An insurer prefers to satisfy the divisible-surplus rule by including a cash-dividend right in its participating policy instead of using the standard accounting schedule. Under the Ohio standard provisions, when must the cash-dividend right begin, and at what intervals must the company account for the surplus?

Why D is correct

ORC 3915.05(F) gives participating insurers two structures. The standard route requires the company to determine and account for divisible surplus annually beginning not later than the end of the 3rd policy year. The alternative route allows the company instead to provide a cash-dividend right beginning by the end of the 5th policy year, with accounting at periods of not more than 5 years. Recognizing which schedule goes with which structure is the key distinction Ohio examiners can test.

Why the other options are wrong

• A) The 3rd-year trigger belongs to the standard annual divisible-surplus route, not to the alternative cash-dividend structure, and the alternative allows accounting intervals up to 5 years.
• B) The 5th-year start is correct for the alternative structure, but ORC 3915.05(F) permits accounting intervals of not more than 5 years, not 2 years.
• C) The alternative cash-dividend structure begins by the 5th policy year, not the 3rd, and its accounting interval cap under ORC 3915.05(F) is 5 years.

Memory hook

Standard route: dividends by year 3; cash-dividend route: year 5, account every 5.