituting a like amount of the character required in the first instance. If the annual valuation of
the policies in force shows them to be less than the amount of the security deposited, the
company may withdraw the excess, but at least twenty-five thousand dollars worth of securities
must remain on deposit at all times.
### § 26.1-05-26. Dividends on securities property of company.

A domestic life insurance company having bonds or other securities on deposit with the
commissioner may collect the dividends or interest thereon upon delivering to its authorized
agent the coupons or other evidence of interest as the same becomes due. If any company,
however, fails to deposit additional securities when and as called for by the commissioner, or
pending any proceedings to close up or enjoin the operations of the company, the commissioner
shall collect the dividends or interest and add the same to the securities on deposit.
### § 26.1-05-27. Certificate of compliance with security deposit law - Issuance - Renewal -

Attachment to policies.
The commissioner shall issue a certificate to a domestic life insurance company to the effect
that the company does business under the compulsory reserve deposit law of North Dakota and
maintains in the office of the commissioner a deposit of an amount in excess of the net value of
all outstanding policies in stipulated and first-class securities deposited for the protection of the
policyholders of the company when the company has:
1. Filed its annual statement; and
2. Deposited securities with the commissioner or filed a detailed list of securities held by
the company in lieu of the deposit with the commissioner, the deposit and list to be
renewed annually on or before March first.
The certificate expires on March thirty-first of the ensuing year and may be renewed annually
upon the filing of a statement of renewal along with any additional physical deposit or additions
to the statement of securities held by the company in lieu of a deposit and upon compliance with
the other provisions of this section. A copy of the certificate may be attached to any insurance
policy issued by any domestic life insurance company after the certificate has been issued to it.
### § 26.1-05-28. Securities vest in policyholders on default of domestic life insurance

company.
The securities of a defaulting or insolvent domestic life insurance company, or of a company
against which proceedings for dissolution are pending, which are on deposit with the
commissioner, vest in the state for the benefit of the policies on account of which the deposit
was made, and the proceeds, by order of the court upon final hearing, must be divided among
the policyholders proportionately to the last annual valuation of the policies, or, at any time, must
be applied to the purchase of reinsurance for their benefit.

### § 26.1-05-29. Nonapplicability of reserve deposit provisions to fraternal benefit

societies.
Sections 26.1-05-23 through 26.1-05-28 do not apply to fraternal benefit societies.
### § 26.1-05-30. Disbursements by domestic life insurance company to be made on

voucher - Requirements.
No domestic life insurance company may make any disbursement of one hundred dollars or
more unless evidenced by a voucher signed by or on behalf of the person receiving the money
and correctly describing the consideration for the payment. If the expenditure is for both
services and disbursements, the voucher must set forth the services rendered and an itemized
statement of the disbursements made. If the expenditure is in connection with any matter
pending before any legislative or public body or before any department or officer of any state or
government, the voucher, in addition, must describe correctly the nature of the matter and of the
interest of the company therein. When a voucher cannot be obtained, the expenditure must be
evidenced by an affidavit describing the character and object of the expenditure and stating the
reason for not obtaining the voucher.
### § 26.1-05-31. Salaries and expenses of officers and agents of domestic life insurance

company - Restrictions.
A domestic life insurance company may not:
1. Pay any salary, compensation, or emolument to any senior officer, trustee, or director
thereof, amounting in any one year to more than one hundred thousand dollars, unless
the payment thereof first is authorized by the board of directors of the company.
2. Grant any pension to any officer, director, or trustee thereof, or to any member of the
officer's, director's, or trustee's family after death, except that it may provide a pension
in pursuance of the terms of a retirement plan adopted by the board of directors and
approved by the commissioner for any person who is or has been a salaried officer or
employee of the corporation and who may retire by reason of age or disability.
### § 26.1-05-32. Impairment of capital or surplus of domestic life insurance company -

Determination of deficiency - Notice not to issue policies.
If a domestic stock life insurance company's minimum basic paid-in capital or surplus
required by section 26.1-05-04 or the minimum basic surplus of a domestic mutual insurance
company required by section 26.1-12-10 becomes impaired, the commissioner shall prohibit the
company and its agents from issuing new policies until the deficiency is cured. The
commissioner shall determine the amount of the deficiency, notify the company of the deficiency
and require the company to cure the deficiency, and require the company to file proof thereof
with the commissioner within a period specified in the notice. The period may not be less than
thirty days nor more than ninety days from the date of issuance of the notice.
### § 26.1-05-33. Dividends to be paid by domestic fire insurance company from surplus

profits only - Compensation.
A domestic fire insurance company may not declare any dividend except from the surplus
profits arising from its business. In estimating the surplus profits, there must be reserved as
unearned premiums a sum equal to forty percent of the amount of premiums on all unexpired
risks and policies, and there also must be reserved all sums due the company on bonds,
mortgages, stocks, and book accounts upon which no part of the principal or accrued interest
has been paid during the year preceding the estimate of the profits and upon which suit for
foreclosure or collection has been commenced, or a judgment upon which has remained
unsatisfied for more than one year.
### § 26.1-05-34. Reciprocal states - Restrictions on domestic companies - Exceptions.

As used in this section, "reciprocal state" means a state the laws of which prohibit an
insurance company domiciled therein from insuring the lives or persons of residents of, or
property or operations located in, the state of North Dakota unless it holds a valid and subsisting

certificate of authority issued by the insurance commissioner of this state. The prohibition may
be subject to the exceptions to this section.
A domestic insurance company may not enter into an insurance contract upon the life or
person of a resident of, or property or operations located in, a reciprocal state unless it is
authorized pursuant to the laws of that state to transact such insurance therein. The
commissioner shall annually mail notice to every domestic insurance company, specifying the
reciprocal states.
The exceptions to this section are:
1. Contracts entered into when the prospective insurant is personally present in the state
in which the insurance company is authorized to transact insurance when the insurant
signs the application.
2. The issuance of certificates under a lawfully transacted group life or group disability
policy, when the master policy was entered into a state in which the insurance
company was then authorized to transact insurance.
3. The removal or continuance in force, with or without modification, of contracts
otherwise lawful and which were not originally executed in violation of this section.
### § 26.1-05-35. Participation in clearing corporations and book entry systems -

Rulemaking authority.
A domestic insurance company may participate, subject to a written agreement with a
custodian and subject to rules adopted by the commissioner regarding such participation, in
clearing corporations and the federal reserve book entry system.
