(1) Transactions within a holding company system to which an insurer subject to registration is a party are subject to the following standards:

1. (i) The terms must be fair and reasonable.
2. (ii) Charges or fees for services performed must be reasonable.
3. (iii) Expenses incurred and payment received must be allocated to the insurer in conformity with customary insurance accounting practices consistently applied.
4. (iv) The books, accounts, and records of each party to all transactions must be so maintained as to clearly and accurately disclose the nature and details of the transactions including such accounting information as is necessary to support the reasonableness of the charges or fees to the respective parties.
5. (v) The insurer's surplus as regards policyholders following any dividends or distributions to shareholder affiliates must be reasonable in relation to the insurer's outstanding liabilities and adequate to its financial needs.

(2) The following transactions involving a domestic insurer and any person in its holding company system may not be entered into unless the insurer has notified the department in writing of its intention to enter into the transaction at least thirty days prior thereto, or such shorter period as the director or his designee may permit, and the director or his designee has not disapproved it within such period:

1. (i) sales, purchases, exchanges, loans, or extensions of credit, guarantees, or investments if the transactions are equal to or exceed:

   1. (a) with respect to nonlife insurers, the lesser of three percent of the insurer's admitted assets or twenty-five percent of surplus as regards policyholders;
   2. (b) with respect to life insurers, three percent of the insurer's admitted assets, each as of the thirty-first day of December next preceding;

2. (ii) loans or extensions of credit to any person who is not an affiliate, where the insurer makes the loans or extensions of credit with the agreement or understanding that the proceeds of the transactions, in whole or in substantial part, are to be used to make loans or extensions of credit to, to purchase assets of, or to make investments in, any affiliate of the insurer making the loans or extensions of credit as long as such transactions are equal to or exceed:

   1. (a) with respect to nonlife insurers, the lesser of three percent of the insurer's admitted assets or twenty-five percent of surplus as regards policyholders;
   2. (b) with respect to life insurers, three percent of the insurer's admitted assets, each as of the thirty-first day of December next preceding;
3. (iii) reinsurance agreements or modifications thereto in which the reinsurance premium or a change in the insurer's liabilities equals or exceeds five percent of the insurer's surplus as regards policyholders, as of the thirty-first day of December next preceding, including those agreements which may require as consideration the transfer of assets from an insurer to a nonaffiliate, if an agreement or understanding exists between the insurer and nonaffiliate that any portion of such assets will be transferred to one or more affiliates of the insurer;
4. (iv) all management agreements, service contracts, and all cost-sharing arrangements; and

5. (v) any material transactions, specified by regulation of the department, which the director or his designee determines may adversely affect the interests of the insurer's policyholders.

   Nothing herein authorizes or permits any transactions which, in the case of an insurer, not a member of the same holding company system, would be otherwise contrary to law.