When must a company that issues participating policies determine if a dividend surplus will be payable?

In the context of participating policies, which are policies that allow policyholders to participate in the surplus earnings of the insurance company, the company must determine whether a dividend surplus will be payable no later than after the third policy year. This timing is crucial because it provides a reasonable timeframe for the insurer to assess its profitability and surplus levels based on losses, expenses, and claims experience during the initial years of the policies in force.

By the end of the second policy year, the insurer would have likely gathered enough data to make an informed decision about the expected performance of its investment portfolios and overall financial health. This is in line with the insurance industry's practices, which favor stability and predictability in dividend declarations to policyholders.

Other options suggest different timelines that do not align with the standard practices of determining dividend payability, which typically requires a comprehensive review of financial performance over a set period rather than at excessively frequent intervals or too early in the policy term. Thus, stating that this determination must occur after the third policy year accurately reflects the industry's expectations for assessing and declaring dividends based on realistic data and projections.