2023 New York Laws › ISC - Insurance › Article 42 - Life Insurance Companies and Accident and Health Insurance Companies and Legal Services Insurance Companies › 4231 - Policyholder's Participation in Surplus of Life Insurance Companies.

§  4231.  Policyholder's  participation  in  surplus of life insurance
companies. (a) (1) Except as herein otherwise provided,  every  domestic
life  insurance company shall ascertain and distribute annually, and not
otherwise,  the  proportion  of  any   surplus   accruing   upon   every
participating  insurance  policy  and annuity or pure endowment contract
entitled as hereinafter provided to share therein, issued  on  or  after
the first day of January, nineteen hundred seven.
(2)  Upon  the  thirty-first  day of December of each year, or as soon
thereafter as  practicable,  every  such  company  shall  ascertain  the
surplus earned by it during such year.
(3) After setting aside from such surplus such sums as may be required
for  the payment of authorized dividends upon the capital stock, if any,
such sums as may properly be held for account  of  outstanding  deferred
dividend  policies, if any, and such sums as may be deemed advisable for
the accumulation of a surplus not in excess of the maximum prescribed in
this chapter, every such company shall thereupon apportion the remainder
of such earnings,  if  any,  derived  from  participating  policies  and
contracts,  equitably  to  all  policies  or contracts entitled to share
therein during the full dividend year adopted by the  company  for  such
purpose.  Such  apportionment  shall  not after the first policy year be
made contingent upon the payment of the whole or any part of the premium
for any subsequent policy year.
(4) No dividend shall be apportioned  or  distributed  for  the  first
policy  or  contract  year  unless,  upon  reasonable  assumptions as to
expenses, mortality, policy and contract claims, investment  income  and
lapses, it was actually earned for such year; nor shall any such company
defer  the  apportionment  and  distribution  of  dividends  beyond  the
calendar year following that in which they were earned, except that  any
such  company  which  in  good  faith  apportions  and  distributes  its
divisible surplus (except on policies  issued  on  a  deferred  dividend
basis  prior  to  the  first day of January, nineteen hundred seven, and
continued as such thereafter) on an annual basis  as  dividends  to  all
classes  of  policies  and  contracts  entitled  to  share  therein, may
apportion and distribute all or any part of its accumulated surplus,  in
excess  of  its  required  minimum  surplus,  as a part of its dividends
apportioned and distributed on an annual basis, or, with the approval of
the superintendent, at reasonable intervals with respect to  any  policy
or  contract  or  on its termination by death, maturity or surrender, as
additional or extra dividends in an amount deemed by him not inequitable
in proportion to the annual dividends paid in preceding  years  on  such
policies  or  contracts.  When  this  apportionment  and distribution at
reasonable intervals, for a class of industrial life insurance policies,
takes the form of an  equitable  addition  to  the  death  benefit,  the
superintendent  need  not  require  any  addition  to the cash surrender
values of the  policies,  anything  in  this  chapter  to  the  contrary
notwithstanding.
(5)  Dividends  apportioned  as  aforesaid  in the case of a policy or
contract, other than an industrial life insurance policy, issued  on  or
after  the  first  day of January, nineteen hundred seven, shall, unless
otherwise provided in the policy or contract, be payable at  the  option
of  the  company,  either upon the anniversary of the policy or contract
next after each thirty-first day of December, or upon the anniversary of
the policy or contract next following each thirtieth day of  April;  and
in  every  case after the first policy or contract year shall be payable
upon the sole condition that  premium  or  stipulated  payments  of  the
policy  or  contract  year current upon said respective dates shall have
been completed.
(b) (1) Except as hereinafter provided, the dividend so apportioned in
the case of any participating policy or contract issued on or after  the
first  day  of  January, nineteen hundred seven, shall, at the option of
the person entitled to elect such option, be either:
(A)  payable in cash except that cash payment will not be required for
a  policy  or  contract  qualified  for  special  tax  treatment   under
subsection  (b)  of  section  four hundred three of the Internal Revenue
Code to the extent that such payment would prevent such qualification or
for a policy or contract with respect to which  the  superintendent  has
determined that cash payment of dividends would be inappropriate, or
(B)  applicable  to  the  payment of any premium or premiums upon said
policy or contract, or
(C) applicable to the purchase of a paid-up addition thereto, or
(D) permitted to accumulate to the credit of the policy  or  contract,
at  such  rate of interest as shall be allowed by the company, and, with
such interest shall be payable  upon  the  maturity  of  the  policy  or
contract,  or  shall  be  withdrawable in cash on any anniversary of the
date of issue thereof.
(2) Where subparagraph (A) of paragraph one hereof has  been  selected
and  payment  cannot  be  effected  by  the  company, the funds shall be
applied under option subparagraph (C)  or  (D)  of  such  paragraph,  as
determined by the company.
(3)  Such  company shall, unless an election has previously been made,
require such person to elect the manner in which such dividends shall be
applied, as above provided, by mailing a written notice of the amount of
the said dividends and the options available as aforesaid  in  a  sealed
envelope  in  the  manner required by paragraph one of subsection (b) of
section three thousand two hundred eleven of this chapter.
(4) In case the person entitled to elect such  option  shall  fail  to
notify  the company in writing of his election within three months after
the date of the mailing of said notice, the dividends shall,  except  as
otherwise  herein  provided,  be  applied by the company pursuant to the
option specified in subparagraph (C) of paragraph one hereof.
(5) In the case of any extended term or reduced paid-up insurance, the
dividends so apportioned shall be applicable as provided in  the  policy
with the approval of the superintendent.
(6)  In the case of any individual term policy and of every individual
participating annuity, other than  an  annuity  described  in  paragraph
eight  of  this subsection, or pure endowment contract, the dividends so
apportioned shall be applicable, at the election of the holder  of  such
policy  or  contract,  in  accordance  with  the  options  specified  in
subparagraph (A) or (B) of paragraph one of this subsection  or  if  the
policy  or  contract  so  provides, subparagraph (D) of paragraph one of
this subsection. In the case of any such term policy or annuity or  pure
endowment   contract,   the   requirement   as  to  notice  of  election
hereinbefore specified shall be applicable, but the option  which  shall
be  applied  in  case  the  holder  of  such contract fails to make such
election shall be determined by the company with  the  approval  of  the
superintendent.
(7) In the case of any participating group policy of life insurance or
any  participating  group  or  blanket  policy  of  accident  and health
insurance, or of any participating group annuity contract, other than an
annuity described in paragraph eight of this subsection, the dividend so
apportioned shall, at the option of the policyholder or  holder  of  the
master  contract,  be  applied  pursuant  to  subparagraph (A) or (B) of
paragraph one of this subsection. Any dividend  so  apportioned  on  any
such participating group insurance policy, or any rate reduction made or
continued  on any non-participating group insurance policy for the first

or any subsequent year of insurance under any such policy issued  to  an
employer,  may  be  applied to reduce the employer's part of the cost of
such policy, except that the excess, if any, of the employees' aggregate
contribution  under  the policy over the net cost of the insurance shall
be applied by the employer for the sole benefit of the employees.
(8) In the case of any individual  or  group  participating  immediate
annuity and of any individual or group participating deferred annuity in
which  each  consideration  paid  into  the annuity purchases guaranteed
paid-up annuity benefits determined at the  time  the  consideration  is
paid,  the  dividend so apportioned shall be applicable, at the election
of the holder of  the  individual  contract  or  group  certificate,  in
accordance with the options specified in subparagraph (A), (B) or (C) of
paragraph  one  of  this subsection or if the contract or certificate so
provides, subparagraph (D) of paragraph one of this subsection.
(c) (1)  In  the  case  of  participating  industrial  life  insurance
policies, the provisions of subsection (b) hereof specifying the options
available to the policyholder with respect to the mode of application or
payment  of  such  dividends,  and requiring notice of such options, and
specifying the option effective in the absence of election, shall not be
applicable.
(2) The dividends  apportioned  on  such  policies  pursuant  to  this
section  shall  be distributed annually except as provided in subsection
(a) hereof in such manner as may be determined by the company, with  the
approval  of the superintendent. Such dividends shall be paid or applied
upon the first day of January of each year upon the sole condition  that
the  premium  payments  for  the  next preceding calendar year have been
completed, except that the company  may,  at  its  option,  exclude  the
premium  payments  within the period of grace as a condition for payment
or application of such dividends.
(3) Participating endowment policies which, by their terms, mature  in
twenty or more years and which are for amounts of less than one thousand
dollars  and  which  are  subject  to  the  provisions  of section three
thousand two hundred three  of  this  chapter,  may  be  issued  without
including  the provisions of subsection (b) hereof specifying the option
available to the policyholder with respect to the mode of application or
payment of such dividend,  and  requiring  notice  of  such  option  and
specifying the option effective in the absence of application, and if so
issued the dividend shall be paid in cash.
(d)  In  addition to all other grounds provided in or pursuant to this
chapter for the refusal to issue or renew a license to  do  business  in
this  state and for the revocation of an existing license to do business
in this state, no foreign or alien life insurance company  shall  be  or
continue  to be authorized to do business in this state, unless it shall
provide in every  participating  life  insurance  policy  and  in  every
participating  annuity or pure endowment contract issued or delivered by
it in this state that the proportion of the divisible  surplus  accruing
upon  such  policy  or  contract  shall  be  ascertained and distributed
annually and not otherwise, except as otherwise provided in this section
for domestic life insurance companies.
(e) (1) Any domestic mutual life insurance  company  may  issue  on  a
non-participating  basis,  subject  to  the  other  requirements of this
chapter, any policies  and  contracts  described  in  paragraph  two  of
subsection  (g) of this section and deferred annuity contracts providing
a period of deferment of annuity payments not in excess of one year.  No
domestic  mutual  life  insurance  company shall issue non-participating
policies or contracts, other  than  those  specified  in  the  preceding
sentence,   unless   it   has   a  special  revocable  permit  from  the
superintendent  to  do  so.  Any  such  company   may   apply   to   the

superintendent  for such a permit. Such application shall be in the form
prescribed by the superintendent and contain  or  be  accompanied  by  a
statement showing the manner in which any general outlays of the company
are  to  be  apportioned to participating and non-participating business
and such other information as the superintendent  may  require  for  the
purpose  of  determining  whether  its methods of operation are fair and
equitable to its participating and non-participating policyholders. Such
company shall keep separate books and records of its  participating  and
non-participating business. The superintendent may prescribe the form in
which such books and records shall be kept.
(2)  Within  the  meaning  of  this subsection any domestic stock life
insurance company shall be deemed to be a domestic mutual life insurance
company if and after ninety-five percent  or  more  of  its  outstanding
capital  stock  is, pursuant to section seven thousand three hundred two
of this chapter or any former insurance  law,  held  in  trust  for  the
exclusive  benefit  of the holders of the policies and contracts of such
insurance company.
(3) Foreign or alien mutual life insurance companies authorized to  do
business  in  this state may deliver or issue for delivery in this state
non-participating policies and contracts of the same kinds  and  subject
to  the  same requirements provided for domestic mutual life insurers in
paragraph one of this subsection.
(f) (1) No domestic stock life  insurance  company  shall  deliver  or
issue    for   delivery   in   this   state   both   participating   and
non-participating policies or contracts and no foreign  or  alien  stock
life insurance company shall deliver or issue for delivery in this state
any participating policy or contract unless it has a special permit from
the superintendent to do so.
(2) Any such company authorized to do business in this state may apply
to  the  superintendent  for such a permit. Such application shall be in
the form  prescribed  by  and  contain  information  the  superintendent
requires. Such application shall contain or be accompanied by:
(A) If such applicant has done any participating business prior to the
making  of such application, a statement showing the profits and losses,
expense limits and expenses with reference to its participating and  its
non-participating  business, if any, and the manner in which any general
outlays of the company have been and are being apportioned  to  each  of
such kinds of business, and such other information as the superintendent
may  require  for  the  purpose  of  determining  whether  its method of
operation is fair and equitable to its participating policyholders.
(B) An agreement by such company, evidenced by  a  resolution  of  its
board  of  directors or other appropriate body having power to bind such
corporation and its shareholders, to the effect that,  so  long  as  any
outstanding participating policies or contracts of such company are held
by   persons   resident  in  the  state  of  New  York,  no  profits  on
participating policies and contracts in excess  of  the  larger  of  ten
percent of such profits, or fifty cents per year per thousand dollars of
participating life insurance other than group term insurance in force at
the end of the year, shall inure to the benefit of the stockholders; and
that  the  profits  on  its participating policies and annuity contracts
shall  be  ascertained  by  allocating  to  such  policies  and  annuity
contracts  specific  items of gain, expense or loss attributable to such
policies and contracts and an equitable proportion of the general  gains
or outlays of the company.
(3)   (A)  Upon  the  filing  of  such  application  and  accompanying
documents, the superintendent may, in his discretion, issue a  revocable
permit  to  such  company authorizing it to issue participating policies
and contracts in this state.
(B) If the superintendent finds, after notice and  hearing,  that  any
such  company  has  failed  to  comply  with  the agreement specified in
subparagraph (B) of paragraph two hereof, he  may,  in  his  discretion,
revoke the permit of such company to do a participating business in this
state,  and he may, in addition thereto, in the case of a domestic stock
life insurance company, order such company  to  cease  issuing  any  new
participating  policies  elsewhere in the continental United States, and
in the case of a foreign or alien company, order such company  to  cease
issuing any new policies in this state.
(C)  Any  violation  of  such an order shall constitute a violation of
this chapter.
(4) (A) In every annual statement made by  any  such  company  to  the
superintendent  after  the  issuance  of such permit, and so long as its
agreement pursuant to subparagraph (B) of paragraph  two  hereof  is  in
force,   such   company   shall  exhibit  the  amount  of  participating
policyholders' surplus.
(B) Such participating policyholders' surplus shall be used  only  for
the payment or apportionment of dividends to participating policyholders
at  least  to  the  extent  hereinbefore required, or for the purpose of
making up any loss on the participating policies of such company.
(C) Nothing herein contained shall be deemed  to  give  any  class  of
policyholders priority with respect to the assets of any such company in
liquidation.
(5) This subsection shall not apply to any foreign or alien stock life
insurance  company  if  and  after  ninety-five  percent  or more of its
outstanding capital stock is wholly owned by a  non-profit  corporation,
or  by  any  other  person  or persons, who or which holds such stock in
trust for the exclusive benefit of  the  holders  of  the  policies  and
contracts of such insurance company; but no such insurance company shall
be  authorized  to do business in this state if it thereafter issues any
new non-participating policies  or  contracts,  except  as  provided  in
subsection (g) hereof.
(g)  (1)  The  inclusion  in any life or accident and health insurance
policy, or in any annuity or pure endowment contract, or in any  funding
agreement,  of  any provision to the effect that the owner thereof shall
participate in the  surplus  of  the  company  issuing  such  policy  or
contract,   shall   be   deemed  to  make  such  policy  or  contract  a
participating one, with the following exceptions:
(A) Both participating and non-participating policies or contracts  or
agreements  may  provide  that  in  addition  to  any  rate  of interest
guaranteed by the issuing company to be paid on deferred payments of the
proceeds thereof, additional interest may be paid thereon at  such  rate
as the company may annually declare.
(B)  Any  policy  or  contract  subject  to  section four thousand two
hundred twenty-one or section four thousand two hundred twenty-three  of
this  article  may  provide  that,  in  addition to any minimum benefits
guaranteed in the contract, additional amounts may be  credited  to  the
policy  or contract in accordance with section four thousand two hundred
thirty-two of  this  article  or  section  four  thousand  five  hundred
eighteen  of  this  chapter.  The inclusion of any such provision in any
non-participating policy or contract shall not be  deemed  to  make  the
policy  or  contract  participating and the crediting of such additional
amounts in accordance with the preceding provisions to any participating
policy or contract shall not be deemed to be a distribution  of  surplus
under subsections (a) and (b) of this section.
(C)  Any  policy  of  insurance  or  contract of annuity providing for
readjustment of the rate of premium, consideration, or deposit under the
provisions of paragraph two of subsection (c) of section  four  thousand

two  hundred  sixteen, or of paragraphs one and two of subsection (j) of
section four thousand two hundred thirty-five, or of subsection  (d)  of
section  four  thousand  two  hundred thirty-eight of this article shall
not,  solely  because  of  such  rate  readjustment provision, be deemed
participating.
(D) Any individual life policy issued or delivered in this  state  may
provide  for  prospective  readjustment  of the rate of premium, but the
readjustment may not cause the readjusted premium to exceed the  maximum
guaranteed  premium rate stated in the policy. The readjustment shall be
determined upon reasonable assumptions as to expenses, mortality, policy
and  contract  claims,  taxes,  investment  income   and   lapses.   The
readjustment  shall  be  on a basis equitable to all policy and contract
holders and shall be based on written criteria approved by the board  of
directors  of  the company or a committee thereof. The rate readjustment
provision shall not be deemed to make the policy participating.
(E) Readjustments in the rate of premium or stipulated contribution or
consideration or deposit for any insurance policy  or  annuity  or  pure
endowment  contract  or  funding  agreement,  issued  or  delivered by a
domestic life insurer within or without this state, shall be  determined
on  the  basis  which is equitable to all policy or contract holders and
shall be based on written criteria approved by the board of directors of
the company or a committee thereof. The readjustment shall be determined
upon reasonable  assumptions  as  to  expenses,  mortality,  policy  and
contract   claims,   taxes,   investment   income  and  lapses.  Such  a
readjustment shall not be deemed to be a distribution of  surplus  under
subsections (a) and (b) of this section.
(2)  This  section shall not require the apportionment or distribution
of dividends on any deferred annuity contract for the  period  following
the  period  of  deferment  of  annuity payments, in accordance with the
provisions of such contract, nor on extended  term  insurance,  or  pure
endowment, which takes effect in the case of default in the payment of a
premium  or  payment  on  any  policy  or  contract, nor on any dividend
additions nor on any contract or agreement of reinsurance,  nor  on  any
group  annuity  contract  providing  deferred  annuities  for a class or
classes of participants in a pension or profit  sharing  plan  qualified
under  subsection  (a)  of section four hundred one of the United States
internal revenue code (or comparable law of any other jurisdiction)  who
have  terminated their participation under such plan, or with respect to
which class or classes  further  contributions  have  been  discontinued
under  the  plan and notice of such discontinuance has been given to the
commissioner of internal revenue (or regulatory authority of such  other
jurisdiction).