State RegulationsCA specific✓ Verified · outline & fact-checked · Sep 2026Difficulty 3/5
Under California Insurance Code Section 985, an insurer is considered insolvent when:
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Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
Section 985 defines insolvency as the impairment of an insurer's required minimum paid-in capital or the insurer's inability to fulfill its obligations. When insolvency is found, the Commissioner may step in through conservation, liquidation, or other delinquency proceedings. Paying dividends, having a high loss ratio, or losing a lawsuit do not, by themselves, establish insolvency.
Why the other options are wrong
- B) Dividends are normal distributions of surplus and do not render an insurer insolvent.
- C) A loss ratio is an operating statistic, not the statutory test for insolvency.
- D) An adverse judgment affects assets but insolvency is judged by capital impairment or inability to meet obligations.
Memory hook
Insolvent = capital impaired or bills unpaid. Dividends and loss ratios are not the legal test.