WILLIAM DONALD SCHAEFER, Governor                        H.B. 422

(a)     No insurance company subject to registration under § 495 shall pay any
extraordinary dividend or make any extraordinary distribution to its shareholders until:
(1) thirty days after the Commissioner has received notice of the declaration thereof and
has not within this period disapproved the payment, or (2) the Commissioner has
approved the payment within the thirty-day period.

(b)      [For the purpose of this section, extraordinary] (1) 1. (I) IN THIS
SUBSECTION "EARNED SURPLUS" MEANS THE PORTION OF THE SURPLUS THAT
REPRESENTS THE NET EARNINGS, GAINS, OR PROFITS, AFTER DEDUCTION OF ALL
LOSSES, THAT HAVE NOT BEEN DISTRIBUTED TO THE SHAREHOLDERS AS
DIVIDENDS OR TRANSFERRED TO STATED CAPITAL OR CAPITAL SURPLUS OR
APPLIED TO OTHER PURPOSES PERMITTED BY LAW.

2. (II) "EARNED SURPLUS" DOES NOT INCLUDE
UNREALIZED CAPITAL GAINS OR REEVALUATION OF ASSETS.

(2) EXCEPT AS PROVIDED IN PARAGRAPH (3) OF THIS SUBSECTION,
EXTRAORDINARY dividend or distribution includes any dividend or distribution of cash
or other property, but not including pro rata distributions of any class of the insurer's own
securities, whose fair market value together with that of other dividends or distributions
made within the preceding twelve months [exceed the greater of:

(1)     (i)] EXCEEDS 10 percent, except for insurance subsidiaries of the
Medical Mutual Liability Insurance Society of Maryland (Article 48A, Subtitle 36 of the
Code) which shall be 5 percent, of the insurer's surplus as regards policyholders as of the
31st day of December next preceding [if the remaining surplus as regards policyholders
after payment of any such dividend will be less than the sum of $10,000,000 plus 10
percent of the insurer's admitted assets; or

(ii) 25 percent of the insurer's surplus as regards policyholders as of
the 31st day of December next preceding, if the remaining surplus as regards
policyholders after payment of any such dividend will be equal to or greater than the sum
of $10,000,000 plus 10 percent of the insurer's admitted assets; or

(2)     (i) From July 1, 1986 through December 31, 1987, the net gain from
operation of the insurer, if the insurer is a life insurer, or 100 percent of the net
investment income, if the insurer is not a life insurer, for the twelve-month period ending
the 31st day of December next preceding;

(ii) From January 1, 1988 through December 31, 1988, the net gain
from operation of the insurer, if the insurer is a life insurer, or 50 percent of the net
investment income, if the insurer is not a life insurer, for the 12-month period ending the
31st day of December next preceding; and

(iii) From January 1, 1989 and thereafter, the net gain from operation
of the insurer, if the insurer is a life insurer, or the net income, if the insurer is not a life
insurer, for the 12-month period ending the 31st day of December next preceding.

(b-1)In determining whether a dividend or distribution is extraordinary under
subsection (b)(2)(iii) of this section, an insurer may include positive net income from the
previous 5 calendar years that has not already been paid out as dividends].

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