CHAPTER 132

FORMERLY

HOUSE BILL NO. 240

AN ACT TO AMEND CHAPTER 50, TITLE 18, DELAWARE CODE REGARDING THE PAYMENT OF DIVIDENDS BY INSURERS.

BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF DELAWARE:

Section 1. Amend Title 18, Del C., Chapter 50, Section 5004 by deleting the present subsection (e) and substituting the following in lieu thereof:

"(e) Reporting of Dividends to Shareholders.

(1) Subject to Section 5005(b) of this Title, each registered insurer shall provide notice to the Commissioner of all dividends and other distributions to shareholders within five (5) business days following the declaration thereof and at least 10 days prior to the payment thereof.

(2) The Commissioner shall promptly consider the information set forth in the notice under paragraph (1). In the Commissioner's consideration of the Information, the Commissioner shall apply the factors set forth in Section 5005(c) of this Title."

Section 2. Amend Title 18, D. C., Chapter 50, Section 5005, subsections (b) and (c) by deleting these subsections in their entirety and substituting the following in lieu thereof:

"(b) Dividends and Other Distributions.

Except as otherwise provided by law, a domestic insurer may not declare or pay a dividend or other distribution from any source other than earned surplus without the Commissioner's prior approval. For purposes of this section, "earned surplus" means an amount equal to the unassigned funds of an insurer as set forth in the most recent annual statement of the insurer submitted to the Commissioner including all or part of the surplus arising from unrealized capital gains or revaluation of assets.

No domestic insurer shall pay any extraordinary dividend or make any other extraordinary distribution to its shareholders until:

(1) Thirty days after the Commissioner has received notice of the declaration thereof and has not within such period disapproved such payment; or

(2) The Commissioner shall have approved such payment within such 30-day period.

For purposes of this Section, an extraordinary dividend or distribution includes any dividend or distribution of cash or other property, whose fair market value together with that of other dividends or distributions made within the preceding twelve (12) months exceeds the greater of:

(1) Ten percent of such insurer's surplus as regards policyholders as of the 31st day of December next preceding; or

(2) The net gain from operations of such insurer, if such insurer is a life insurer, or the net income, if such insurer is not a life insurer, not including realized capital gains, for the 12-month period ending the 31st day of December next preceding, but shall not include pro rata distributions of any class of the insurer's own securities.

Notwithstanding any other provision of law, an insurer may declare an extraordinary dividend or distribution which is conditional upon the Commissioner's approval thereof, and such declaration shall confer no rights upon shareholders until:

(1) The Commissioner has approved the payment of such a dividend or distribution; or

(2) The Commissioner has not disapproved such payment within the 30-day period referred to above.

(c) Adequacy of Surplus.

For purposes of this Chapter, in determining whether an insurer's surplus as regards policyholders is reasonable in relation to the insurer's outstanding liabilities and adequate to its financial needs, the following factors, among others, shall be considered:

(1) The size of the insurer as measured by its assets, capital and surplus, reserves, premium writings, insurance in force and other appropriate criteria;

(2) The extent to which the insurer's business is diversified among the several lines of insurance;

(3) The number and size of risks insured in each line of business;

(4) The extent of the geographical dispersion of the insurer's insured risks;

(5) The nature and extent of the insurer's reinsurance program;

(6) The quality, diversification and liquidity of the insurer's Investment portfolio;

(7) The recent past and projected future trend in the size of the insurer's surplus as regards policyholders;

(8) The surplus as regards policyholders maintained by other comparable insurers in respect to the factors enumerated above;

(9) The adequacy of the insurer's reserves:

(10) The quality and liquidity of investments in affiliates. The Commissioner may treat any such investment as a disallowed asset for purposes or determining the adequacy of surplus as regards policyholders whenever in his judgement such investment so warrants; and

(11) The quality of the insurer's earnings and the extent to which the reported earnings of the insurer include extraordinary items."

Section 3. Further Amend Title 18, Del. C., Chapter 50, Section 5005 by adding a new subsection (d) as follows:

"(d) Departmental Practices.

The Commissioner shall review, at least one time each year, the dividends paid by each domestic insurer to determine whether dividends paid by the Insurer are reasonable in relation to the following:

(1) The adequacy of the level or surplus as regards policyholders of the Insurer remaining after the payment of dividends; and

(2) The quality of the earnings of the insurer and the extent to which the reported earnings of the insurer include extraordinary items, such as surplus relief, reinsurance transactions, and reserve destrengthening.

The Commissioner may issue an order to limit or disallow the payment of ordinary dividends by a domestic Insurer if the Commissioner finds the insurer to be presently or potentially financially distressed or troubled."

Section 4. This Act shall become effective thirty days after adoption.

Approved July 12, 1993.