                                 CODE OF VIRGINIA

MATERIAL TRANSACTIONS (§ 38.2-1230)

A. Prior written approval of the Commission shall be required for a material
transaction between a domestic reciprocal and any of its related parties or
between any two or more of the reciprocal&#8217;s related parties when the
material transaction occurs on or after July 1, 2004, and involves more than
three percent of the domestic reciprocal&#8217;s admitted assets as reported in
its most recent statutory statement filed with the Commission. All other
material transactions between any such parties involving more than 0.5 percent
of the domestic reciprocal&#8217;s admitted assets as reported in its most
recent statutory statement filed with the Commission shall be reported to the
Commission within 15 days after the end of the month in which the transaction
occurs. In addition, all transactions shall meet the following standards:

   1. The terms shall be fair and equitable;

   2. Charges or fees for services performed shall be reasonable;

   3. Expenses incurred and payments received shall be allocated to the
   reciprocal on an equitable basis in conformity with statutory insurance
   accounting practices consistently applied;

   4. The books, accounts, and records of each party shall disclose clearly and
   accurately the precise nature and details of the transaction; and

   5. The reciprocal&#8217;s surplus following any dividends or distribution to
   any of the reciprocal&#8217;s related parties shall be reasonable in relation
   to the reciprocal&#8217;s outstanding liabilities and adequate to its
   financial needs.

B. The Commission, in reviewing a material transaction under this section, shall
consider whether the material transaction complies with the standards set forth
in subsection A and also whether the transaction may adversely affect the
interests of the subscribers or the solvency of the reciprocal.

C. Within 60 days after written notification of any transaction requiring
approval pursuant to this section, the Commission shall notify the insurer of
its approval or disapproval, and, in the event of disapproval, its reason
thereof. Failure of the Commission to act within 60 days of notification by the
insurer shall constitute approval of the transaction.

D. For the purposes of this section:

   1. &#8220;Affiliate&#8221; of a specific person means a person that directly
   or indirectly through one or more intermediaries, owns, is owned by, or is
   under common ownership with the person specified. An affiliate relationship
   shall be presumed to exist if any person, directly or indirectly, owns or
   holds with the power to vote, or holds proxies representing collectively 10
   percent or more of the voting securities of the person specified.

   2. &#8220;Control&#8221; means the possession, directly or indirectly, of the
   power to direct or cause the direction of the management and policies of a
   person or entity, whether (i) through the ownership of voting securities, (ii)
   by contract, other than a commercial contract for goods or nonmanagement
   services, (iii) by contract for goods or nonmanagement services where the
   volume of activity results in a reliance relationship, (iv) by common
   management, or (v) by any other means. Control shall be presumed to exist if a
   reporting entity and its affiliates directly or indirectly, own, control, hold
   with the power to vote, or hold proxies representing 10 percent or more of the
   voting interests of the entity.

   3. &#8220;Material transaction&#8221; means a transaction, other than a claim
   payment or a premium payment, that (i) affects surplus or involves an exchange
   of assets or liabilities of the reciprocal, requires performance by or creates
   an obligation for the reciprocal, or results in transfer of the risks or
   rewards of ownership to or by the reciprocal and (ii) exceeds any minimum
   limits set forth in subsection A of this section. Any series of transactions
   affecting, involving, or impacting the reciprocal as described in clause (i)
   and occurring within a 12-month period that are sufficiently similar in nature
   as to be reasonably construed as a single transaction and that in the
   aggregate exceed any minimum limits set forth in subsection A of this section
   shall be deemed a material transaction.

   4. &#8220;Related parties&#8221; means entities that have common interests as
   a result of ownership, control, or affiliation or by contract. The related
   parties of a domestic reciprocal include, but are not limited to: (i) an
   affiliate of the reciprocal; (ii) the attorney of the reciprocal; (iii) an
   affiliate of the attorney; (iv) any insurer or other reciprocal managed by the
   attorney of the reciprocal or by an affiliate of the attorney of the
   reciprocal; or (v) any other person who, directly or indirectly, by contract
   or otherwise, acts on behalf of, or at the direction of, the attorney of the
   reciprocal or any affiliate of the attorney of the reciprocal.

E. Any report or other information filed pursuant to this section shall not be
open to public inspection and shall receive confidential treatment by the
Commission consistent with the treatment described in &#xA7; 38.2-1320.5.

F. A domestic reciprocal and its attorney shall annually file a related parties
summary containing current information on:

   1. The capital structure, general financial condition, ownership, and
   management of the reciprocal, its attorney, and any person controlling the
   reciprocal;

   2. The identity of &#8220;related parties&#8221;;

   3. The following agreements in force, continuing relationships, and
   transactions currently outstanding between the reciprocal and any related
   party or among any two or more related parties:
   				a. Loans, other investments or purchases, or sales or exchanges of
   securities of the reciprocal or a related party made by the reciprocal or by
   any one or more related party;
   				b. Purchases, sales, or exchanges of assets;
   				c. Transactions not in the ordinary course of business;
   				d. Guarantees or undertakings by the reciprocal for the benefit of a
   related party or by a related party for the benefit of the reciprocal that
   result in an actual contingent exposure of the reciprocal&#8217;s assets to
   liability, other than insurance contracts entered into in the ordinary course
   of the reciprocal&#8217;s business;
   				e. All management and service contracts and all cost-sharing arrangements;
   				f. Reinsurance agreements or other risk-sharing arrangements; and
   				g. Dividend and other distributions to any of the reciprocal&#8217;s
   related parties.
   				Unless the Commission prescribes otherwise, information about transactions
   that are not material transactions as defined in subsection D shall not be
   deemed material for purposes of this subsection and need not be disclosed in
   the related parties summary required by this subsection.

G. A reciprocal shall file its initial related parties summary required by
subsection F with the Commission on or before the later of (i) August 15, 2004,
or (ii) 15 days after initial licensure as a reciprocal by the Commission.
Thereafter, a licensed domestic reciprocal shall file a related parties summary
on or before April 1 of each year reporting information as of December 31 of the
previous year.

HISTORY: 1996, c. 304; 2004, c. 174.