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SECTION 4231
Policyholder's participation in surplus of life insurance companies
Insurance (ISC) CHAPTER 28, ARTICLE 42
§ 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).