Opinion ID: 2018775
Heading Depth: 1
Heading Rank: 3

Heading: Sandia Stock

Text: Sierra listed as an asset on its 1975 annual statement 200,000 shares of common stock in its wholly owned subsidiary, Sandia Life Insurance Company, at a market value of $703,619. [3] The commissioner examined the financial condition of Sandia in order to determine whether or not Sierra's common stock in Sandia was a secure and well invested asset which should be admitted in determining the financial soundness of Sierra. Upon examining Sandia's assets the commissioner concluded that Sandia had over-valued certain bond assets by $88,000 and that Sandia held a mortgage loan in the amount of $535,000 secured by unimproved real estate which was an impermissible asset. Consequently, the commissioner nonadmitted the $88,000 of the bond value and also nonadmitted the entire $535,000 mortgage loan asset. Upon nonadmitting these assets the commissioner concluded that Sandia's capital was substantially impaired. As a result of the foregoing determinations the commissioner concluded that Sierra's common stock in Sandia was neither secure nor well invested, and the commissioner nonadmitted the entire $589,895 common stock value. We uphold the commissioner's determination to nonadmit the Sandia stock. Sierra asserts on appeal that the commissioner must accept the book value and net worth of Sandia as determined by the State of New Mexico (Sandia's state of incorporation) and that the commissioner has no authority to make his own examination of Sandia's assets to determine the value and the admissibility of Sierra's common stock in Sandia. We disagree. The commissioner chose to examine the Sandia common stock asset held by Sierra. As part of this process the commissioner examined the asset holdings of Sandia using our insurance statutes as a guideline for determining permissible asset holdings and valuations for Sandia's assets. We agree with Sierra's contention that our commissioner cannot regulate the investments or any other aspect of Sandia because Sandia transacts no business nor does it carry on any other activity in North Dakota. We conclude, however, that our commissioner does have the authority to analyze the financial condition of Sandia for the sole purpose of determining the status of Sierra's common stock asset in Sandia. Section 26-07-04, N.D.C.C., requires that bonds held by an insurance company shall not be valued at a higher figure than their actual market value at the time of purchase. There is a preponderance of evidence to support the commissioner's finding of fact that the Sandia bonds were valued $88,000 in excess of their market value. Using Section 26-07-04, N.D.C.C., as a guideline the commissioner properly concluded that Sandia's bonds were overvalued by $88,000. Sandia's mortgage loan, referred to by the parties as the Cal Anglin mortgage, is a promissory note, dated April 10, 1975, made by Floyd Cal Anglin and Grace Anglin payable to Sierra, in the amount of $550,000 and secured by real estate located in Riverside County, California. This asset was transferred from Sierra to Sandia on December 31, 1975 as part of their bulk reinsurance treaty agreement. Prior to this transfer the state of Idaho had made a determination that the property securing the note was unimproved and that this asset should be nonadmitted. Subsequent to the transfer, our commissioner, upon examining the Cal Anglin mortgage as an asset of Sandia, made a finding that the property securing the note was unimproved. Subsection 3 of Section 26-08-11, N.D.C.C., authorizes domestic insurance companies to invest in [n]otes secured by mortgages on improved unencumbered real estate . . (emphasis added). Using this statute as a guideline for determining the permissibility of Sandia's assets the commissioner nonadmitted the Cal Anglin mortgage. Two items were introduced which provide evidence of the unimproved condition of the real estate securing the Cal Anglin mortgage. In a 1974 report of Sierra prepared by the states of Idaho and Utah the following statement is made with respect to the property securing the Cal Anglin mortgage: This unimproved real property represented by raw land, not having permanent improvements thereon, is located in Riverside County, California. In the September 24, 1975 Findings of Fact, Conclusions of Law, Decision and Order of the presiding officer for the Idaho Director of Insurance the following relevant statements were made regarding the real estate securing the Cal Anglin mortgage: The site is presently zoned agricultural with a classification that will allow residential structures on a minimum of five acre tracts . . . There are no improvements suitable for residence, institutional, commercial or industrial use situated on this property, nor are there improvements on the property under construction or in the process of construction suitable for residential, institutional, commercial or industrial use . . . No evidence was offered, contrary to the foregoing evidence, that this real estate was improved property. We conclude that there is a preponderance of evidence to support the commissioner's finding that the real estate securing the Cal Anglin mortgage was unimproved. We further conclude that the commissioner's findings support his determination to nonadmit the Cal Anglin mortgage. As a result of nonadmitting the Cal Anglin mortgage in the amount of $535,445 [4] and of nonadmitting $88,000 of the bond value held by Sandia the commissioner concluded that the capital and surplus of Sandia was substantially impaired such that the 200,000 shares of Sandia's stock held by Sierra could not be considered an asset which was secure or well invested. Accordingly, the commissioner nonadmitted the common stock of Sandia held by Sierra in the amount of $589,895. In its 1975 annual statement Sandia listed its paid-up capital and surplus in the amount of $703,619. The nonadmission of the Cal Anglin mortgage in the amount of $535,445, and the reduction of the bond value by $88,000 reduces the paid-up capital and surplus of Sandia by the significant amount of $623,445 leaving a net paid-up capital and surplus of only $80,174. As a result, there is a substantial impairment of Sandia's paid-up capital and surplus which substantiates the commissioner's conclusion that Sierra's common stock in Sandia is an asset which is not secure or well invested and that such asset should be nonadmitted in determining the financial condition of Sierra. Accordingly, we uphold the commissioner's determination to nonadmit the Sandia common stock in the amount of $589,895.