# Title 26.1 — Insurance

## Chapter 26.1-12.1 — Mutual Insurance Company Reorganization

### § 26.1-12.1-01. Definitions.

As used in this chapter, unless the context or subject matter otherwise requires:
1. "Commissioner" means the insurance commissioner.
2. "Domestic mutual insurance company" or "mutual insurance company" means a
mutual insurance company incorporated under the laws of this state pursuant to
chapter 26.1-12 or other prior provisions of this title.
3. "Domestic mutual insurance holding company" or "mutual insurance holding company"
means a company formed under section 26.1-12.1-02.
4. "Eligible member" means a policyholder whose policy is in force as of the record date
or member as defined under the bylaws or articles of incorporation of the reorganizing
insurer. Unless otherwise provided in the reorganization plan, a person insured under
a certificate issued under a group policy is not an eligible member.
5. "Foreign mutual insurance company" means a mutual insurance company
incorporated under the laws of another state.
6. "Foreign mutual insurance holding company" means a company formed under
provisions of the laws of another state similar to those contained in this chapter.
7. "Membership interest" means all interests of eligible members of the reorganizing
insurer, including rights to vote and to participate in any distribution of surplus, whether
or not incident to the company's liquidation. It does not include the contractual rights
remaining with the reorganized insurance company.
8. "Plan of reorganization" means a plan to engage or participate in a reorganization
subject to this chapter.
9. "Policy" means a policy or contract of insurance issued by a mutual insurance
company, including an annuity contract.
10. "Record date" means the date the reorganizing insurer's board of directors adopts a
plan of reorganization or some other date specified as the record date in the plan of
reorganization and approved by the commissioner.
11. "Reorganization" means any plan or transaction described in section 26.1-12.1-02,
26.1-12.1-03, 26.1-12.1-15, 26.1-12.1-16, or 26.1-12.1-17, or any change in the
reorganized insurer's articles of incorporation or bylaws which is a material change to
the plan of reorganization filed and approved by the commissioner affecting the ability
of the reorganizing insurer to meet the standards described in section 26.1-12.1-06.
12. "Reorganized insurance company" means a mutual insurance company that has
completed a reorganization to a stock company that is subject to this chapter. A
domestic or foreign mutual insurance company that has completed a reorganization to
a stock company may retain the word "mutual" in its name so long as it is clearly
identified with its name that it is a stock insurance subsidiary of a domestic or foreign
mutual insurance holding company.
13. "Reorganizing insurer" means a mutual insurance company, whether domestic or
foreign, seeking to participate, or participating, in a merger or other reorganization as
defined in this chapter.
### § 26.1-12.1-02. Mutual insurance holding company - Formation.

A domestic mutual insurance company, upon approval of the commissioner, may reorganize
by forming an insurance holding company based upon a mutual plan and continuing the
corporate existence of the reorganizing insurer as a stock insurance company. The
commissioner, if satisfied the reorganization meets the standards set forth in section
26.1-12.1-06, may approve the proposed plan of reorganization or may require as a condition of
approval the modification of the proposed plan of reorganization as the commissioner finds
necessary for the plan to meet the standards of section 26.1-12.1-06. The commissioner shall
retain jurisdiction over the mutual insurance holding company and the reorganized insurer
according to this section and chapter 26.1-10 to assure that policyholders' and members'
interests are protected.

All of the initial shares of the capital stock of the reorganized insurer must be issued to the
mutual insurance holding company or to an intermediate stock holding company that is wholly
owned by the mutual insurance holding company. The membership interests of the
policyholders of the reorganized insurer must be converted into membership interests in the
mutual insurance holding company. Policyholders of the reorganizing insurance company must
become members of the mutual insurance holding company in accordance with the articles of
incorporation and bylaws of the mutual insurance holding company and the articles of
incorporation and bylaws of the reorganized insurance company as approved by the
commissioner. The mutual insurance holding company, directly or indirectly through an
intermediate stock holding company, must control at all times a majority of the voting shares of
the capital stock of the reorganized insurance company but this does not prohibit any future
demutualization or other conversion.
### § 26.1-12.1-03. Mutual insurance holding company - Merger.

A domestic mutual insurance company, upon the approval of the commissioner, may
reorganize by merging its policyholders' member interests into a mutual insurance holding
company formed according to section 26.1-12.1-02 and continuing the corporate existence of
the reorganizing insurer as a stock insurance company subsidiary of the mutual insurance
holding company. The commissioner, if satisfied that the reorganization meets the standards in
section 26.1-12.1-06, may approve the proposed merger or may require as a condition of
approval the modification of the proposed merger as the commissioner finds necessary for the
merger to meet the standards in section 26.1-12.1-06. The commissioner shall retain jurisdiction
over the mutual insurance holding company and the reorganized insurer organized according to
this section to assure that the policyholders' and members' interests are protected.
All of the initial shares of the capital stock of the reorganized insurance company must be
issued to the mutual insurance holding company, or to an intermediate stock holding company
that is wholly owned by the mutual insurance holding company. The membership interests of the
policyholders of the reorganizing insurer must be converted into membership interests in the
mutual insurance holding company. Policyholders of the reorganized insurance company must
become members of the mutual insurance holding company according to the articles of
incorporation and bylaws of the mutual insurance holding company. A merger as contemplated
by this section is not subject to chapter 26.1-07.
### § 26.1-12.1-04. Plan of reorganization - Contents.

No insurer authorized to do business in this state may take part in a reorganization unless
the reorganization has first been approved by the commissioner in accordance with this chapter.
A reorganizing insurer shall file a plan of reorganization consistent with the requirements of this
section, approved by the affirmative vote of a majority of its board of directors, for review and
approval by the commissioner. The plan must include:
1. A description of the nature and content, or a copy, of the annual report and financial
statement to be sent to each eligible member.
2. An analysis of the benefits and risks attendant to the proposed reorganization,
including the rationale for the reorganization and analysis of the comparative benefits
and risks to the reorganizing insurer of the reorganization.
3. Information sufficient to demonstrate the financial condition of the reorganizing insurer
will not be affected adversely upon reorganization.
4. Information demonstrating that the reorganization will:
a. Establish a mutual insurance holding company with at least one stock insurance
company subsidiary, the majority of whose shares must be owned, either directly
or through an intermediate stock holding company, by the mutual insurance
holding company;
b. Ensure immediate membership in the mutual insurance holding company of all
existing eligible members of the reorganizing mutual insurance company;
c. Describe a plan providing for membership interest of future policyholders;
d. Include a copy of the proposed mutual insurance holding company's articles of
incorporation and bylaws specifying all membership rights;

e. Include a copy of the articles of incorporation and bylaws of the reorganizing
insurer, any proposed insurance company subsidiary, or intermediate holding
company subsidiary; and
f. Describe the number of members of the board of directors of the mutual
insurance holding company required to be policyholders.
5. Information demonstrating that upon an insolvency involving a stock insurance
company subsidiary of the mutual insurance holding company that resulted from the
reorganization, the assets of the mutual holding company will be available to satisfy
the policyholder obligations of the stock insurance company.
6. Information describing the mutual insurance holding company's general plans
regarding whether any accumulation or prospective accumulation of earnings by the
mutual insurance holding company which is or would be in excess of that determined
by the board of directors of the mutual insurance holding company to be necessary will
inure to the exclusive benefit of the policyholders of its insurance company
subsidiaries who are members.
### § 26.1-12.1-05. Retention of experts.

The commissioner may retain, at the reorganizing insurer's reasonable expense, any
qualified experts if the commissioner determines that staff not otherwise a part of the
commissioner's staff is necessary to assist in reviewing the plan.
### § 26.1-12.1-06. Hearing by commissioner - General duties.

The commissioner shall conduct a public hearing regarding a proposed reorganization plan
within sixty days after submission of a completed plan of reorganization to the commissioner,
unless the commissioner and reorganizing insurer agree to extend the sixty days or unless the
commissioner and the reorganizing insurer, based upon the facts and circumstances of the
transaction, agree that a hearing may be waived. If a hearing is held, the commissioner shall
give the reorganizing insurer at least twenty days' notice of the hearing. At the hearing, the
reorganizing insurer, its policyholders, and any other person whose interests may be affected by
the proposed reorganization may present evidence, examine and cross-examine witnesses, and
offer oral and written arguments and comments according to the procedure for contested cases
under chapter 28-32. The commissioner, in making the determination as to a plan of
reorganization under this chapter, shall consider whether:
1. The reorganizing insurer's surplus in regard to policyholders following a plan of
reorganization is reasonable in relation to the reorganizing insurer's outstanding
liabilities and adequate to its financial needs;
2. Under a plan of reorganization that materially affects the membership interest of
eligible members in the reorganizing insurer, the eligible members will receive a
membership interest in a mutual holding company commensurate with an equitable
share of the value of the reorganizing insurer;
3. After the reorganization, the reorganized insurance company will be able to satisfy the
requirements for the issuance of a certificate of authority to write the lines of insurance
for which it was licensed before the reorganization; and
4. The plan of the reorganization is fair, reasonable, and equitable to the policyholders of
the reorganizing insurer.
### § 26.1-12.1-07. Action by commissioner.

Within sixty days after the conclusion of the public hearing, or within the sixty days after
filing the plan of reorganization if by mutual agreement the hearing is waived, unless there is a
mutual agreement by the commissioner and the reorganizing insurer to extend such time, the
commissioner shall enter findings of fact, conclusions of law, and an order either approving,
conditionally approving, or disapproving the plan. An approval or conditional approval of a plan
of reorganization expires if the reorganization is not completed within one hundred eighty days
after the approval or conditional approval, unless the time period is extended by the
commissioner upon a showing of good cause.

### § 26.1-12.1-08. Notice to eligible members.

Following approval or conditional approval of the plan by the commissioner, all eligible
members shall be given notice of a regular or special meeting of the policyholders called for the
purpose of considering the plan and any corporate action that is a part of, or is reasonably
attendant to, the accomplishment of the plan. A copy of the plan or a summary of the plan must
accompany the notice. A notice approved by the commissioner must be mailed to each eligible
member's last-known address, as shown on the reorganizing insurer's records, within forty-five
days of the commissioner's approval of the plan, unless the commissioner directs an earlier
date for mailing. The meeting to vote upon a plan of reorganization must be set for a date no
less than forty-five days after the date when the notice of the meeting is mailed by the
reorganizing insurer, unless the commissioner directs an earlier date for the meeting. If the
meeting to vote upon the plan of reorganization is held coincident with the reorganizing insurer's
annual meeting of policyholders or members, only one combined notice of meeting is required.
If the reorganizing insurer complies substantially and in good faith with the notice requirements
of this section, the reorganizing insurer's failure to give any member or members any required
notice does not impair the validity of any action taken under this section.
### § 26.1-12.1-09. Approval by eligible members.

The plan of reorganization must be adopted upon receiving the affirmative vote of a majority
of the votes cast by eligible members. Eligible members may vote in person or by proxy. The
form of any proxy along with a copy or summary of the plan which accompanied the notice to
eligible members must be filed with and approved by the commissioner. The number of votes
each eligible member may cast must be determined by the reorganizing domestic mutual
insurance company's bylaws. If the bylaws are silent, each eligible member may cast one vote.
The plan must be approved as follows:
1. In the case of formation of a mutual insurance holding company under section
26.1-12.1-02, the reorganization plan must be approved by the affirmative vote of a
majority of the votes cast by no less than ten percent of the eligible members of the
reorganizing domestic mutual insurance company; and
2. In the case of a merger under section 26.1-12.1-03, the reorganization plan must be
approved by an affirmative vote of a majority of the votes cast by no less than ten
percent of the eligible members of the reorganizing domestic mutual insurance
company and by an affirmative vote of a majority of the votes cast by no less than ten
percent of the eligible members of the mutual insurance holding company into which
the policyholders' membership interests are to be merged, provided that the vote of the
eligible members of the mutual insurance holding company may not be required if the
commissioner determines that the merger would not be material to the financial
condition of the mutual insurance holding company.
### § 26.1-12.1-10. Applicability of certain provisions.

A mutual insurance holding company is deemed to be an insurer subject to
chapter 26.1-06.1 and is automatically a mandatory party to any proceeding under that chapter
involving an insurance company that, as a result of a reorganization according to
section 26.1-12.1-02 or 26.1-12.1-03, is a subsidiary of the mutual insurance holding company.
In any proceeding under chapter 26.1-06.1 involving the reorganized insurance company, the
assets of the mutual insurance holding company are considered to be the assets of the estate of
the reorganized insurance company for purposes of satisfying the claims of the reorganized
insurance company's policyholders. A mutual insurance holding company may not dissolve or
liquidate without the approval of the commissioner or as ordered by the district court according
to chapter 26.1-06.1. Chapter 26.1-12.2 is not applicable to a reorganization or merger
accomplished under this chapter.
### § 26.1-12.1-11. Membership interest.

A membership interest in a domestic mutual insurance holding company does not constitute
a security as defined in section 10-04-02. No member of a mutual insurance holding company

may transfer or pledge membership in the mutual insurance holding company or any right
arising from the membership except as attendant to the valid transfer or assignment of the
member's policy in any reorganized insurer which gave rise to the member's membership
interest. A member of a mutual insurance holding company is not, as a member, personally
liable for the acts, debts, liabilities, or obligations of the reorganized insurer. No assessment of
any kind may be imposed upon the members of a mutual insurance holding company by the
directors or members, or because of any liability of any company owned or controlled by the
mutual insurance holding company, or because of any act, debt, or liability of the reorganized
company. A member's interest in the mutual insurance holding company automatically
terminates upon cancellation, nonrenewal, expiration, or termination of the member's policy in
any reorganized company which gave rise to the member's membership interest.
### § 26.1-12.1-12. Sale of stock and payment of dividends.

No solicitation for the sale of any of the stock of the reorganized insurer, or of an
intermediate stock holding company of the mutual insurance holding company, may be made
without the commissioner's prior written approval. Dividends and other distributions to the
shareholders or members of the reorganized mutual insurance company or of an intermediate
stock holding company may not be made except in compliance with sections 26.1-10-05 and
26.1-10-05.1.
### § 26.1-12.1-13. Incorporation.

A mutual insurance holding company resulting from the reorganization of a domestic mutual
insurance company must be incorporated under chapter 10-33. The articles of incorporation of
the mutual insurance holding company are subject to approval of the commissioner in the same
manner as those of an insurance company.
### § 26.1-12.1-14. Applicability.

This chapter does not apply to any mutual insurance company that was formerly organized
as a nonprofit health service corporation.
### § 26.1-12.1-15. Foreign mutual insurance holding company - Reorganization.

A domestic mutual insurance company may reorganize with a foreign mutual insurance
holding company that is created or exists under the laws of another state by complying with
chapter 26.1-12.1. The commissioner may waive any provision of chapter 26.1-12.1 if the
commissioner determines the provision to be unnecessary for the protection of eligible
members.
A plan of reorganization under this section must comply with the requirements and
standards of section 26.1-12.1-06 and be approved by the eligible members of the domestic
mutual insurance company as a reorganizing insurer in accordance with subsection 1 of section
### § 26.1-12.1-09. A domestic mutual insurance company seeking to reorganize under this section

may at the same time redomesticate to another state by complying with section 26.1-05-07.3
and the applicable requirements of the state to which it seeks to transfer domicile.
### § 26.1-12.1-16. Existing domestic mutual insurance holding company - Reorganization.

An existing domestic mutual insurance holding company, with the prior approval of the
commissioner pursuant to, and under the provisions of section 26.1-12.1-06, may:
1. Acquire direct or indirect ownership of a foreign mutual insurance company as a
reorganizing insurer in compliance with the laws of its state of domicile; and
2. Grant membership interest and equity rights in the domestic mutual insurance holding
company to eligible members of a foreign mutual insurance company as a
reorganizing insurer that merges with a direct or indirect domestic or foreign subsidiary
of the domestic mutual insurance holding company, or is otherwise acquired by the
domestic mutual insurance holding company.
The commissioner shall consider the fairness of the terms and conditions of the transaction,
whether the interests of the eligible members of the domestic mutual insurance holding

company that is a party to the transaction are protected in accordance with this chapter. A plan
of reorganization under this section must be approved by the eligible members of the domestic
mutual insurance holding company in accordance with subsection 2 of section 26.1-12.1-09.
### § 26.1-12.1-17. Concurrent reorganization - Domestic or foreign.

The concurrent reorganization of a domestic mutual insurance company with one or more
mutual insurance companies, whether domestic or foreign, into a single mutual insurance
holding company structure, whether domestic or foreign, may be accomplished by a joint
application and a joint plan of reorganization and may be approved by complying with the
requirements and standards of section 26.1-12.1-06 by the commissioner following a hearing as
provided for in this chapter. The commissioner may allow such other procedures to avoid
unnecessary or duplicative costs and efforts in satisfying the requirements of this chapter and
effectuating the reorganization.
