Insurance regulation in a nutshell

(c)Extraordinary Dividends

The Model Act also regulates large dividends (called “extraordinary dividends”) made by controlled stock insurers, again to protect policyholders and assure that the insurer’s parent does not create a solvency issue by causing the insurer to declare and pay a large dividend.
The Model Act provides that:
No domestic insurer shall pay any extraordinary dividend or make any other extraordinary distribution to its shareholders until thirty (30) days after the commissioner has received notice of the declaration thereof and has not within that period disapproved the payment, or until the commissioner has approved the payment within the thirty-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 lesser of:²⁷ (1) Ten percent (10%) of the insurer’s surplus as regards policyholders as of the 31st day of December next preceding; or (2) The net gain from operations of the insurer, if the insurer is a life insurer, or the net income, if the insurer is not a life insurer, not including realized capital gains, for the twelve-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.²⁸
Many states also require that no dividend be paid by a domestic insurer except out of earned surplus (accumulated earnings of the insurer reported as “Unassigned Funds (Surplus)” on its statutory financial statements).²⁹

Section III.8.Financial Examination

The NAIC Model Law on Examinations requires that the state insurance regulator conduct an examination of any insurer licensed to do business in the state at least once every five years.³⁰ In lieu of examining licensed foreign and alien insurers, the state insurance regulator may accept an examination report on the insurer prepared by the insurer’s domestic state insurance regulator.³¹ So, in addition to relying on the annual audited financial statement (see Section III.3.) and annual actuarial opinion (see Section III.5.), state insurance regulators also rely on a comprehensive on-site examination of the business and affairs of the insurers they regulate.
Once final, the examination report is served upon the insurer and the insurer has 30 days to comment. The state insurance regulator may adopt or reject the examination report.³² If adopted, the examination report may be held confidential for a designated time period, after which the state insurance regulator may open the report for public inspection so long as no court has stayed its publication.³³ The New York Insurance Department makes examination reports available on its website – www.ins.state.ny.us.
The cost of the examination is often borne by the examined insurer.³⁴