What stipulation applies to the payment of dividends by a mutual insurer?

Dividends paid by a mutual insurer are derived from surplus funds, which is a key characteristic of how mutual insurance companies operate. Unlike stock insurers, mutual insurers are owned by their policyholders, and any profits generated can be returned to these policyholders in the form of dividends. The availability of surplus funds indicates that the insurer has earned more than it needs to cover claims and operational costs, allowing it to distribute some of that excess back to its members.

This principle underlines the mutual structure in which policyholders benefit directly from the performance of the insurer. It ensures that the dividends are reflective of the financial health of the company and reliant on actual profits rather than arbitrary decisions. The stipulation underscores the foundational aspect of mutual insurance, where the interests of policyholders are prioritized, and it helps maintain a balanced and responsible approach to dividend distribution.

In contrast, other options do not accurately reflect the standard practices regarding dividends in mutual insurance. For instance, dividends being contingent upon policy renewal or determined solely by board discretion do not align with the mutual model's focus on policyholder benefit and surplus management.