How often must divisible surplus be apportioned in participating annuity contracts?

In participating annuity contracts, divisible surplus must be apportioned annually. This practice is rooted in the operation of mutual insurance companies, which distribute surplus among policyholders at the end of each fiscal year. By doing so, the company can assess its financial performance and allocate the surplus in a manner that reflects the profitability of the annuity contracts issued during that period.

The annual apportionment allows for a precise calculation of the surplus generated from investments and underwriting profits, providing policyholders with a clearer understanding of their dividends or benefits. Additionally, this annual assessment aligns with the financial reporting and accounting cycles typical in insurance operations, making it a standard practice within the industry.

This annual allocation is in contrast to more frequent distributions, such as monthly or quarterly, which would not give enough time to accurately evaluate the financial conditions necessary for an effective apportionment of surpluses. Biannual distributions may not align as effectively with the typical financial reporting practices common in the industry. Therefore, annual apportionment is the established norm for participating annuity contracts.