2013 New York Consolidated Laws
ISC - Insurance
Article 42 - (4202 - 4241) 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 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 hereof or if the policy or
  contract so provides, subparagraph (D) of paragraph one hereof.  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, 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  hereof.  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.
    (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).