This is a clarification of the June 2, 1998, bulletin entitled
Dividends on Worker's Compensation Insurance Policies issued to All Insurers Authorized to Transact Worker's Compensation Business.
Following the publication of the June 2, 1998, bulletin, the Office of the Commissioner of Insurance (OCI) received inquiries regarding the
second sentence of the second paragraph on page two of the bulletin. The second sentence of the second paragraph on page two of the bulletin read:
"Since the distribution of dividends must be from surplus attributable to specified policies, a dividend declaration should include only those policies that expired prior to the Board's declaration"
Two issues were raised regarding how the wording of this sentence should be interpreted. The first area of concern related to the surplus from which a dividend could be declared. The bulletin was not meant to imply that surplus had to be attributed to the specific policies for which the dividend was being declared. Section 631.51, Wis. Stat., provides that:
"Any insurer may distribute a portion of surplus attributable to policies other than life insurance or annuities, in amounts and with classifications the Board of Directors determines to be fair and reasonable."
The second issue related to the portion of the sentence regarding the inclusion of only expired policies in the declaration. As a matter of corporate law, a declaration by a Board of Directors is not binding until after the effective date of the declaration. As such, OCI will not object to declarations, which include policies that have not expired prior to the Board's declaration, provided that the declaration clearly indicates that the declaration is not effective until after policy expiration.
If a declaration by the insurer's Board of Directors includes policies that have not yet expired, insurers should not represent to risks that a dividend has been declared as it may mislead a risk into believing that the dividend is guaranteed. The use of such information would constitute an unfair marketing practice as defined in s. 628.34, Wis. Stat., as the Board of Directors could amend or repeal the declaration at a later date.
Questions regarding this bulletin should be directed to Jo LeDuc at (608) 267-9708 or firstname.lastname@example.org.