Under what condition must a company with participating policies assess a surplus?

Under what condition must a company with participating policies assess a surplus?

• A. Every year
• B. Every three years
• C. Every five years
• D. Only upon policy maturity

Answer: (B)

A company with participating policies must assess a surplus every three years in order to determine the amount of dividends to be distributed to policyholders. This assessment reflects the company's financial performance and profit, which is crucial for equitable distribution among policyholders who share in the company's success through dividends. By assessing the surplus every three years, the insurance company ensures that the evaluation is made regularly enough to reflect changes in financial performance and market conditions, yet not so frequently that administrative burden and costs undermine the efficiency of the assessment process. It helps maintain a balance between transparency for policyholders and operational efficiency for the insurance company. This scheduling also recognizes that insurance performance can vary over several years, thus providing a reasonable timeframe to gauge profitability and ensure that surplus calculations are based on a comprehensive overview rather than short-term fluctuations.

A company with participating policies must assess a surplus every three years in order to determine the amount of dividends to be distributed to policyholders. This assessment reflects the company's financial performance and profit, which is crucial for equitable distribution among policyholders who share in the company's success through dividends.

By assessing the surplus every three years, the insurance company ensures that the evaluation is made regularly enough to reflect changes in financial performance and market conditions, yet not so frequently that administrative burden and costs undermine the efficiency of the assessment process. It helps maintain a balance between transparency for policyholders and operational efficiency for the insurance company.

This scheduling also recognizes that insurance performance can vary over several years, thus providing a reasonable timeframe to gauge profitability and ensure that surplus calculations are based on a comprehensive overview rather than short-term fluctuations.