PURPOSE: This rule effectuates or aids in the interpretation of section 375.380, RSMo and implements section 382.210, RSMo with regard to payments of dividends by insurers.

1. (1) Constructive Dividends.

   1. (A) Any payment or other distribution of property by an insurer made or attributable to a shareholder with respect to its stock shall be deemed a dividend under sections 375.380 and 382.210, RSMo, except as stated in subsection (1)(B) of this rule.

   2. (B) From the payments or other distributions under subsection (1)(A) of this rule:

      1. 1. There shall be allowed as a deduction

all the ordinary and necessary expenses paid or incurred in carrying on any trade or business, including:

1. A. A reasonable allowance for

salaries or other compensation for personal services actually rendered;

1. B. Traveling expenses (including

amounts expended for meals and lodging other than amounts which are lavish or extravagant under the circumstances) while away from home in the pursuit of a trade or business; and

1. C. Rentals or other payments required

to be made as a condition to the continued use or possession, for purposes of the trade or business, of property to which the insurer has not taken or is not taking title or in which it has no equity.

1. 2. There shall be allowed as a deduc-

tion, but only to the extent not deducted under paragraph (1)(B)1. of this rule, the fair market value of any property, to which the insurer has taken or is taking title or in which it has equity, received in consideration of that payment or other distribution.

1. (C) As used in this section of this rule the following terms mean:

   1. 1. Insurer means only a stock insurance

company organized under the laws of Missouri; except a foreign insurance company shall be deemed an insurer if the laws of the foreign insurer’s state of domicile do not include provisions substantially similar to sections 382.010—382.300, RSMo;

1. 2. Property means money, securities and

other property; except that this term does not include stock in the insurer making the distribution (or rights to acquire the stock); and

1. 3. Shareholder means any person direct-

ly or indirectly owning or controlling stock in an insurer.

1. (D) A shareholder’s interest in a partnership, estate or trust, and a shareholder’s stock in a corporation, includes the interests or stock owned by the shareholder’s spouse, children, grandchildren or parents, as qualified under paragraphs (1)(D)2. and 3. of this rule. A payment or other distribution to a partnership, estate or corporation includes any payment or other distribution to any entity controlled by that partnership, estate or corporation. For purposes of this section of this rule, a payment or other distribution is attributable to a shareholder, if it is made—

   1. 1. Directly to the shareholder;
   2. 2. To the shareholder’s spouse (other

than a spouse who is legally separated from the shareholder under a decree of divorce or separate maintenance);

1. 3. To the shareholder’s children, grand-

children or parents (a legally adopted child shall be treated as a child by blood);

1. 4. To a partnership or estate, in propor-

tion to the shareholder’s interest in the partnership or estate;

1. 5. To a trust, in proportion to the share-

holder’s actuarial interest as a beneficiary of that trust; or

1. 6. To a corporation, in proportion to the

shareholder’s stock in that corporation.

1. (E) Notwithstanding any provision of this section to the contrary, payments or other distributions made or attributable to shareholders and undeclared as dividends by the insurer shall not be deemed a dividend, if and only if the total amount of all payments and distributions during a calendar year does not exceed one-half of one percent (1/2%) of the insurer’s policyholders’ surplus as of the December 31 next preceding. However, if that total amount exceeds the one-half of one percent (1/2%) of policyholders’ surplus, then all these payments or distributions shall be fully subject to subsections (1)(A)—(D) of this rule, including the amount which would otherwise have been exempt under this subsection.
2. (F) Nothing in this rule is intended to cause double counting of a transaction. To the extent a payment is a reduction in Net Gain from Operations before it is determined to be a constructive dividend it shall not be a reduction to Net Gain from Operations after the constructive dividend determination. Net Gain from Operations, and Policyholders’ Surplus before the constructive dividend, will be recalculated making this adjustment before determining whether the company is in compliance with section 375.380 or 382.210, RSMo.

1. (2) Surplus Profits.

   1. (A) Surplus profits as used in section 375.380, RSMo shall mean the amount stated in the company’s financial statements as unassigned funds. A company has surplus profits only to the extent it has positive unassigned funds adjusted for subsection (1)(F), if applicable.

   2. (B) Notwithstanding any other rule or National Association of Insurance Commissioners’ guideline to the contrary, an insurer domiciled in this state may choose to reflect in the unassigned funds account only the company’s accumulated net profits and losses. Any company so choosing shall—

      1. 1. Place all other items which would

otherwise be placed into the unassigned funds in that policyholders’ surplus account designated for other or aggregate write-ins for other than special surplus funds; and

1. 2. Notify the chief financial examiner in

writing of its choice at the same time as or before it files its first financial statement using this choice.

1. (C) The election permitted by subsection (2)(B) of this rule may be elected once by the insurer. However, upon advance application by the insurer and prior approval by the director, an insurer may subsequently revert to its prior accounting treatment upon satisfying the director that extraordinary circumstances arising after the election justify such a reversion. 20 CSR 200-11

AUTHORITY: sections 374.045 and 382.240, RSMo 1986.* Original rule filed Feb. 18, 1993, effective Nov. 8, 1993. Amended: Filed Dec. 1, 1993, effective July 10, 1994. *Original authority: 374.045, RSMo 1967 and 382.240, RSMo 1972.