New York State Seal
STATE OF NEW YORK
INSURANCE DEPARTMENT
25 BEAVER STREET
NEW YORK, NEW YORK 10004

The Office of General Counsel issued the following informal opinion on April 5, 2001, representing the position of the New York State Insurance Department.

Re: Dividend Information for Domestic P & C Stock Company

This inquiry seeks confirmation of the N.Y. Insurance Law regarding dividends for property and casualty (P&C) stock companies. Since no particular question was posed, this opinion will discuss the relevant N.Y. Insurance Law sections concerning this topic.

N.Y. Ins. Law § 4106 (McKinney 2000) states, in part:

A stock property/casualty insurance company authorized to do business in this state may include in its charter a provision authorizing the board of directors to permit its policyholders from time to time to participate in the profits of its operations through the payment of dividends to policyholders . . . . No dividends to policyholders shall be declared or paid by any such company except out of its earned surplus as defined in subsection (a) of section four thousand one hundred five of this article. (emphasis added).

N.Y. Ins. Law § 4105(a) (McKinney 2000) defines "earned surplus" to mean:

[T]he portion of the surplus that represents the net earnings, gains or profits, after deduction of all losses, that have not been distributed to the shareholders as dividends, or transferred to stated capital or capital surplus or applied to other purposes permitted by law but does not include unrealized appreciation of assets.

N.Y. Ins. Law § 4105(a)(1) (McKinney 2000) also states that no company may declare or distribute any dividend to shareholders which, together with all dividends declared or distributed by it during the next preceding twelve months, exceeds the lesser of ten percent of its surplus to policyholders as shown on its latest statement on file with the Superintendent, or 100 percent of "adjusted net investment income" during that period unless the Superintendent has given prior approval to a greater dividend distribution.

N.Y. Ins. Law § 4105(a)(2) (McKinney 2000) defines "adjusted net investment income" to mean:

[N]et investment income for the twelve months immediately preceding the declaration or distribution of the current dividend increased by the excess, if any, of net investment income over dividends declared or distributed during the period commencing thirty-six months prior to the declaration or distribution of the current dividend and ending twelve months prior thereto.

The term "surplus" is defined in N.Y. Ins. Law § 4105(a)(3) (McKinney 2000) to mean "the amount of the insurer’s admitted assets in excess of its capital and liabilities, and both ‘surplus’ and ‘surplus to policyholders’ include any voluntary reserves, or any part thereof, which are not required by law."

N.Y. Ins. Law § 4105(c) (McKinney 2000) states that a stock dividend may be distributed to shareholders of property/casualty insurers when the earned surplus of the insurer is equal to the sum of the proposed stock dividend and thirty percent of unearned premium shown on the last annual statement.

Regarding additional restrictions on dividends for new companies and companies with changes in ownership or management, this Department may, on a case-by-case basis, impose additional requirements for licensing as deemed necessary.

For further information, you may contact Senior Attorney Meredith S. Kaufer at the New York City Office.