(a) Domestic incorporated stock insurers, except those governed by Sections 10530, 12373, and 12640.06, shall be governed by the provisions of this section and, if the insurer is subject to registration pursuant to Sections 1215.4 and 1215.5, as to payment or distribution of dividends to stockholders. Such insurers may make dividends only from earned surplus.

(b) No dividends shall be declared out of earned surplus derived from the mere net appreciation in the value of assets not yet realized, nor shall any dividends be declared from any part of such earned surplus derived from an exchange of assets, unless and until such earned surplus have been realized or unless the assets received are currently realizable in cash.

(c) An insurer may declare and distribute a dividend otherwise prohibited by this section if (1) following payment of the dividend the insurer’s surplus as regards policyholders is (A) reasonable in relation to its outstanding liabilities and (B) adequate to its financial needs as prescribed in Section 1215.5, and (2) the commissioner has given approval for the dividend prior to payment.

(d) For purposes of this section, “earned surplus” means unassigned funds, as required to be reported on the insurer’s annual statement.

(Amended by Stats. 1993, Ch. 974, Sec. 1.8. Effective January 1, 1994.)