N.Y. ISC Law § 4231 — New York Code / Act ISC / Article 42 / Section 4231
Policyholder's participation in surplus of life insurance companies
Status: in_force

§ 4231. Policyholder's participation in surplus of life insurance\ncompanies. (a) (1) Except as herein otherwise provided, every domestic\nlife insurance company shall ascertain and distribute annually, and not\notherwise, the proportion of any surplus accruing upon every\nparticipating insurance policy and annuity or pure endowment contract\nentitled as hereinafter provided to share therein, issued on or after\nthe first day of January, nineteen hundred seven.\n  (2) Upon the thirty-first day of December of each year, or as soon\nthereafter as practicable, every such company shall ascertain the\nsurplus earned by it during such year.\n  (3) After setting aside from such surplus such sums as may be required\nfor the payment of authorized dividends upon the capital stock, if any,\nsuch sums as may properly be held for account of outstanding deferred\ndividend policies, if any, and such sums as may be deemed advisable for\nthe accumulation of a surplus not in excess of the maximum prescribed in\nthis chapter, every such company shall thereupon apportion the remainder\nof such earnings, if any, derived from participating policies and\ncontracts, equitably to all policies or contracts entitled to share\ntherein during the full dividend year adopted by the company for such\npurpose. Such apportionment shall not after the first policy year be\nmade contingent upon the payment of the whole or any part of the premium\nfor any subsequent policy year.\n  (4) No dividend shall be apportioned or distributed for the first\npolicy or contract year unless, upon reasonable assumptions as to\nexpenses, mortality, policy and contract claims, investment income and\nlapses, it was actually earned for such year; nor shall any such company\ndefer the apportionment and distribution of dividends beyond the\ncalendar year following that in which they were earned, except that any\nsuch company which in good faith apportions and distributes its\ndivisible surplus (except on policies issued on a deferred dividend\nbasis prior to the first day of January, nineteen hundred seven, and\ncontinued as such thereafter) on an annual basis as dividends to all\nclasses of policies and contracts entitled to share therein, may\napportion and distribute all or any part of its accumulated surplus, in\nexcess of its required minimum surplus, as a part of its dividends\napportioned and distributed on an annual basis, or, with the approval of\nthe superintendent, at reasonable intervals with respect to any policy\nor contract or on its termination by death, maturity or surrender, as\nadditional or extra dividends in an amount deemed by him not inequitable\nin proportion to the annual dividends paid in preceding years on such\npolicies or contracts. When this apportionment and distribution at\nreasonable intervals, for a class of industrial life insurance policies,\ntakes the form of an equitable addition to the death benefit, the\nsuperintendent need not require any addition to the cash surrender\nvalues of the policies, anything in this chapter to the contrary\nnotwithstanding.\n  (5) Dividends apportioned as aforesaid in the case of a policy or\ncontract, other than an industrial life insurance policy, issued on or\nafter the first day of January, nineteen hundred seven, shall, unless\notherwise provided in the policy or contract, be payable at the option\nof the company, either upon the anniversary of the policy or contract\nnext after each thirty-first day of December, or upon the anniversary of\nthe policy or contract next following each thirtieth day of April; and\nin every case after the first policy or contract year shall be payable\nupon the sole condition that premium or stipulated payments of the\npolicy or contract year current upon said respective dates shall have\nbeen completed.\n  (b) (1) Except as hereinafter provided, the dividend so apportioned in\nthe case of any participating policy or contract issued on or after the\nfirst day of January, nineteen hundred seven, shall, at the option of\nthe person entitled to elect such option, be either:\n  (A) payable in cash except that cash payment will not be required for\na policy or contract qualified for special tax treatment under\nsubsection (b) of section four hundred three of the Internal Revenue\nCode to the extent that such payment would prevent such qualification or\nfor a policy or contract with respect to which the superintendent has\ndetermined that cash payment of dividends would be inappropriate, or\n  (B) applicable to the payment of any premium or premiums upon said\npolicy or contract, or\n  (C) applicable to the purchase of a paid-up addition thereto, or\n  (D) permitted to accumulate to the credit of the policy or contract,\nat such rate of interest as shall be allowed by the company, and, with\nsuch interest shall be payable upon the maturity of the policy or\ncontract, or shall be withdrawable in cash on any anniversary of the\ndate of issue thereof.\n  (2) Where subparagraph (A) of paragraph one hereof has been selected\nand payment cannot be effected by the company, the funds shall be\napplied under option subparagraph (C) or (D) of such paragraph, as\ndetermined by the company.\n  (3) Such company shall, unless an election has previously been made,\nrequire such person to elect the manner in which such dividends shall be\napplied, as above provided, by mailing a written notice of the amount of\nthe said dividends and the options available as aforesaid in a sealed\nenvelope in the manner required by paragraph one of subsection (b) of\nsection three thousand two hundred eleven of this chapter.\n  (4) In case the person entitled to elect such option shall fail to\nnotify the company in writing of his election within three months after\nthe date of the mailing of said notice, the dividends shall, except as\notherwise herein provided, be applied by the company pursuant to the\noption specified in subparagraph (C) of paragraph one hereof.\n  (5) In the case of any extended term or reduced paid-up insurance, the\ndividends so apportioned shall be applicable as provided in the policy\nwith the approval of the superintendent.\n  (6) In the case of any individual term policy and of every individual\nparticipating annuity, other than an annuity described in paragraph\neight of this subsection, or pure endowment contract, the dividends so\napportioned shall be applicable, at the election of the holder of such\npolicy or contract, in accordance with the options specified in\nsubparagraph (A) or (B) of paragraph one of this subsection or if the\npolicy or contract so provides, subparagraph (D) of paragraph one of\nthis subsection. In the case of any such term policy or annuity or pure\nendowment contract, the requirement as to notice of election\nhereinbefore specified shall be applicable, but the option which shall\nbe applied in case the holder of such contract fails to make such\nelection shall be determined by the company with the approval of the\nsuperintendent.\n  (7) In the case of any participating group policy of life insurance or\nany participating group or blanket policy of accident and health\ninsurance, or of any participating group annuity contract, other than an\nannuity described in paragraph eight of this subsection, the dividend so\napportioned shall, at the option of the policyholder or holder of the\nmaster contract, be applied pursuant to subparagraph (A) or (B) of\nparagraph one of this subsection. Any dividend so apportioned on any\nsuch participating group insurance policy, or any rate reduction made or\ncontinued on any non-participating group insurance policy for the first\nor any subsequent year of insurance under any such policy issued to an\nemployer, may be applied to reduce the employer's part of the cost of\nsuch policy, except that the excess, if any, of the employees' aggregate\ncontribution under the policy over the net cost of the insurance shall\nbe applied by the employer for the sole benefit of the employees.\n  (8) In the case of any individual or group participating immediate\nannuity and of any individual or group participating deferred annuity in\nwhich each consideration paid into the annuity purchases guaranteed\npaid-up annuity benefits determined at the time the consideration is\npaid, the dividend so apportioned shall be applicable, at the election\nof the holder of the individual contract or group certificate, in\naccordance with the options specified in subparagraph (A), (B) or (C) of\nparagraph one of this subsection or if the contract or certificate so\nprovides, subparagraph (D) of paragraph one of this subsection.\n  (c) (1) In the case of participating industrial life insurance\npolicies, the provisions of subsection (b) hereof specifying the options\navailable to the policyholder with respect to the mode of application or\npayment of such dividends, and requiring notice of such options, and\nspecifying the option effective in the absence of election, shall not be\napplicable.\n  (2) The dividends apportioned on such policies pursuant to this\nsection shall be distributed annually except as provided in subsection\n(a) hereof in such manner as may be determined by the company, with the\napproval of the superintendent. Such dividends shall be paid or applied\nupon the first day of January of each year upon the sole condition that\nthe premium payments for the next preceding calendar year have been\ncompleted, except that the company may, at its option, exclude the\npremium payments within the period of grace as a condition for payment\nor application of such dividends.\n  (3) Participating endowment policies which, by their terms, mature in\ntwenty or more years and which are for amounts of less than one thousand\ndollars and which are subject to the provisions of section three\nthousand two hundred three of this chapter, may be issued without\nincluding the provisions of subsection (b) hereof specifying the option\navailable to the policyholder with respect to the mode of application or\npayment of such dividend, and requiring notice of such option and\nspecifying the option effective in the absence of application, and if so\nissued the dividend shall be paid in cash.\n  (d) In addition to all other grounds provided in or pursuant to this\nchapter for the refusal to issue or renew a license to do business in\nthis state and for the revocation of an existing license to do business\nin this state, no foreign or alien life insurance company shall be or\ncontinue to be authorized to do business in this state, unless it shall\nprovide in every participating life insurance policy and in every\nparticipating annuity or pure endowment contract issued or delivered by\nit in this state that the proportion of the divisible surplus accruing\nupon such policy or contract shall be ascertained and distributed\nannually and not otherwise, except as otherwise provided in this section\nfor domestic life insurance companies.\n  (e) (1) Any domestic mutual life insurance company may issue on a\nnon-participating basis, subject to the other requirements of this\nchapter, any policies and contracts described in paragraph two of\nsubsection (g) of this section and deferred annuity contracts providing\na period of deferment of annuity payments not in excess of one year. No\ndomestic mutual life insurance company shall issue non-participating\npolicies or contracts, other than those specified in the preceding\nsentence, unless it has a special revocable permit from the\nsuperintendent to do so. Any such company may apply to the\nsuperintendent for such a permit. Such application shall be in the form\nprescribed by the superintendent and contain or be accompanied by a\nstatement showing the manner in which any general outlays of the company\nare to be apportioned to participating and non-participating business\nand such other information as the superintendent may require for the\npurpose of determining whether its methods of operation are fair and\nequitable to its participating and non-participating policyholders. Such\ncompany shall keep separate books and records of its participating and\nnon-participating business. The superintendent may prescribe the form in\nwhich such books and records shall be kept.\n  (2) Within the meaning of this subsection any domestic stock life\ninsurance company shall be deemed to be a domestic mutual life insurance\ncompany if and after ninety-five percent or more of its outstanding\ncapital stock is, pursuant to section seven thousand three hundred two\nof this chapter or any former insurance law, held in trust for the\nexclusive benefit of the holders of the policies and contracts of such\ninsurance company.\n  (3) Foreign or alien mutual life insurance companies authorized to do\nbusiness in this state may deliver or issue for delivery in this state\nnon-participating policies and contracts of the same kinds and subject\nto the same requirements provided for domestic mutual life insurers in\nparagraph one of this subsection.\n  (f) (1) No domestic stock life insurance company shall deliver or\nissue for delivery in this state both participating and\nnon-participating policies or contracts and no foreign or alien stock\nlife insurance company shall deliver or issue for delivery in this state\nany participating policy or contract unless it has a special permit from\nthe superintendent to do so.\n  (2) Any such company authorized to do business in this state may apply\nto the superintendent for such a permit. Such application shall be in\nthe form prescribed by and contain information the superintendent\nrequires. Such application shall contain or be accompanied by:\n  (A) If such applicant has done any participating business prior to the\nmaking of such application, a statement showing the profits and losses,\nexpense limits and expenses with reference to its participating and its\nnon-participating business, if any, and the manner in which any general\noutlays of the company have been and are being apportioned to each of\nsuch kinds of business, and such other information as the superintendent\nmay require for the purpose of determining whether its method of\noperation is fair and equitable to its participating policyholders.\n  (B) An agreement by such company, evidenced by a resolution of its\nboard of directors or other appropriate body having power to bind such\ncorporation and its shareholders, to the effect that, so long as any\noutstanding participating policies or contracts of such company are held\nby persons resident in the state of New York, no profits on\nparticipating policies and contracts in excess of the larger of ten\npercent of such profits, or fifty cents per year per thousand dollars of\nparticipating life insurance other than group term insurance in force at\nthe end of the year, shall inure to the benefit of the stockholders; and\nthat the profits on its participating policies and annuity contracts\nshall be ascertained by allocating to such policies and annuity\ncontracts specific items of gain, expense or loss attributable to such\npolicies and contracts and an equitable proportion of the general gains\nor outlays of the company.\n  (3) (A) Upon the filing of such application and accompanying\ndocuments, the superintendent may, in his discretion, issue a revocable\npermit to such company authorizing it to issue participating policies\nand contracts in this state.\n  (B) If the superintendent finds, after notice and hearing, that any\nsuch company has failed to comply with the agreement specified in\nsubparagraph (B) of paragraph two hereof, he may, in his discretion,\nrevoke the permit of such company to do a participating business in this\nstate, and he may, in addition thereto, in the case of a domestic stock\nlife insurance company, order such company to cease issuing any new\nparticipating policies elsewhere in the continental United States, and\nin the case of a foreign or alien company, order such company to cease\nissuing any new policies in this state.\n  (C) Any violation of such an order shall constitute a violation of\nthis chapter.\n  (4) (A) In every annual statement made by any such company to the\nsuperintendent after the issuance of such permit, and so long as its\nagreement pursuant to subparagraph (B) of paragraph two hereof is in\nforce, such company shall exhibit the amount of participating\npolicyholders' surplus.\n  (B) Such participating policyholders' surplus shall be used only for\nthe payment or apportionment of dividends to participating policyholders\nat least to the extent hereinbefore required, or for the purpose of\nmaking up any loss on the participating policies of such company.\n  (C) Nothing herein contained shall be deemed to give any class of\npolicyholders priority with respect to the assets of any such company in\nliquidation.\n  (5) This subsection shall not apply to any foreign or alien stock life\ninsurance company if and after ninety-five percent or more of its\noutstanding capital stock is wholly owned by a non-profit corporation,\nor by any other person or persons, who or which holds such stock in\ntrust for the exclusive benefit of the holders of the policies and\ncontracts of such insurance company; but no such insurance company shall\nbe authorized to do business in this state if it thereafter issues any\nnew non-participating policies or contracts, except as provided in\nsubsection (g) hereof.\n  (g) (1) The inclusion in any life or accident and health insurance\npolicy, or in any annuity or pure endowment contract, or in any funding\nagreement, of any provision to the effect that the owner thereof shall\nparticipate in the surplus of the company issuing such policy or\ncontract, shall be deemed to make such policy or contract a\nparticipating one, with the following exceptions:\n  (A) Both participating and non-participating policies or contracts or\nagreements may provide that in addition to any rate of interest\nguaranteed by the issuing company to be paid on deferred payments of the\nproceeds thereof, additional interest may be paid thereon at such rate\nas the company may annually declare.\n  (B) Any policy or contract subject to section four thousand two\nhundred twenty-one or section four thousand two hundred twenty-three of\nthis article may provide that, in addition to any minimum benefits\nguaranteed in the contract, additional amounts may be credited to the\npolicy or contract in accordance with section four thousand two hundred\nthirty-two of this article or section four thousand five hundred\neighteen of this chapter. The inclusion of any such provision in any\nnon-participating policy or contract shall not be deemed to make the\npolicy or contract participating and the crediting of such additional\namounts in accordance with the preceding provisions to any participating\npolicy or contract shall not be deemed to be a distribution of surplus\nunder subsections (a) and (b) of this section.\n  (C) Any policy of insurance or contract of annuity providing for\nreadjustment of the rate of premium, consideration, or deposit under the\nprovisions of paragraph two of subsection (c) of section four thousand\ntwo hundred sixteen, or of paragraphs one and two of subsection (j) of\nsection four thousand two hundred thirty-five, or of subsection (d) of\nsection four thousand two hundred thirty-eight of this article shall\nnot, solely because of such rate readjustment provision, be deemed\nparticipating.\n  (D) Any individual life policy issued or delivered in this state may\nprovide for prospective readjustment of the rate of premium, but the\nreadjustment may not cause the readjusted premium to exceed the maximum\nguaranteed premium rate stated in the policy. The readjustment shall be\ndetermined upon reasonable assumptions as to expenses, mortality, policy\nand contract claims, taxes, investment income and lapses. The\nreadjustment shall be on a basis equitable to all policy and contract\nholders and shall be based on written criteria approved by the board of\ndirectors of the company or a committee thereof. The rate readjustment\nprovision shall not be deemed to make the policy participating.\n  (E) Readjustments in the rate of premium or stipulated contribution or\nconsideration or deposit for any insurance policy or annuity or pure\nendowment contract or funding agreement, issued or delivered by a\ndomestic life insurer within or without this state, shall be determined\non the basis which is equitable to all policy or contract holders and\nshall be based on written criteria approved by the board of directors of\nthe company or a committee thereof. The readjustment shall be determined\nupon reasonable assumptions as to expenses, mortality, policy and\ncontract claims, taxes, investment income and lapses. Such a\nreadjustment shall not be deemed to be a distribution of surplus under\nsubsections (a) and (b) of this section.\n  (2) This section shall not require the apportionment or distribution\nof dividends on any deferred annuity contract for the period following\nthe period of deferment of annuity payments, in accordance with the\nprovisions of such contract, nor on extended term insurance, or pure\nendowment, which takes effect in the case of default in the payment of a\npremium or payment on any policy or contract, nor on any dividend\nadditions nor on any contract or agreement of reinsurance, nor on any\ngroup annuity contract providing deferred annuities for a class or\nclasses of participants in a pension or profit sharing plan qualified\nunder subsection (a) of section four hundred one of the United States\ninternal revenue code (or comparable law of any other jurisdiction) who\nhave terminated their participation under such plan, or with respect to\nwhich class or classes further contributions have been discontinued\nunder the plan and notice of such discontinuance has been given to the\ncommissioner of internal revenue (or regulatory authority of such other\njurisdiction).\n